Pro-market vs. Pro-business

I just finished reading Gieryn’s superlative book, Cultural Boundaries of Science. Gieryn (1999) documents 6 episodes of what he calls “boundary work”, where the categories of science/pseudoscience, good science/bad science, practical/insightful, empircal/theoretical and so on are contested and re-inscribed as scientists, politicians, cultural critics and so on debate who should possess “epistemic authority” and what science is. I highly recommend the book on its own terms and, for science studies students, I especially recommend his epilogue on the “science wars” of the 1990s.

In addition to being delightfully written and insightful, Gieryn’s book reminded me of a type of argument, perhaps another kind of boundary work, that occurs in debates surrounding regulation, deregulation, economics, etc. Let me try an analogy on for size: The market is to economics/business as nature is to science/technology. When scientists fight over credibility and resources, they invoke their privileged access to nature. Somewhat similarly, when businesses want governments to do something differently – to repeal (or pass) a regulation, they invoke the market. When economists want to claim epistemic authority, they too invoke the market.

Ok, so far so good. But here’s where it gets messy with business and the market: we routinely conflate “pro-business” and “pro-market”. For example, if you examine arguments surrounding the deregulation of finance over the past three decades (especially in the 1980s and 1990s), the need to liberate the market is mentioned frequently. But the actual policies involved allowed the largest banks to grow tremendously larger – thus leading to the “too big to fail” problem. The repeal of the 1994 restrictions on interstate branching and banking is a good example here. It’s pretty clear which businesses benefited – Bank of America and WaMu swallowed up tons of regional and local banks and in the process grew into an implicit government guarantee. But what market was that good for?

More broadly, backing out from any specific example, I just want to signal that we should be critical of any argument that rapidly conflates “pro-market” and “pro-business”, specifically big business. Anti-trust laws are over 100 years old in the U.S., but they remain the classic example of a policy that is “anti-business” and “pro-market”. Markets are only efficient, in theory, when numerous buyers and sellers with little market power can freely exchange. As economists and scholars as far back as Adam Smith have noted*, businessmen hate free markets**:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Long story short: whenever anyone invokes the market, or freeing the market, as a justification for an action, ask yourself, is this really pro-market? Or is it just pro-business (or one particular kind of business)?

EDIT: Karl Polanyi, of course, had a nice version of this:

Theoretically, laissez-faire or freedom of contract implied the freedom of workers to withhold their labor either individually or jointly, if they so decided; it implied also the freedom of businessmen to concert on selling prices irrespective of the wishes of the consumers. But in practice such freedom conflicted with the institution of a self-regulating market, and in such conflict the self-regulating market was invariably accorded precedence. (in The Great Transformation, 155)

* On how Adam Smith’s work was misinterpreted in the 19th century and converted into “the employer’s gospel”, see Rothschild’s Economic Sentiments.
** So do unions in some sense, but fair’s fair. You put down your gun and I’ll put down mine, so to speak. And unions are more likely to invoke human dignity and standards of living than free market principles. Being anti-union and anti-corporation are more coherent than opposing one kind of market power and not the other. See also Karl Polanyi on why treating the market for labor like other markets is a tremendously stupid idea.

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7 Comments

  1. This is a theme that is taken up by some economists as well, e.g., Rajan and Zingales, or Morck and Yeung. The short version is that successful businesses in one generation end up being sclerotic monopolists with undue political influence in subsequent generations, and that their influence is used to impede entrepreneurship (which Morck and Yeung call “the Canadian disease”). Eric Neuman’s awesome dissertation found intriguing evidence for this: after telecoms deregulation in the US in 1996, the barriers to entry for local phone companies were substantially lowered, yet states governed by Republicans saw much lower rates of new business starts than those governed by Democrats. Turns out Republicans (esp. the governors who select commissioners for public utility regulators) received the bulk of PAC contributions from incumbent phone companies like SBC (now AT&T). Republicans appeared to be the “party of business” but not the “party of markets.”

  2. joshmccabe

     /  March 24, 2011

    I wholeheartedly agree but we have to be careful about the reverse too. Antitrust laws, for example, are routinely abused for the benefit of big business. In fact, I’d go so far as to argue that almost all regulations are worked by big business for their benefit. As I’ve heard elsewhere, regulatory capture isn’t a bug, its a feature of state regulation. That’s why I’m skeptical when some Democratic politician tells me that his proposed regulation is market enhancing or market enforcing. As you point out, the same goes when some Republican starts talking about their love for markets.

    Man, you just made me extra cynical today.

    • Josh,

      I would completely agree that pro-market rhetoric in the service of big business is a bi-partisan effort (though perhaps not equally distributed historically). Russ Funk and I have a paper on financial regulations in the 80s and 90s, and the battle was basically between congresscritters owned by the investment banks or insurance companies vs. those owned by the commercial banks. When the three lobbies finally got together, the final bill passed by a huge margin. But I think finance is slightly more in this direction than other things (I hope anyway!). Also, I think Democrats are more willing to talk about market failures, and times when we need to curtail the market, which opens up some space for other kinds of discussion.

      That being said, there have certainly been historical moments (FLSA, OSHA, EPA) where regulation really was pushed by outside forces and almost surely did some good – albeit creating the potential for more future capture.

      But don’t let me try to lower your cynicism!

  3. Wonder what you think about the internal war among scientists at the ASA? Why do they endorse Bielby and disrespect Winship in unconscious bias in discrimination cases? Using the ASA’s money. Sociologists seem to love dissent and protest but wonder of they can handle it when directed at them. Let’s see.

  4. See the blog athttp://thedisgruntledsociologist.wordpress.com/

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