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$ markets the spot

We live in a period where free market dominance is being openly questioned in terms of efficiency and sustainability – among other reasons. No doubt this has a lot to do with the financial crisis’ effect on every economy in the world, which is then retransmitted and multiplied due to globalization. Even the most fortified and/or isolated systems felt the disturbance knocking on their door.

Panagiotis-Dimitrios Tsachageas - PhD Researcher in Urban Studies

Panagiotis-Dimitrios Tsachageas – PhD Researcher in Urban Studies

And while there is a strong debate concerning neoliberalism’s failure to deliver, from a Pareto efficiency perspective, it is yet unclear what kind of market we want, need, can or should have. It may seem clear enough that we can have whatever we want, but is that so? Ideally, if we can bring all the involved players to light while explaining all the undergoing processes and interactions on a global scale, this may be the case.

Unregulated – Free Markets have been considered capable of regulating themselves in an optimal way without state intervention for a long time now. On a theoretical basis, a complete state’s “absence” from market practices is being clearly advocated. Roughly speaking, an analogy between unregulated markets and political anarchy can be noted and discussed.

econ1In no case should states hinder market functionality, but this is totally different to an unconditional surrender and withdrawal from the game of market and economy formation. Market obstruction can be active – targeted, with specific regulations directly and/or indirectly affecting entrance to the market, capital and goods mobility etc. But it can also be passive – non targeted, through the presence of extremely complex, inflexible and opaque systems rendering the specific market unattractive to invest to. The latter is for example the case with bureaucracy, volatile taxation and the like.

State’s withdrawal from the game and market’s ability to self-regulate are exposed to criticism especially due to questions raised and assumptions made. For example:

  • who is the true beneficiary of the markets’ supposed self-regulating ability?  If only the interacting players benefit then what happens to those left or thrown out of the game?
  • how can anyone advocate the equal starting point and power of every player involved?
  • what prevents the growth of an oligopolistic elite once it gets going?
  • why the state cannot or should not have a regulatory role without hindering the market?
  • what happens to specific markets (e.g. housing sector) where few players are involved from start and so the path remains unclear concerning their improvement and the existence of options?

In specific markets like housing, with very specific characteristics and needs state’s absence may have far more severe effects in terms of supply, effectiveness, affordability and welfare.

If we think markets as flows, we can say the state can work as a container or a duct with the scope of making a good use of the flow while trying to prevent negative spillover effects and failures. Routing the flow does not mean obstructing it. Of course international players do not want states telling them “how” and “where” to do things with their money, or limiting their overgrowth for whatever the reason. Instead, these players are seeking states’ errors and exploit them in any way they can. Tax heavens and shadow economy are among the tools used by international players to boost their profits on a global level.

While international players are not – at least officially – to blame for the creation of a national market’s financial loopholes, their interaction with local actors surely does not promote a solution to the problem as long as there is individual profit to be made. This is usually excused based on the idea of economy and para-economy being interwoven together in a symbiotic link. That being said, if states keep pushing by imposing more taxes they are likely to see their economies going underground even more, thus creating a vicious cycle.

econ2When persistently and absolutely advocating a single theory, system, ideology and the like, a deterministic and simplistic approach is often lurking. This has often to do with what seems easier and politically safer to do, at least in the short-term. For example it is more convenient for some governments to give in without terms, initiating a full-out privatization and deregulation process under the pressure of international actors and supranational institutions, than to work on devising and implementing a sustainable solution. Of course, such a voluntary surrender may as well be presented as a political ideology turn.

Truth is that today’s world is far more complex than ever despite the technological advances and some procedures’ simplifications. With the global economy becoming gradually more open, additional players tend to enter each hub and interact internally and externally in different – often opaque – ways, trying to establish and fortify their own interests. Political, social and financial conglomerations are formed for that matter and adjust according to changing conditions and needs. Each conglomeration and hub is in its turn interacting with numerous others creating a dynamic and vibrating global network. This dynamic has to be understood and embraced in order to stay flexible and adapt to the ever fluctuating balances.

Any such interplay, totally or partially non-material, is directly or indirectly connected to some game of power, having most of the time a very real, material and tangible impact. This is for example the case with urban design policy and its implementation, which will be discussed extensively in another article.

Tsachageas P. Dimitrios is a PhD Researcher in Urban Studies, under the supervision of Professors Mark Stephens and Glen Bramley. His research is focused on affordable and social housing systems and relevant policy issues in South-Southeastern Europe. Among other things, he is also writing articles for Greek journals and newspapers from time to time.

You may also be interested in Dimitris’ previous post on this blog: Optimism returns and who’s afraid of the Big ‘Bad’ Greek State

4 Comments Post a comment
  1. Thank for your article Dimitris!

    I was wondering, when you liken laisser-faire economics to political anarchy, what economic policy would be analogous with liberal democracy?

    Or in other words, what alternative(s) are you proposing – especially in relation to housing policy?

    June 6, 2013
  2. Tsachageas P. Dimitrios #

    Hi Kirsten and thank you for your question. The answer however is not that simple or short I am afraid.

    Regarding your first point, if we were to assign an economic policy in accordance with liberal democracy (liberalism) philosophy, it could be one close to economical liberalism. Thus, it would include a certain degree of government regulation without hindering free market. No doubt, that the selected system should be able to provide a socioeconomic ground where every party interested and involved would be able to participate and compete on equal terms regardless of its financial power. For this reason any emerging inequalities and anomalies created from free market processes would be arbitrated and realigned-corrected accordingly on the spot.

    However, putting any kind of label on needed policies maybe better avoided as situation is far too complex for that. A combining approach addressing every case and need differently could be more effective. One could name the system “LISA” for all that matters. Even claim that it is an abbreviation for Locally Implemented Strategic Agreement (just made that up). It is not a matter of words but of actions.

    The thing with laissez-faire economics is that a specific mentality is implicitly or explicitly promoted, considering the state a priori bad, immoral or at least incapable. Such an approach is introduced under ideological covers with specific financial objectives nevertheless.

    If this approach is widely accepted the essence and the ideological basis of the social contract is heavily shaken. Why would people surrender some of their freedoms and leave their lives in the hands of an either-ways failed state? This way a number of problems emerge like:

    – citizens losing their interest in politics gradually withdrawing from policy formation processes, becoming nonparticipating and generally apathetic

    – state becoming gradually more unwilling and ineffective in solving practical problems and improving its performance, due to lack of bottom-up pressure and incentives

    – Third-party financially potent players being free to do as they please, exerting pressure to governments and directly influencing policy. This is more intense in times of public expenditure cuts

    – Governments eventually submitting to the unilateral pressures unable to keep balances and protect citizens’ interests, eventually undermining the state’s power that they were so afraid to lose

    This trend to openly undermine the state’s existence is hardly due to some ideological turn of the society. If it was, it could be discussed in a very fruitful way leading to some interesting debate and meaningful conclusions. Unfortunately it is initiated and led by international economic circles and elites trying to get rid of or manipulate the state, promoting their oligopolies.

    In no case should be considered that any state-political system is perfect as is. Far from it. Constant improvement is necessary and should be pushed through a continuous struggle and interaction between interested parties. But this interaction should be on equal terms. State’s de facto withdrawal creates a serious imbalance of power and the citizens alone – however active – are incapable to keep up for a number of reasons. Citizens are left entrapped to an established system and exposed to external players roaming freely. Something like tossing fishes inside a swimming pool along with a shark. Everything becomes a matter of time then.

    Regarding your second point, it should be noted that every country and even regions within the same country have their own idiosyncrasies. So, when proposing alternatives it is better to refer on specific cases. Nevertheless, there are some common elements. So, housing (system) in general is:

    – a sensitive matter related to the very basic need of shelter, essential for any individual’s well being

    – a crucial element of society’s structure affecting social cohesion and peace

    – linked directly or indirectly to the adopted welfare system

    – easily affected by macro and micro-economic changes and policies

    – not always and/or directly related to economic activity cycles in every area

    – easy to become unattractive according to area-specific conditions and further deteriorate if no action is taken

    – a potential spatial, social and financial trap and linked to respective segregation phenomena due to physical deterioration, economic inactivity etc.

    – not a real estate market priority if the area’s characteristics do not provide for liquidity, marketability and general flexibility

    – in need of state intervention through incentives and master planning to (re)route development and interest in specific deprived areas according to changing conditions and needs

    – in need of state intervention to provide options and incentives for mobility especially for the middle-lower income households

    – necessary to have a part dedicated to affordable housing with a minimum quality standard and ideally in accordance with the national standard of living

    These are only some of the things one has to consider when planning area targeted or umbrella policies. Sure thing is that the housing sector and related market is extremely hard to laisser-faire, without some kind of state intervention and regulation.

    June 7, 2013
  3. De meilleures mesures de la façon dont vous faites sont à votre santé,
    comment vous vous sentez et la perte de pouces, plutôt que de livres.

    December 1, 2015
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    January 19, 2016

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