Prof Rosalind Dixon & Prof Richard Holden

In this piece, Professors Dixon and Holden respond to the contributors of LSPR’s Blog Symposium ‘From Free to Fair Markets: Liberalism after Covid”

The current global economic order is in serious trouble: many leading economies have witnessed prolonged periods of stagnant wage growth, declining worker protections, and a rise in concentrated unemployment. Along with this has come increased inequality in wealth and income, and a growing climate crisis

The causes for these trends are many but include the pressures on market-based economies caused by globalization, automation, decreasing union power and rising corporate power.  COVID-19 also has only amplified many of these faults within liberalism.  And unsurprisingly, given this, support for free trade and global markets is on the decline. [1]

And while for scholars, a turn away from markets often means a turn toward more Marxist or democratic socialist alternatives, for political elites it often means a turn toward a form of economic nationalism with close ties to illiberal populist politics.

It is also against this background that in our recent book, From Free to Fair Markets, we attempt to offer a new vision of liberalism and markets that can respond to these twin economic and political challenges. Our notion of fair markets starts with the idea that markets have value as a means of realizing individual freedom and prosperity, but that markets also fail in a range of ways that call for strong forms of state intervention.  Markets are often dominated by a small number of firms in ways that make them monopolistic rather than competitive in nature.  They lead to “externalities” or social costs, not accounted for by the price mechanism.  And they fail to deliver on guarantees of economic dignity and equality for all citizens.

This is why, we suggest, for markets to serve broader liberal goals of freedom, dignity and equality, markets must be regulated and supplemented by the state in at least four ways:  first, through regulations aimed at promoting competition, and curbing market power; second, through measures that address or “internalize” social costs or externalities; third through government policies that guarantee universal access to a dignified social minimum, and fourth, through policies that ensure equality (not just adequacy) of access to certain “relative” good such as education, life-preserving healthcare and decent housing proximate to other amenities. Suranjali Tandon usefully restates these ideas.

We call an approach of this kind a “fair market” or “democratic liberal” as opposed to free market or neo-liberal approach.  The notion of fair markets connotes the idea of market norms being disciplined by notions of fairness and justice.  And the idea of democratic liberalism is that liberalism is connected to commitments to freedom, dignity and equality – and hence, should be understood in ways that promote all three rights and values, not just freedom alone.  In addition, it evokes the idea that the ways in which markets fail, and states should respond, are not self-defining: both call for a form of evaluative judgment that can only be made, in a democracy, through representative processes of self-government.

As Amal Sethi notes, there is also a close connection between democratic liberal – or free market – economic and political models.  There is an important principled connection between the ideal of fair political and economic markets.  The idea of fair markets is that markets are designed to serve individual freedom, dignity and equality, and that they can only do so where the state acts to ensure competitive markets, the internalization of externalities, dignity for all and equality of access to all relative goods.

These principles point to the need for state intervention in product markets, the tax and transfer system, and in areas such as education and healthcare policy. But they also highlight the need for intervention in the marketplace for political control – to ensure that there is in fact the opportunity for multiple political parties to compete in elections, on terms of substantive equality of opportunity, and for all voters to have an equal say in election outcomes, through non-partisan electoral districting processes and effective campaign finance laws.

There is also a practical connection: without fair market policies, trust in and support for liberalism and democracy are likely to be more fragile or susceptible to attack by would-by authoritarian actors.[2]  And without fair political markets, which give primacy to the voice and interests of the median voter, it is much less likely that democratic systems will enact fair market policies.

As Sethi notes, highlighting these connections is part of what makes the book distinctive as a work of economic and constitutional theory.  In other work, with David Landau, I have also highlighted the need to be sensitive to the misuse, as well as use, of democratic liberal discourses, and this would extend to the idea of fair markets – the degradation of liberal democratic norms, as Prerna Dhoop notes during COVID, should not be understood as justifiable under a fair market paradigm.

Nonetheless, scholars such as Sushmita Pati doubt the adequacy of the fair market frame as an account of the state, and especially the role of the state in a crony capitalist economy.  Tandon raises similar concerns about our account of the state, and its optimal size and likely orientation.

Crony capitalism is undoubtedly a threat to fair market ideals, and in some cases may point to the desirability of non-market alternatives. But unfortunately, as Sethi notes, enlarging the size and scale of state enterprises can often have the opposite effect:  broadening the canvas on which corrupt activities can occur, and the scope for the economic domain to be used as a tool for “buying” or entrenching monopolistic forms of political power.

Dhoop likewise argues that we are too quick to prioritize fiscal balance over the pressing and immediate economic needs of citizens in the Global South, especially in the context of the COVID-19 pandemic. But this in part rests on a misunderstanding: part of the idea of fair markets is that universal access to a dignified social minimum is a non-negotiable starting point for all other liberal policies. This means ensuring a basic income to all those in need – albeit only to those in need. 

And this would certainly have extended to basic income replacement for those unable to work, or who lost their jobs, during the pandemic.  Indeed, we suggest in the book that the income replacement payments introduced by governments during the pandemic are the model for and beginnings of a new fair market paradigm.  Our insistence on fiscal discipline and sustainability only comes in beyond that –  when it comes to benefits for those able to pay for them themselves, and discretionary government spending above and beyond a dignified social minimum.

Dhoop suggests we are unrealistic to give so much weight to environmental priorities, given the economic challenges facing many countries in the Global South.  This is understandable, though may not account for the possibilities for global compensation and transfers of the kind discussed at COP27, as well as the economic and social harms for those countries themselves if we do not tackle pressing environmental problems such as climate change.[3]

Similarly, Dhoop suggests that we are insufficiently sensitive to the challenges of adapting a fair market model to different countries and contexts.  This no doubt has force, but we suggest that the failure may be less grave than she suggests.  For healthcare, for example, we do not suggest that the Australian model is necessarily the best model for all countries in all contexts. Rather, we suggest that a universal baseline level of publicly provided care, combined with top-up private insurance for higher-income citizens, may be a good model for many countries – relative to the option of universal, but subsidized private care, or a fully public option.  In India, this would mean a major investment in a public healthcare-system, but allowing and indeed encouraging those with existing private care (roughly 10% of the population) to keep it,[4] in part with a view to helping cross-subsidize access by the poor to universal basic care.

Perhaps the greatest challenge for a free market vision, however, is political in nature. In writing the book, we were sensitive to the practical challenges in creating a fair market system: without fair political markets, it will be hard to achieve fair economic markets. And without fair economic markets, there will be much greater scope for cadre deployment and political self-entrenchment.  And as Tandon notes, achieving the balance between “regulation and competition” can be a delicate one even in the best of circumstances.

Because of this, the book was explicitly aspirational in its aims – that is, it sought to offer a roadmap for reform that was realistic rather than utopian, even if difficult to achieve in practice.  In some contexts, as Sethi notes, it may also stretch the bounds of realistic or pragmatic reform. 

This is especially true, as Jaivir Singh notes, if democratic politics becomes dominated by identity-based conflicts and contests, rather than contests over ideas and policies capable of delivering economic prosperity.  The same is true if social inequality, such as that caused by the caste system, is a persistent obstacle to economic equality.

These, however, are obstacles we must confront, and confront directly, if we are to imagine a better, more just economic and political order. Law has a role to play here – for example, in helping counter social inequality, and placing limits on the scope for identity-based politics.  But so too do social norms and culture.

To debate the idea of fair markets in India, therefore, is to begin to imagine what their successful realization would look like in practice.  Not everyone would welcome that development, but many would – and in ways highlighted by this symposium.  We are extremely grateful to our colleagues at the blog, and to professors Dhoop, Pati, Sethi, Singh and Tandon for their role in making this debate possible.

Prof. Richard Holden is a Professor of Economics and Prof. Rosalind Dixon is a Professor of Law at the University of New South Wales.

[1] Cameron Ballard-Rosa, Judith Goldstein and Nita Rudra, ‘Trade, Populism and Public Opinion’ The Future of the Global Order Colloquium Fall 2017, Perry World House-University of Pennsylvania <https://global.upenn.edu/sites/default/files/go-trade-populism-rosa-goldstein-rudra.original.pdf>.

[2] Rosalind Dixon, Responsive Judicial Review: Democracy and Dysfunction in the Modern Age (Oxford University Press, forthcoming).

[3] Brad Pulmer et al, ‘In a First, Rich Countries Agree to Pay for Climate Damages in Poor Nations’ (The New York Times, 19 November 19 2022) <https://www.nytimes.com/2022/11/19/climate/un-climate-damage-cop27.html&gt; accessed 5 December 2022.

[4] Yarlini Balarajan, S Selvaraj, SV Subramanian, ‘Health Care and Equity in India’ (2011) 377(9764) The Lancet <https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3093249/&gt;.