Posted on 29-1-2002

Market Rules

By John Ikerd*


From Adam Smith's observations of more than 200 years ago,
neo-classical economists developed the fundamental assumptions that
underlie 'free market' economic thinking, even today. Although
contemporary economists try desperately to rationalise arguments to the
contrary, these assumptions must hold good before the invisible hand of
competitive capitalism can transform the pursuit of individual short-run
self-interest into the greater long-run good of society in general.


1. First, markets must be economically
competitive - meaning the numbers of buyers and sellers must be so large
that no single buyer or seller can have any noticeable effect on the
overall market. In such markets, no one has the power to retain profits
by exploiting anyone else.



2. It must be easy for new sellers to
enter enterprises that are profitable and easy for sellers to get out of
unprofitable enterprises, so that producers are able to respond to market
signals of consumers' wants and needs.



3. Consumers must have clear, informative
and accurate information concerning whether the things they buy will
actually meet their wants and needs.



4. And finally, consumers must be
sovereigns - their tastes and preferences must reflect their basic values
- their tastes and preferences, untainted by persuasive influences.


None of these assumptions holds in today's society.



* Today, agricultural markets are
dominated by the large agribusiness corporations, certainly at every
level other than farming, and increasingly even at the farm level.


* In addition, it is not easy to get into or out of any aspect of
agriculture, and it is becoming increasingly harder to get into or out of
farming.


* Consumers don't get accurate, unbiased information concerning the
products they buy, but instead get disinformation* by design, disguised
as advertising.


* Finally, consumers are no longer sovereigns. The food industry spends
billions of dollars on advertising designed specifically to bend and
shape consumers tastes and preferences to accommodate mass production and
mass distribution, which enable corporate control of agriculture.


There is no logical reason to believe that the corporate
agriculture of today is evolving to meet the changing needs or wants of
consumers. Instead, corporate agriculture today is designed specifically
to generate profits and growth for corporate investors. In fact, we no
longer have a competitive, capitalistic agricultural economy. Capitalism
requires that individuals make individual decisions in a competitive
market environment.


As corporations extend their control horizontally "within" the same
functional levels, such as marketing, storage, transportation,
processing, or retailing, they increase their ability to protect profits
from competitors. As corporations extend their control vertically,
"across" functional levels, including additional

different production and marketing, they gain control over decisions
concerning how much of what is produced, when it is produced, how it is
produced and for whom.


Those decisions are made to maximise their short-run profits and growth,
not to meet the long-run needs of society.


John Ikerd, Professor Emeritus, Agricultural Economics,
Missouri University, USA. Abridged extract from SAREP Conference
Presentation, March 2001.