Commentary: Anarchy, organizing principle

By SAM VAKNIN, UPI Senior Business Correspondent

SKOPJE, Macedonia, Sept. 27 (UPI) -- The recent spate of accounting fraud scandals signals the end of an era. Disillusionment and disenchantment with free market capitalism may yet lead to a tectonic ideological shift away from laissez faire and self-regulation to state intervention and regulation.

This would be the reversal of a trend dating back to Thatcher in Britain and Ronald Reagan in the United States. It would also cast some fundamental -- and far more ancient -- tenets of free-marketry in grave doubt.


Markets are perceived as self-organizing, self-assembling, exchanges of information, goods and services.

Adam Smith's "invisible hand" is the sum of all the mechanisms whose interaction gives rise to the optimal allocation of economic resources. The market's great advantages over central planning are precisely its randomness and lack of self-awareness.


Market participants go about their egoistic business, trying to maximize their utility, oblivious of the interests and action of all, bar those they interact with directly. Somehow, out of the chaos and clamor, a structure emerges of order and efficiency unmatched.

Man is incapable of intentionally producing better outcomes. Thus, any intervention and interference are deemed to be detrimental to the proper functioning of the economy.

It is a minor step from this idealized worldview back to the Physiocrats, who preceded Adam Smith, and who propounded the doctrine of "laissez faire, laissez passer" -- the hands-off battle cry. Theirs was a natural religion.

The market, as an agglomeration of individuals, they thundered, was surely entitled to enjoy the rights and freedoms accorded to each and every person. John Stuart Mill weighed against the state's involvement in the economy in his influential and exquisitely timed "Principles of Political Economy," published in 1848.

Undaunted by mounting evidence of market failures -- for instance to provide affordable and plentiful public goods -- this flawed theory returned with a vengeance in the past two decades of the past century. Privatization, deregulation and self-regulation became faddish buzzwords and part of a global consensus propagated by both commercial banks and multilateral lenders.


As applied to the professions -- accountants, stock brokers, lawyers, bankers, insurers and so on -- self-regulation was premised on the belief in long-term self-preservation. Rational economic players and moral agents are supposed to maximize their utility in the long run by observing the rules and regulations of a level playing field.

This noble propensity seemed, alas, to have been tampered by avarice and narcissism and by the immature inability to postpone gratification. Self-regulation failed so spectacularly to conquer human nature that its demise gave rise to the most intrusive statal stratagems ever devised.

In Britain and the United States, the government is much more heavily and pervasively involved in the minutia of accountancy, stock dealing and banking than it was only two years ago.

But the ethos and myth of "order out of chaos" -- with its proponents in the exact sciences as well -- ran deeper than that. The very culture of commerce was thoroughly permeated and transformed. It is not surprising that the Internet -- a chaotic network with an anarchic modus operandi -- flourished at these times.

The dot-com revolution was less about technology than about new ways of doing business -- mixing umpteen irreconcilable ingredients, stirring well and hoping for the best.


No one, for instance, offered a linear revenue model of how to translate "eyeballs" -- i.e., the number of visitors to a Web site -- to money ("monetizing"). It was dogmatically held to be true that, miraculously, traffic -- a chaotic phenomenon -- will translate to profit -- hitherto the outcome of painstaking labor.

Privatization itself was such a leap of faith. State-owned assets -- including utilities and suppliers of public goods such as health and education -- were transferred wholesale to the hands of profit maximizers. The implicit belief was that the price mechanism would provide the missing planning and regulation.

In other words, higher prices were supposed to guarantee an uninterrupted service. Predictably, failure ensued -- from electricity utilities in California to railway operators in Britain.

The simultaneous crumbling of these urban legends -- the liberating power of the Net, the self-regulating markets, the unbridled merits of privatization -- inevitably gave rise to a backlash.

The state has acquired monstrous proportions in the decades since World War II. It is about to grow further and digest the few sectors hitherto left untouched. To say the least, this is not good news.

But we libertarians -- proponents of both individual freedom and individual responsibility -- have brought it on ourselves by thwarting the work of that invisible regulator: the market.


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