The term “market” evokes imagery of a medieval city center or town square filled with merchants peddling food or wares and haggling over prices with interested customers. A market depends on the conditions of voluntary exchange where buyers and sellers are free to accept or reject the terms offered by the other. Voluntary exchange assumes that the acts of trading between persons make both parties to the trade subjectively better off than they were before the trade.

Markets also assume that competition exists between sellers, and between sellers. Economic models of markets are based on the idea of perfect competition, where no one seller or buyer can control the price of an “economic good.” In this vision of a rather Utopian economic system, the acts of individuals, working in their own self-interest, will operate collectively to produce a self-correcting system. Prices will move to an “equilibrium point” where producers of economic goods will supply an adequate amount to meet the demand of consumers willing to pay that price. Unless someone was cheated, both parties end the transaction satisfied because the exchange has gained them some advantage or benefit.

An important condition is the “effective demand” of consumers – do the buyers of economic goods have sufficient bargaining power – mainly money. Consumers must have the desire, plus the money to back it up. Central to any market is a mutually accepted means of payment. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for currency from buyers. Any medium of exchange will depend on trust in the monetary mechanism as buyers and sellers must readily accept and part with it for a market to function effectively. Money has had a long history of being things, most notably gold. Gold has striking physical attributes: it doesn’t rust, it doesn’t chip, and it can be melted into a variety of shapes. Other metals such as silver and platinum have also served as money.

It is interesting that societies gravitate towards the use of some symbolic entity to facilitate these transactions. At its most basic level, money can be anything that a buyer and seller agree is money. At times, commodities such as rice or tobacco and even alcohol have served the roles money. Market enthusiasts often overlook the importance of money, focusing instead on the behaviors of market participants.

The pros and cons of markets are hotly debated today. Some believe markets are an ideal system to organize society. They often cite Adam Smith’s famous “invisible hand” as the God-given mechanism that organizes a harmonious society based on market activity. Others believe markets are prone to failure and give rise to unequal conditions and challenge democratic participation.

One of the best explanations of the strengths and weaknesses of the market system comes from The Business of Media Corporate Media and the Public Interest (2006) by David Croteau and William Hoynes. They point to the strengths of markets such efficiency, responsiveness, flexibility, and innovation. They also discuss the limitations of markets as well. These include enhancing inequality, amorality, their failure to meet social needs, and the failure to meet democratic needs. Below is a summary of some of their key ideas.

The market provides efficiency by forcing suppliers to compete with each other and into a relationship with consumers that requires their utmost attention. The suppliers of goods and services compete with one another to provide the best products, and the competition among them forces them to bring down prices and improve quality. Firms become organized around cutting costs and finding advantages over other companies. They have immediate incentives to produce efficiencies as sales and revenue numbers from market activities provide an important feedback mechanism.

Responsiveness is another feature of markets that draws on the dynamics of supply and demand. Companies strive to adapt to challenges in the marketplace. New technologies and expectations, incomes and tastes and preferences of consumers require companies to make changes in their products, delivery methods, and retail schedules. Likewise, consumers respond to new conditions in their ability to shop for bargains, find substitute goods, and adopt new trends.

Flexibility refers to the ability of companies to adapt to changing conditions. In the absence of a larger regulatory regime, companies are able to produce new products, new versions of products, or move in entirely new directions. In a market environment, companies can compete for consumers by making changes within their organizational structure, including adjustments in production, marketing, and finance.

Lastly, markets stimulate innovation in that they provide rewards for new ideas and products. The potential for rewards, and necessities of gaining competitive advantages, drive companies to innovate. Rewards include market share, but also increased profits. They point out that without competition, firms avoid risk, an essential component of innovation as many experiments fail.

Croteau and Hoynes also point out serious concerns about markets that economists do not generally address.

The tendency of markets to reproduce inequality is one important drawback to markets. While some inequality produces contrast and incentives to work hard or to be entrepreneurial, a society with a major divide between haves and have-nots will tend towards dystopia, a “sick” place. Thomas Piketty’s Capital addresses this issue head-on and warns that capital gravitates towards more inequality, and the trickle-down effects tend to lead to a slower and slower drip. Neo-elites benefiting from the rolling back of the estate tax have advantages that others don’t have. Croteau and Hoynes use the vote metaphor, “one dollar, one vote” to refer to the advantages the rich have over the poor, as they have many more dollars, and thus many more votes.

The second concern they have about markets is that they are amoral. Not necessarily immoral, but rather that the market system only registers purchases and prices and doesn’t make moral distinctions between, for example, human trafficking, drug trafficking, and oil trafficking. The commerce in a drug to cure malaria does not register differently from a drug that provides a temporary physical stimulation. Markets do not judge products unless it registers changes in demand. It does not favor child care, healthy foods, or fuel efficient cars, unless customers make their claims in currency.

Can markets meet social needs? This has been a pressing question for the last thirty years as privatization was often forwarded by market enthusiasts as an effective strategy to replace government services – for some of the reasons listed above. But a number of services and sometimes goods should probably be provided by some level of government – defense, education, family care and planning, fire protection, food safety, law enforcement, traffic management, roads and parks.

Can markets meet democratic needs? Aldous Huxley warned of a society with too many distractions, too much trivia, seeped in drugged numbness and pleasures. Because markets are amoral, they can become saturated with economic goods that service vices rather than public spirit. Competition, in this case, may result in a race to the lowest common denominator rather than higher social ideals. Rather than political dialogue that would enhance democratic participation, the competition among media businesses tends to drive content towards sensationalist entertainment.

Comedian Robin Williams once quipped, “Cocaine is God’s way of telling you that you are making too much money.” Markets are a powerful system of material production and creative engagement, but they create inequalities, often with products and services that are of dubious social value. How a society enhances and/or tempers market forces continues to be a major challenge for countries around the world.

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Anthony J. Pennings, PhD is the Professor of Global Media at Hannam University in South Korea. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand and was a Fellow at the East-West Center in Honolulu, Hawaii during the 1990s.

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Category: digital media economics, dystopian economies
Tags: market fundamentalism

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