Since the economic crisis signalled the demise of market fundamentalism – polarised opinions on markets as the sole solution to or the sole cause of the world’s problems – a welcome debate has emerged on how to fix markets for development. CAFOD contributed to stimulating this discussion by holding an expert debate for new MPs this summer – in this post are some of the ideas that emerged. Embarking on its new “development agenda” this Autumn, the G20 would do well to do the same kind of thinking to avoid letting a good crisis go to waste.
Markets can play a role in development and well-being by stimulating growth and efficiency, thereby raising incomes and by providing opportunities and incentives for innovation. They can also do harm.
“Leaving it to the market” had failed to provide stability, protect the environment or increase well-being at home or in developing countries.
64 million people may be in extreme poverty by 2012 as a result of the economic crisis.
70 million Africans face devastating floods as a result of climate change that markets are failing to stem
declining reported well-being in the USA and flat-lined in the UK over the last quarter century despite unprecedented growth.
Different kinds of markets pose different kinds of problems – local markets, international markets, financial markets, rich country markets or developing country ones.
Local markets can often be a positive force in people’s lives – a hub of social activity and connections, guided by social relationships and moral codes, empowering and even enriching for those who participate.
This is not the case at the international level. The distance between market participants means that the same values and relationships do not govern transactions. Negative social and environmental impacts can be a long way from investors or consumers. Participants can often feel dis-empowered by “the market” as a powerful external force.
This is particularly true in financial markets where transactions are abstracted from the real economy and individuals, and herd-instincts dominate.
At the international level, there is an absence of effective institutions or norms to steer markets and their impacts.
In fact, politicians often evoke the idea of “the[ international] market” as a reason to adopt particular policy choices – as if it were an immutable force. Yet markets are simply a collection of individuals and transactions who can be influenced.
Without intervention, necessary behaviour changes will not happen. We cannot just ask bankers or firms to behave morally. Even if they do choose to do so, they may put themselves at a disadvantage and be undercut.
Underlying incentives and boundaries need to change. For example, prices need to reflect true costs and benefits, particularly environmental. Taxation could be used to encourage long term investments and incentives to channel to capital to more positive activities.
Attitudes and behaviours need to change, particularly in developed countries. A more open conversation is needed on the global impact of our lifestyles. If markets are to work to reduce poverty and promote sustainable development, we need to change the relationship between farmers and supermarkets, borrowers and lenders, shareholders and firms, with direct implications for lifestyles here.