A Critique of Our Current Markets

A lot of people today feel that capitalism is failing them. They feel left behind and they believe that the system is rigged against them. This will undoubtedly be a major driving factor in the next presidential election and there will be many candidates who offer their own diagnosis as to why people feel the way they do. A key reason, I believe, as to why people feel the system is failing them is highlighted by Colin Wright in his book Becoming Who We Need to Be. Wright addresses the way that many people seem to be creating businesses, making money, and becoming successful through trickery and rent-seeking behavior. He writes, “…this means that if we can find a clever way to extract money from the system, even if we don’t create anything of value, or we sap value from society in the process, we’re still doing it right.”

In a recent podcast episode for his show Against The Rules, Michael Lewis described the way that many financial companies exist not to serve customers better, but to operate in a way that makes money seemingly by fooling customers into making decisions that benefit the company without benefiting the consumer. I’m sure that for many of us, our healthcare or health insurance has felt that way. Also for a lot of us, we probably felt that we got a little ripped off on one of the first times we tried to purchase something on Ebay, and ended up not quite getting what we expected.

A lot of aspects within our economic system at the moment seem to reward people even if they don’t give us what we expected. There are incentives to create systems and products that sound clear, but end up being hard to access and ultimately don’t seem to make us or anyone except the seller any better off.

On our own, we all want to get the most money and reward from doing the least amount of work. At times it is true that we all want to bust our bums and do great work, but if we could just set something up where we made money no matter what and didn’t have to do any real work, on some level we would be happy. On an individual level this is not a big deal, but when it is combined, multiplied, and turned into a corporation it can become a problem for society, and that is what we are seeing in the national mood today. People sense that the system is not fair and doesn’t produce fair outcomes. The individual instance of being ripped off might not be the thing that makes them the most angry, but rather the fact that the system allows for people to pull out money and become successful without creating value makes people lose faith in institutions. At a certain level, no matter what our individual incentives are, we should recognize and accept that this is a bad way to operate long term, and we would be better off within a society that seemed to operate more fairly because it would create less anger and more stability on a societal level.

What Race Are You Running?

In his book Ego is the Enemy, author Ryan Holiday helps us look at competition in a more meaningful way. It is hard, at least in the United States, to feel as though one can be successful without comparing oneself to everyone else. Our entire society is based around consumption and markets, creating daily competitions and providing us with a million opportunities to purchase shiny new trophies as emblems of our success. The markets we live within have driven human ingenuity forward, given us phones that replace a thousand products in a 2.5 X 5 inch rectangle in our pocket, and have risen the living standards for people across the globe, but our markets have also put us in a place where purchasing power and wealth are the standards we use to measure the value and success of people. This can be very dangerous, especially since competition is not always the best way to unify a society or bring meaning to most individuals. Holiday writes,

 

“Only you know the race you’re running. That is, unless your ego decides the only way you have value is if you’re better than, have more than, everyone everywhere. More urgently, each one of us has a unique potential and purpose; that means that we’re the only ones who can evaluate and set the terms of our lives. Far too often, we look at other people and make their approval the standard we feel compelled to meet, and as a result, squander our very potential and purpose.”

 

The competition of the markets in our lives make it seem like we are all racing against each other all  the time. I feel this when I check the stats for my blog, when I post a run to Strava, and when someone I know pulls up next to me in a brand new car. I often feel that I am doing well or not doing well based on how I look relative to others, which is dangerous because it is something I do not control. I cannot compare my blog to people who are professional bloggers and have the time and energy to put all of their focus into their blog. I cannot compare my running to friends of mine who have the time to do multiple workouts every day with a coach who can help them run really fast. And I do not know if the person in the new car next to me is just borrowing the car from a family member, paid for it outright, or is leasing a new car they really can’t afford. In my examples above, each of us is in a different race, and it is a mistake to think that I am somehow competing against all of them in these areas that really do not matter at the end of the day.

 

A while back I wrote about the pitfalls of using money and wealth as our default measurement for success. Financial success does not always translate into a well rounded and truly successful life. There are many factors that contribute to someone’s wealth, and very often those factors don’t really have anything to do with the hard work, value, or skills of a person. Trying to outrun that person and achieve greater wealth than them might be a mistake, because you are running a different race, and you might be competing in an entirely different sport. Assuming that everyone is just like us, that they have had the same experience as us, the same advantages and obstacles in their lives, and experience the same desires and goals as us is a mistake if we are trying to compete with them to have more things or more of what ever it is we decide makes someone successful. At the end of the day we can use elements of competition to encourage us to make good decisions like eating healthy, writing every day, and working hard to be productive, but we should not do these things simply to be better than everyone else and show our dominance over them.

Political Monopolies

Throughout his book Political Realism: How Hacks, Machines, Big Money, and Back-Room Deals Can Strengthen American Democracy, Jonathan Rauch argues that our government needs a little less sunlight and transparency to allow for good governance. His ideas are that too many rules and restrictions, too many provisions for transparency and clearness, and too many changes to make our system more democratic have led to a point where necessary parts of politics cannot take place, and as a result, our government cannot function effectively. Politics (thinking about human behavior dating back to our first human ancestors) is about coalition building, creating alliances, and cooperating for safety, growth, and group survival. When a government’s political activities have to be entirely out in the open these types of activities are hindered, and as a result, we get showmanship and political battles as acts of public coalition building. Real governance, compromise, and negotiation become impossible.

While Rauch thinks that we need more of a cover in our system for these political behaviors, he does understand how we got to this point and he does examine some of the shortcomings of our old political system which compelled people to impose such restrictions on modern day politics. When looking at political machines specifically, Rauch highlights some of the negative aspects of organized political coalitions. He writes,

“Machines seek monopolies. In order to preserve power, they will seek to manipulate rules and rule-making (redistricting, voting rules, and the like) to shape the political battlefield in their favor—often with the goal of raising barriers to entry for would-be political competitors. They also will try to get their hands on as many formal levers of power as they can, using each to reinforce the others.”

This description of political machines reminds me of modern day corporations. Rather than simply looking to out-compete and out-innovate their sector and competitors, many firms today seem to prefer gaming the system and industry to limit competition. Often corporations will argue for increased regulation and requirements because it makes it harder for new firms to enter the market and disrupt current markets. Firms also look to build monopolies and diversify across different sectors to capture markets and establish a status quo that favors their bottom line rather than the interests of society or the furthering of new products and technology. Rauch argues that the danger of our old political system of machine politics mirrors the danger of modern markets. The political landscape in one sense becomes an economic landscape, with different political coalitions competing for greater market-share (vote share) and influence.

What I find interesting and revelatory about this point of view is that ideology and beliefs take a back seat to group dominance and interests. When we operate in machines, what we favor is the preservation of our coalition, not necessarily any specific ideology. Just like in a market we may prefer a specific brand and gravitate continuously toward that brand even if competitor brands introduce better products. Often we will stick with our familiar brand and highlight the good things about the brand we like while downplaying the shortcomings. Rauch’s demonstration of machine politics reveals that we do this in our political alliances as well, favoring rules and power grabs that help our side while remaining critical and opposed to any actions taken by our competitors.

What Rauch highlights here is part of why we have implemented rules that make politics more transparent and clear. The political actions of machines are not about issues but rather power, and we are uncomfortable with that. Unfortunately however, we humans operate in this tribal manner, and without these political power games, we don’t seem to be able to coalesce around issues to foster good governance. Somewhere in the middle of where we are now and the machine politics of the past is where good governance can live and thrive, addressing our political issues while engaging the public and building teams to move government policy forward.