The healing power of the market

By Carlos Alberto Montaner

The enemies of economic freedom are exultant. They see the current financial crisis in the United States and Europe as a demonstration of the superiority of plan-driven socialism over the market. They hail the burial of something very hazy they call “neoliberalism,” and dream about establishing strong governments that will direct economic activity and control the productive apparatus through a swarm of brilliant and well-intentioned functionaries ideologically patterned after Hugo Chávez, Evo Morales and Daniel Ortega, people lovingly devoted to building the welfare of society out of a noble, altruistic impulse.

The intellectual error lies in not understanding what the market is. In those societies where private property and the rule of law exist, millions of people freely and constantly make billions of decisions to satisfy their own needs, creating what Nobel laureate F. Hayek used to call “the spontaneous order,” an organization infinitely better suited to generating wealth, assigning goods and services and reducing the levels of misery than the beehives artificially directed by social engineers, as can be ascertained today by anyone who looks at the two Koreas or knows the differences that once existed between the two Germanies.

Of course, that spontaneous order is not perfect, and it does not produce economic balance (another fantasy), because there is nothing more revolutionary -- and sometimes less predictable -- than the market. But in free societies, errors, crises and reversals are part of the habitual practice of working and learning. Individuals and enterprises, in their drive to compete for the consumer's preferences in search of profit, resort to the instructive method of trial and error, explore diverse intuitions and hypotheses and try different strategies guided by the hits and misses until they either achieve success or plunge into failure. Besides, those two results are temporary.

Of the 100 major companies that existed in the United States in the mid-20th Century, only 20 survive today in dominant positions. The remaining 80 were consumed in the market's “creative destruction,” as graphically described by Joseph Schumpeter, but we don't know how many new and valuable initiatives emerged from the ashes of enterprises that did not come to a good end. What we can be sure of, at the start of the 21st Century, is that in the First World nations organized around the market, the material base that sustains the whole of society is a lot wealthier, healthier and wiser than in the mid-20th Century, despite the wars, cyclical crises, natural catastrophes and blunders periodically made by the rulers and the individuals who are part of civilian society. 

How did this advancement occur amid so many missteps and calamities? Very simple. Spontaneous order has a remarkably effective healing effect, something we mustn't forget in the midst of the so-called “mortgage crisis.” Needless to say, we are not nearing the end of the world or the demise of the market; we are facing a temporary obstacle that we shall overcome, as usual, by resorting to a mix of innovations, right decisions and sensible measures of governance. There will be winners and losers (there already are), fortunes will disappear and new victors will emerge, but the market will continue its upward journey for the benefit of the majority. It has been so since the late 18th Century, when free societies based on competition began to impose their superiority, and it will continue to be so in the future.

October 10, 2008

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