February 06, 2010
Keep Market ownership separate from market playing
I have a few suggestions for improving the regulation of Banks and other Corporations. I've been refining them since they first popped in my head and trying to make them in line with the efforts of others. I think it is important for me to share them because it is not enough to create more or new regulations or to close the door on a particular problem. To effectively regulate corporations both market principles and democratic principles have to be applied so that the systematic injustices and evils can be addressed and not just the symptoms.
Market principles include the following three realities:
Markets Have to Be Governed
Perfect competition is only possible when the players have both the freedom of non-participation and equal information. For example what usually rankles a person buying a car is that the dealer will tell them the car is one price, but later they'll find that the dealer was actually willing to sell much lower. Bait and switch, marking up a thing 50% so it can be marked down 30% for a sale; and dishonesty in retailing are all old and familiar stories observed by anyone who has ever held down a part time or full time job in a department store. Good markets govern these natural impulses and games, not to eliminate them, but to at least minimize them.
Good market governorship comes in two flavors. When a market is owned by the players, good market government means hiding or minimizing prices, dishonesty, shifting weights, and substituting marketing for quality. A typical businessman's idea of Good government is "leave me alone and let me get away with what I can get away with." [caveat emptor] When the market is owned on a broader scale, the dishonest and monopolistic concept of "good government" gets replaced with genuine good government.
They have to be Governed well
The essence of a free market is freedom to enter the market and freedom to exit the market. Markets have to be governed as a commons; operationally to ensure that goods are transmitted to and fro, that sales are advertised in advance, bids adjudicated fairly, weights and measures applied, and the results recorded openly. It's not a free market when only some of the participants are free to engage in fraud or misrepresentation, therefore markets have to be governed. If they govern themselves that too is a form of government.
Market Administrators should be able to compel transparency (at least where it counts), and should be able to provide common services such as cash registers, banking access, security, facilities, and even non-market services (co-locating health care, education, etc... happens naturally in traditional urban areas). Markets, indeed are best when the principle is applied to the streets and common passageways of work areas or the street floors of apartment buildings, offices and hotels.
Good Market Governance requires various levels of democracy and self-rule
Good market performance is ultimately only possible when everyone is able to participate in the market freely and with equal rights under the law and that is only possible with good market governance. The only way to ensure that is to ensure that all the markets stakeholders -- owners, retailers, sellers, buyers, and the general (area) public -- have a say in governing the market.
For example, when Ford thought they had a near monopoly over car sales their model T came in "one color" and basically in one style. When companies think they own a market they tend to get lazy, bureaucratic, and to set arbitrary prices. When they think they can corner a market they play other games. If they can't own the market, they don't do any of these things.
Market players should have a formal say in the rules of the market so that no one player will set those rules or a dominant faction permanently alter them. They will exercise influence anyway, so it is best it be kept up front so that they don't get forced to engage in bribery or be subjected to extortion by officials.
Enforcing these principles
If the principle of the market owner versus the market principle could be established then we would see a need for a very different concept of "utility" ought to govern our markets from that applied in former times when it was thought that one could slap a regulation commission over a monopoly and get a golden age.
Any market that is not part of a "market of markets" ought to be treated as a market governor because it has say on who enters and leaves the market and should be incorporated in a way that reflects principles of good governance. Market administration must be kept separate from market participation or the corporation that both runs and plays in the market will have an overwhelming conflict of interest with respect to these two principles of free markets. And appropriate general functions need to be kept separate from risky functions. If a risky business goes south, that should be no matter to society or to the market itself.
For all these reasons the administration of publicly necessary markets needs to be kept separate from the risky businesses that need to be able to freely play in those markets. For banks this was the idea behind Glass/Steagel even if it didn't in reality work that way. This principle needs to be affirmed by breaking up the big banks or treating them as Market Administrators.
And the only reason the principle isn't generally confirmed is that most investors like the easy and risk free money to be gained from privatizing the gains of speculative capitalism by socializing the costs. Hence we have the worst of both socialism and capitalism right now and the underlying factor is that when a person owns the market he/she can get away with running a badly governed market.
This principle requires new kinds of corporations and may require some corporations to divest themselves of some functions, but common services and shared market functions ultimately benefit everybody. Imagine if each Airport were run by a corporation that provides internet, financial wires, transport and retail space, but is governed by its participants. I see Airports as little cities. Imagine if the Hotel chains all had branches there? Imagine if seaports were similar? Free markets are something we've been giving lip service to, but not really enabling.
Posted by cholte at February 6, 2010 11:43 PM
The market owner has to have a benefit from running a fair market.
In the case of finance, the market is all economic life, which is basically all human life. Where the market is so far reaching, the government has to act on behalf of the market owner, ie. society.
The problem we have is that the benefit from running a fair financial market is so far removed, in the minds of most people, that its hard to get sentiment strong enough to get the government to act assertively in the financial market. Despite running the financial markets into the ground, politicians still allow Jaime Dimon, John Mack and Lloyd Blankfein the pretension that they are the smartest guys in the room.
Maybe more relevantly, even where the will to regulate the markets is there, we are contending with a very deeply ingrained sentiment in society of deregulation and laissez faire, deformed as that might be so that small business owners actually believe they have common interests with multinational corporations. All some t-bagger, ahem, Tea Partier, needs to do is parade Reagan's corpse to get people worked up about regulating "business", and poof, nothing is done.
Another problem which plays out at another level is the corruption of the government in regards to governing the market. Quite a few people I know who did not get jobs out of law school at big firms went and took government jobs, with the idea that they would put some time in then get a private sector job later. In terms of personal goals, its a good plan. But in terms of the common good, I am skeptical. The guys the SEC sent to investigate Maddoff would hand him their resumes, ferchrissakes. The President is at fault on this too when he invited some Wall Street patsies to be the point men in his administration (Geitner, Summers).
The government, and maybe the American people, don't have the stomach for the kind of muscle flexing that would be necessary to make finance a level playing field. Could you imagine the circus if some agency ordered the break up of Citibank? Larry Kudlow would be foaming at the mouth and all of conservative bloggerdom would have anyurisms (a reason to do it if there ever was one). It would have to be a multi-pronged approach - regulation, enforcement and trust busting - New Deal 2.0. Obama would have to channel his inner Andrew Jackson and walk into the Goldman Sachs boardroom and tell them, "You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out." No Chance. Instead we'll get some milqutoast patch that just kicks the problem down a few yards.
The consciousness you want from Americans is just too much. These are people captivated by Jersey Shore. Do you think they are capable of anything requiring effort and sacrifice?
Hey, I'm with you, living with honor, dying with honor, but I don't have any hope that it will change a thing in the big picture.
Andrew Jackson failed to control the financial system. He won a pyhrric victory over the Nicholas Biddle and the Second National bank. We need a central bank and centrally controlled money. Andrew Jackson's success resulted directly in a long depression, and indirectly in the Civil War.
Money should probably be issued directly from the Treasury.
I think it was Jefferson's idea, that paper money could be used to buy agricultural futures and surplus agricultural and raw material stocks for storage reserves, and then drawn down as the goods are sold.
I'd like to see the Fed reconstituted and the creation of State, County, District and Urban Treasury Banks as part of the Fed rather than as separate institutions. I'd organize these on my Democratic Charter concept.
If Markets are run under the democratic charter concept (similar in organization to the US Government) then the Market owning company would be subject to built in regulation; including a say by both consumers and producers/middlemen/sellers. If Markets can charge rents on a sliding scale from 2 square meters for a mobile vendor to luxurious suites for an old fashioned department store, then they'll make enough money from the rent. If markets are encouraged to also be parts of Towns and cities then the profit sources are obvious.
Basically the problem with for-profit corporations is one of Governance.
"I think it was Jefferson's idea, that paper money could be used to buy agricultural futures and surplus agricultural and raw material stocks for storage reserves, and then drawn down as the goods are sold."
I'm trying to understand how this works. As goods are sold from a centralized reserve, the money supply is drawn down? This would create a very limited money supply? If I am reading that correctly, that sounds like a very centralized system - state or quasi-state basically regulates everything?
"I'd like to see the Fed reconstituted and the creation of State, County, District and Urban Treasury Banks as part of the Fed rather than as separate institutions. I'd organize these on my Democratic Charter concept."
Would these smaller Treasury Banks have the authority to issue money? Are you suggesting that the national economy be broken down into smaller, distinctive economies? WOuld you have ICC problems?
QQ: "Would these smaller Treasury Banks have the authority to issue money? Are you suggesting that the national economy be broken down into smaller, distinctive economies? WOuld you have ICC problems?"
Any economy is a matrix, a system of interconnected economies that subdivides all the way down to the home, family, person. All of these are human defined groupings, and ultimately only the individual sentient being is a real "person."
Subdividing the government, organizations or any of these groupings is the only way to administer them effectively. Moreover, democracy is only real, ultimately, at the individual level. If we don't have rights in the workplace, in the marketplace, and in our other common spaces, then we don't have rights whatever is on that paper enshrined in the US Archives. Righties miscast their arguments when they argue for "individual rights" and then give those rights to corporations.
>>>>Righties miscast their arguments when they argue for "individual rights" and then give those rights to corporations.
What do lefties do when they give them to groups?
"Subdividing the government, organizations or any of these groupings is the only way to administer them effectively."
At heart, I am probably something of a social-anarchist. In practice, a social-libertarian. I don't know if those labels make sense to you, they sort of do to me. Basically, a left leaning individualist.
Personally, I am in favor of localizing social organization as much as possible - ideal size of a community is probably something on the scale of a large tribe - maybe 5-10,000 people? More realistically, I'd like to see city-state organization. In the NY metro area, it has always struck me as a little silly that the region is part of 3-4 states (including northeastern PA) and that NYC shares a political body with Northern and Western New York.
I would prefer more localized organization, partly for a reason you mention - effectiveness of administration. By this I take it you mean effective in responding to the needs of the constituents of the political sub-division. Another reasons is I would like to see it for its inefficiency in the economic realm. All of the efficiency and consolidation maybe helps us to have a better quality of life, if more stuff is the measure of that, but economically, I feel like the overwhelming balance of the benefit goes to the top of the pyramid.
Smaller units, at least the way I conceptualize it, would spread power and money at a level that is more accessible by individuals regardless of place. Right now, all the concentration of money and power basically disconnects it from the vast majority of people.
Highly localized government units; without strong central oversight, have tended to be oppressive. The old boys networks were unchecked. Locals operating as the agencies or stooges of a central authority are not any better; probably worse. I do not see how anything other than promoting gridlock by dividing and diluting power will work. Humanity has to evolve beyond narrow central self interest.
Of course, Holte is talking about ownership of markets.
"Humanity has to evolve beyond narrow central self interest."
Well, that's the rub underlying all the problems, in't it?
Robin writes; "Highly localized government units; without strong central oversight, have tended to be oppressive."
Agreed: What do you think Corporations are? What is the average small town Sheriff? In each case to have effective checks on the executive power there has to be not only a co-equal legislative branch, but also the equivalent not only of Judges, but of Juries, with the power and training to judge decisions, policies, and stop tyranny in its tracks.
Robin: "The old boys networks were unchecked."
They still are, although sometimes they involve some women and minorities.
Robin: "Locals operating as the agencies or stooges of a central authority are not any better; probably worse."
I'm not talking about top down structures. I'm talking about bottom up. All the advances in democracy that have occurred in our country have been "bottom up." Even that Roosevelt you folks hate, only acted when he was pressured from below in most cases. He came from an elitist background and was regarded as an "enemy to his class" because he kept his promises.
Robin: "I do not see how anything other than promoting gridlock by dividing and diluting power will work."
The constitution did not create gridlock. It distributed power in such a way that people had to work together to accomplish good ends. People have ever elevated tyrants to power because they were frustrated with "gridlock" -- but gridlock is caused by clashing partisan -- factional -- parties, usually neither of which are actually listening to the general public. When the Roman Republic died it did so because its Republican forms (it never was a real democracy) de-evolved to three main groups who then fought over who would become number one. It did this a full generation before Caesar, when Marius and Sulla fought for supremacy. The party of Marius was inherited by Caesar, who claimed to represent the masses. The Party of Sulla came to be represented by Brutus, Cassius and that group. They didn't have a chance.
Robin: "Humanity has to evolve beyond narrow central self interest."
Humanity already has that potential. It also has the potential for pure selfish, alpha-male, stomp-fests. The best way to prevent the emergence of that side of human nature is to give executives specific "realms" to play in, make them responsible for the outcomes within that realm, and not let them transgress across lines.
Robin: "Of course, Holte is talking about ownership of markets."
Chris Holte is talking about the "Governance" of markets, which is related to ownership because traditionally the two functions were in the same hands. Markets were originally created by landlords in order to increase the value of their lands. For example, when I visited Avon, where Shakespeare was from, the town had been established by an Archbishop in order to establish a market where local farmers could sell their wares. Towns were originally corporations, and townies had no more rights than employees of modern corporations do today. Eventually their corporate governance evolved towards the kinds of systems we are familiar with today.