David Coates

Making the Case for Regulated Markets

(Chapter outline)


Capitalist markets are the great drivers of human progress

Unregulated markets are optimal allocators of resources

Unregulated markets guarantee freedom in ways that even democratic politics cannot

Markets and morality go together

The regulation of markets by governments necessarily impairs their performance

Free markets are the American way: disturb them at your peril

The Obama Administration is a disaster waiting to happen


The choice here is not one between capitalism and socialism, but between unregulated and regulated capitalism

  • The Invisibility of the Invisible Hand
  • Markets as Constructs
  • Perfect and Imperfect Competition
  • The Limits of Rationality

There are downsides to unregulated markets that Milton Friedman systematically ignored

  • Inequality
  • Monopolies and Externalities
  • Hidden Losers

3. The general case for big government

  • The Supporting State
  • The Keynesian State
  • The Democratic State

4. The particular features of labor markets

  • Labor as People
  • Gradients of Power
  • Labor Power as Positive

5. The immorality of unregulated capitalism

  • Capitalism and its Friends
  • The Humanizing of Capitalism
  • Capitalism and the Charity Illusion

6. Issues of freedom and happiness

  • Negative and Positive Freedom
  • Freedom and Happiness
  • Freedom and Stress

7. The contemporary crisis of unregulated capitalism

  • The Price of Deregulation
  • The Choice Before Us
  • Paradigm Shift


Very few people on the left these days favor central planning. In the debate between planning and the market, the market clearly won. But it “won” in spite of a set of recognized deficiencies in the workings of unregulated markets that has left a huge political space for the advocates of market regulation. European Social Democracy, European Christian Democracy and sections of the American Democratic Party occupy that political space, and properly so, because they are aware of things that markets do that require correction: at least these.

Inequality Markets respond to the purchasing power of the consumers within them rather than directly to the perceived needs of the consumers themselves. If purchasing power is equally distributed between all consumers within the market, then markets are indeed ideal mechanisms for the meeting of those needs; but in capitalist economies unregulated markets do not generate income equality. Even if markets begin on level playing fields, their internal competitive dynamic steadily undermines that equality as winners move ahead and losers fall behind. Unregulated markets in capitalist economies are great mechanisms for the generation of inequalities between individuals, inequalities that are invariably cumulative. Unregulated markets and deepening socio-economic differences go together. In general the children of the poor stay poor. At the very least, those who would leave markets unregulated have therefore to explain how they square their passion for individual freedom and equality with the inequality and differences in social empowerment that divide the children of the rich from the children of the poor. Children are is not something that free-marketeers talk about often, but they are something that we need to talk about all the time.

Monopolies and Externalities Markets also generate inequalities between companies as well as between individuals, and in a capitalist economy market competition obliges companies to protect their internal processes from exposure to those who would do them down. Markets that start on a level playing field of competitive companies do not stay there. Nor do they of themselves generate institutions capable of balancing the private needs of individual companies with the public needs of companies and consumers in general. On the contrary, unregulated markets generate both monopolies and externalities – big companies able to set rather than receive prices, and companies whose adverse impact on the physical and social environment in which they operate does not automatically appear in the internal structure of their costs. At the very least, those who would leave markets unregulated have therefore to explain how they square their antipathy to public regulation of private corporate practices with this propensity of unregulated markets to undermine themselves internally and to degrade the wider commons as they do so.

Hidden Losers That degradation is not merely environmental, though pollution is clearly one major externality that unregulated markets have difficulty in addressing. It is also social. The companies that fail leave non-economic casualties – workers without jobs, towns without companies, local authorities without adequate tax bases, local children without hope. Markets may well be excellent at bringing demand and supply together, but they only do so ex post and only by leaving human resources periodically under-utilized. Even on a good day and no matter how regulated, market competition breeds insecurity and stress in all the human elements involved in its economic equations. The other side of immediate competitive success is the possibility of later economic failure; and in truth lightly regulated markets do more than simply raise the anxiety stakes. They also contain no mechanism capable of tying failure to personal performance. They appear to do so but in reality they don’t. The advocates of unregulated markets tell us with great frequency about the fate of entrepreneurs who innovate and those who don’t; but what they trumpet far less often is the fate of the many workers employed by each non-innovator. Those workers have invariably labored diligently at the tasks set for them, but still lose the entirety of their employment, income and potential. Where is the justice – or indeed the freedom – in that?

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

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