Blagojovich and the Free Market

Surprised to see the excoriated Blagojovich's name coupled with the free market? You shouldn't be. He was just acting as if the free market also obtained in political appointments, in which he could demand monopoly prices. Free markets don't exclude monopolies; unfettered free markets encourage them.

The Governor was just trying to sell something of value, and was attempting to determine what that value happened to be (what he, as monopoly seller, could get in return).

Blagojovich demonstrates why free markets are not always socially benign. It is not considered proper, or legal, to sell offices in the 21st Century USA; it was standard practice in the late Roman Empire. The reason it's illegal is that free markets do not assign value to the society, only to the good or service to accrue to the seller. While Blagojovich would have benefited from the sale, the people of Illinois and of the US would not. A Senator appointed in exchange for a bribe would have been motivated to get a return on his "investment," rather than serving the people of his state.

In fact, the free market allocates a lot of values in socially harmful ways; bribes to Blagojovich are only one of them.

Without government interference, or regulation, the market pays corporations to pollute, and to use oil and coal for energy instead of more environmentally benign but currently more expensive sources like solar and wind. Without government interference, banks will overheat credit markets in a boom--they can make more money the more they lend--and exacerbate a downturn by withholding credit, as we've all just seen in the financial part of the present economic crisis; that's what's holding any recovery back right now: banks' reluctance to extend credit even to credit-worthy borrowers. That's the free market working. And that's why banks need to be re-regulated, and their capital to loan or investment ratio has to be under external control.

Free markets also discriminate in favor of those who own capital. If sale of offices were legal, as it was in fifth century Rome, then Blagojovich would have sold the Senate seat to whomever controlled the most money; the more capital you control, the more favorably you are treated in the market. That's also why monopolies are encouraged in an unfettered free market; the corporation with more capital can overawe its competitors, and then buy them up, or force them into bankruptcy. That's how Standard Oil operated in the early years of the 20th Century; it's why the reformers of the era passed the Anti-Trust Act. Standard oil was not more efficient or more innovative than its competitors; it prevailed because Rockefeller had more money.

How a corporation gains such a capital advantage is also not necessarily beneficent. Rockefeller was a shrewd businessman, but he was also absolutely ruthless; he didn't care about human costs and even drove some competitors to suicide.

Walmart doesn't care either. It pays its suppliers as little as possible, and scours the globe for lower labor costs, which means finding places where workers will work for bare subsistence. It also prevents unions from organizing its American workforce, even to the point of closing a store in Montreal rather than allowing it to be unionized. And it skimps on healthcare coverage, while advising its employees how to qualify for Medicaid, the state-federal program paid for by the rest of us. So, because of the free market, Walmart has driven out droves of smaller retail businesses that paid their workers decently but lacked its economies of scale and its ability to find cheap, foreign suppliers.

Yet Walmart was the model for the successful corporation in 2008, and GM, which was forced to pay its workers decently, because of the UAW, is held up as the model of what a corporation should not do, a dinosaur that has to mend its spendthrift ways. Yet the result of the Walmart model is low wages more generally, which does not sustain the American lifestyle. That's why the economy was maintained by escalating debt, until the level of debt became unsustainable, hence the collapse.

Henry Ford realized back in the 1920's that workers needed to be paid enough that they would buy his cars; we need corporations to think that way now, not like Walmart.

So, the free market must be regulated, and unions should also be encouraged to fight for decent wages. I would argue that instead of allowing firms to merge to survive, that they should be broken up into smaller, more agile competing corporations that are not "too big to fail." Then allow the market to determine which ones survive. Bailouts and rescues (massive market interventions) could therefore be avoided in most instances. Government regulation of the market is urgently needed, and not just of the financial sector.

As for Blagojovich: since Illinois's highest court ruled that he was competent to serve, the most appropriate market intervention was for the Illinois legislature to impeach him, which they did.

But now his Senatorial appointee, Senator Roland Burris, is under attack for offering to raise money for Blagojovich as implicit quid pro for his appointment: the tapes make it pretty clear. Guess the "free market" just won't be allowed to work in the market of political appointments!

Actually, I doubt that Burris will be expelled (he'd be the first Senator to be expelled since the 1860's), in part because Democrats need his vote, in part because he's the only African-American Senator, and it wouldn't look good. It's highly unlikely that he'll be re-elected, however.