The Maholian Way - Part Four: Building self-reliant economies

Cool and warm markets

Around the world, economic production and exchange are often seen as distinct from other kinds of human activity, with different goals and rules. But in the final analysis, they need to be judged, as any activity does, by the degree to which they treat people decently and fairly, are sustainable, and advance human wellbeing.

Perhaps the main reason why economic activity is regarded as different is that the market mechanism is believed to protect people’s interests, without market participants having to desire or care about anyone’s interests other than their own. According to the theory, if people are not satisfied as buyers, sellers, employees, employers or investors, they can simply choose from other competing options. Over time, so the theory goes, those economic players who are efficient and satisfy market demand succeed and prosper, while those who don’t either change their ways or languish.

Now the market is indeed a useful device, and to a great extent it has succeeded in advancing human wellbeing by providing people with goods, services, jobs and investment opportunities to meet their needs and preferences. When it works well, it gives people choices and promotes innovation, efficiency and quality.

However, the market has many imperfections. It permits the occurrence of externalities, by-products of market deals that affect third parties, such as pollution and the decline of community. It relies on people having adequate information about the range of goods and services in the market, which – given the increasing number and technical complexity of products and services – is very difficult to achieve. Big players can dominate the market in a range of ways, such as through mass advertising, through the use of their political power,

by the sale of some lines at below cost to drive out smaller competitors, or by linking their products such that the purchase of some necessitates the purchase of others. Through such means they can reduce the number of competitors till just a few large sellers or buyers dominate a market, at which point there can simply be an unspoken understanding of what’s in the best interests of these ‘competitors’ without resort to active collusion. Reliance on market forces alone can lead to underinvestment in training and research if firms cannot capture for themselves a sufficient proportion of the economic benefits that these yield. Markets produce or exacerbate inequality, the drawbacks of which are described later. Finally, market decisions are seen as objective measures of human preferences and economic rationality, but they can be based on the full range of irrational and prejudiced views that humans are capable of, such as the idea that women and non-white races should be paid less.

A key aim of relationalism is to enhance the market’s effectiveness by combining the power of the market with the power of relationships. This occurs in what Maholians call the ‘warm market’ or the ‘warm economy’, when economic activity is embedded in well-functioning communities and sound relationships. In the warm economy, good relationships both contribute to the process through which people meet each other’s economic needs and are a positive outcome of such activity – because such relationships are of course important for social as well as economic reasons.

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