Antimarket

The​ words ‘market’ and ‘capitalism’ are frequently used as if they were synonymous. Especially where someone is defending the ‘free market’, it is generally understood that they are also making an argument for ‘capitalism’. Yet the two terms can also denote very different sets of institutions and logics. According to the taxonomy developed by the economic historian Fernand Braudel, they may even be opposed to each other.

In Braudel’s analogy, long phases of economic history are layered one on top of another like the storeys of a house. At the bottom is ‘material life’, an opaque world of basic consumption, production and reproduction. Above this sits ‘economic life’, the world of markets, in which people encounter one another as equals in relations of exchange, but also as potential competitors. Markets are characterised by transparency: prices are public, and all relevant activity is visible to everyone. And because of competition, profits are minimal, little more than a ‘wage’ for the seller. Sitting on top of ‘economic life’ is ‘capitalism’. This, as Braudel sees it, is the zone of the ‘antimarket’: a world of opacity, monopoly, concentration of power and wealth, and the kinds of exceptional profit that can be achieved only by escaping the norms of ‘economic life’. Market traders engage with one another at a designated time and place, abiding by shared rules (think of a town square on market day); capitalists exploit their unrivalled control over time and space in order to impose their rules on everyone else (think of Wall Street). Buyers and sellers on eBay are participating in a market; eBay Inc. is participating in capitalism. Capitalism, in Braudel’s words, is ‘where the great predators roam and the law of the jungle operates’.

On this account, ‘economic life’ was already established in early modern societies, but ‘capitalism’ triumphed late, becoming fully dominant only in the 19th century, once it had conscripted the state as its ally. A range of legal, financial and managerial constructs emerged to protect capitalists – and their profits – from the kinds of equality and competition that continued to constrain the petite bourgeoisie and local traders. ‘Intellectual property’, limited liability, a ‘lender of last resort’, colonial expansion and new techniques of disciplining the working class created conditions apt for extraction and exploitation, not mere exchange. The moral and political virtues of markets, as they had appeared to the likes of Adam Smith, were overwhelmed in the capitalist era of Rockefeller and Ford.

Why then have ‘capitalism’ and ‘markets’ so often been conflated? One explanation is that capitalism undoubtedly requires markets. But they are peculiar ones, which smuggle in forms of inequality under the veneer of free exchange. According to Marxists, the one market that capitalism cannot do without is the labour market, the institution which magically turns innate human powers into a thing to be bought and sold like apples and oranges. Others, influenced more by Keynes, emphasise the dependence of capitalism on financial markets, in which pieces of paper (bonds, equities, derivatives etc) change hands on the expectation that they will rise or fall in value in the future. Neither of these is a normal market. What both of them make possible is for a class of people – capitalists – to get rich without doing very much, in the first case by underpaying their workers, and in the second by tinkering with balance sheets. Markets for labour and financial assets might appear to be like markets for bread or socks, but they belong firmly in – and indeed enable – the murky, hierarchical world of ‘capitalism’, not the transparent, egalitarian space of ‘economic life’.

A second explanation for the conflation is that capitalism, unlike the existence of markets, is extremely difficult to justify on its own terms. A simple market transaction has the social value of bringing strangers together for some mutual benefit, with neither having got the better of the other. ‘Fair trade’ is a contemporary appeal to this principle. But by what moral logic does the owner of company shares, a piece of real estate or a care home have the right to become 10 or 15 per cent richer over the course of a year, despite not having expended any effort or ingenuity increasing the value of the ‘asset’ concerned? Liberal economists would respond by distinguishing profits that reflect productivity enhancements (and are therefore good) from those that reflect market power (and are therefore bad), but in practice the distinction is extremely hard to draw, and even harder to police. The most vigorous defenders of capitalism will typically accept the charge that it is monopolistic, exploitative and opaque, but will also claim that these conditions are required in order that a heroic minority, namely entrepreneurs, can emerge and thrive. This story just about holds together when we’re talking about such rare cases as Steve Jobs, but falls apart when it comes into contact with the ordinary reality of MBA-wielding CEOs and asset managers who earn a hundred times the average wage and call it their ‘compensation’.

Liberal ideology has tended to duck the problem of capitalism altogether, opting instead to imagine that ‘economic life’ (i.e. competitive egalitarian markets) still rules the roost. This myopia is manifest in the economics curricula of major universities, which despite the best efforts of various campaigns and the Soros-funded Institute for New Economic Thinking have continued to exclude theories which emphasise power, uncertainty, monopoly and instability, and clung to an orthodoxy in which economic activity is chiefly determined by prices and incentives. Politicians, meanwhile, cleave to liberal fairy tales about making work pay, social mobility and ownership for all, which are increasingly divorced from a reality of in-work poverty, unearned wealth and spiralling rents. And financial services masquerade as just another ‘sector’ among many, selling their wares in a marketplace like humble shopkeepers.

Brett Christophers, in The Price Is Wrong, adds to this list a potentially more drastic symptom: a failure on the part of policymakers to understand the energy transition on which the future of the planet hinges. The operating assumption of energy economists over the years has been that the key obstacle to the growth of renewable energy is its higher cost, which renders it unable to compete against fossil fuels in the energy market, and hence reliant on government subsidy. It was a moment of great excitement, therefore, when in 2015 the International Energy Agency reported that, finally, renewable technologies (primarily solar and wind farms) were ‘no longer cost outliers’ relative to gas, coal, oil and nuclear power generation. According to policy orthodoxy, that should have been a turning point. It should have been the moment when governments could withdraw their subsidies for the renewables sector and stand back as the price mechanism worked its magic. If coal, gas and oil were now the less price-competitive option, the laws of supply and demand would suggest that they would soon be left for dead. But none of this has happened. Why?

In a word, profitability. As Wael Sawan, the CEO of Shell, put it only last year, ‘Our shareholders deserve to see us going after strong returns. If we cannot achieve the double-digit returns in a business, we need to question very hard whether we should continue in that business. Absolutely we want to go for lower and lower and lower carbon, but it has to be profitable.’ Companies such as Shell expect to make at least 15 per cent returns on their investments in fossil fuels, but only 5-8 per cent returns on their investments in renewables. The appeal of fossil fuels, from the vantage point of the ‘antimarket’, is that they continue to offer the kinds of monopoly rent that the far more competitive, more marketised industry of renewables does not. This, as Christophers sees it, is the awkward reality that the paradigm of market economics has hidden from view. He shares the fear expressed by the New Yorker cartoon in which a man explains to three children sitting by some future campfire: ‘Yes, the planet got destroyed. But for a beautiful moment in time we created a lot of value for shareholders.’

Decarbonisation must be carried out on many fronts, but electricity generation is arguably the most important of them. In 2019, 37.5 per cent of global CO2 emissions resulted from electricity generation, the remainder from activities such as transportation, industrial production and heating. The decarbonisation of these activities depends heavily on the promise of electrification (cars, for example), so the need to transform electricity generation is clearly the priority.

The challenge is daunting. In 2022, 61 per cent of the global electricity supply came from fossil fuels, the majority from coal, compared to just 12 per cent from wind and solar combined. To keep pace with rising demand, new coal-fuelled power stations are being built all the time – an average of two per week are approved in China alone. The IEA’s plan to reach net zero by 2050 involves a rise in the contribution of wind and solar to 68 per cent, and the virtual eradication of fossil fuels in electricity generation, with the remainder made up by other renewables such as hydropower and bioenergy, as well as nuclear. Given that global electricity demand is likely to double over the same period (thanks especially to the electrification of other technologies), the task would appear almost impossible. But to the extent that there is any hope at all of preventing a rise in global temperatures of two or more degrees, it hangs on the rolling out of new wind and solar farms at extraordinary speed.

Whether or not that can be achieved depends on the capacity of existing political and economic institutions to facilitate it. The economics and regulation of electricity generation are extremely complicated, but a few germane elements can be identified, each of which has a bearing on the prospects for rapid decarbonisation. First, there is the regulatory environment that has become the norm across most of the global North since the 1980s. Policymakers, influenced by the revival of neoclassical economics and free-market ideologies, have set about restructuring their energy sectors in the hope that market competition will drive down prices, benefit consumers, and force producers to invest in superior technologies and services in order to sustain their market share and profitability. This is a win-win vision of ‘economic life’, in which markets are sovereign, transparency reigns and nobody gets to bully anybody else.

In pursuit of this dream, regulators have begun to unbundle the various parts of the energy sector (splitting wholesale from retail) so as to reduce monopoly power, and to install market mechanisms in the rest. As a result, electricity generation has become a business that operates in a highly competitive and volatile market. The main ‘customers’ in this market are electricity retailers. The wholesale price of electricity is affected by a range of factors, including financial speculation and the difficulties of predicting where and when electricity will be needed. Further volatility is injected by the fluctuating price of fossil fuels (especially evident since the invasion of Ukraine), though this represents an inbuilt hedge for non-renewables: if electricity prices slump, that’s partly because the cost of fuel has slumped as well, so profit margins hold up – renewables do not enjoy that benefit.

Then there are the material idiosyncrasies of how electricity is actually generated. Wind and solar farms have comparatively high upfront construction costs, but comparatively low running costs, since their power source is free. The upfront costs may not be recovered for ten or twenty years. This schedule, plus the fact that renewables are still something of a novelty, makes such projects unusually vulnerable to the whims and sentiments of investors. ‘Financing represents the ultimate chokepoint,’ Christophers writes, ‘the point at which renewables development most often becomes permanently blocked.’ Investors aren’t choosing between ‘clean’ and ‘dirty’ electricity generation, but judging opportunities across a wide range of asset classes. Capitalists’ sole concern, as Marx observed, is how to turn money into more money, and it’s not clear that renewables are a very good vehicle for doing this, regardless of how cheap they are to run.

The problem, from the perspective of investors, is ‘bankability’. Investors want as much certainty as possible regarding future returns on their investments, or else they require a hefty premium for accepting additional uncertainty. The challenge for the renewables sector is how to persuade investors that they can make reliably high returns in a market with highly volatile prices, low barriers to entry and nothing to stabilise revenues. The very policies that were introduced to bring electricity costs down – marketisation and competition – have made the financial sector wary. Whenever renewables appear to be doing well, new providers rush in, driving down prices, and therefore profits, until investors get cold feet all over again.

What investors crave is price stability, or predictability at least. Risk is one thing, but fundamental uncertainty is another. Industries characterised by a high degree of concentration, longstanding monopoly power and government support are far easier to incorporate into financial models, because there are fewer unknowns. Judged in terms of decarbonisation, the most successful policies reviewed in The Price Is Wrong are not those which reduce the price of electricity, which would be in the interest of consumers, but those which stabilise it for the benefit of investors. Meanwhile, the extraction and burning of fossil fuels remains a more dependable way of making the kind of returns that Wall Street and the City have come to expect as their due. This is an industry with more dominant players, much higher barriers to entry, and which was largely established (and financed) long before the vogue for marketisation took hold.

Despite the exuberance over the falling costs of solar and wind power, Christophers doubts ‘whether a single example of a substantive and truly zero-support’ renewables facility ‘actually exists, anywhere in the world’. What’s especially galling is that, to the extent renewable electricity remains hooked on subsidies, this isn’t money that is ending up in savings for consumers, but in the profits of developers and the portfolios of asset managers. Paradoxically, the ideology that promoted free markets and a culture of enterprise (against conglomeration and monopoly) has enforced this sector’s reliance on the state. The lesson Christophers draws is that electricity ‘was and is not a suitable object for marketisation and profit generation in the first place’. Ecologically speaking, neoliberalism could scarcely have come at a worse time.

What can be done? It is clearly no good hoping that electricity markets will drive the energy transition, when it’s financial markets that are calling the shots. The option that has come to the fore in recent years, led by the Biden administration, is the one euphemistically called ‘de-risking’, which in practice means topping up and guaranteeing the returns that investors have come to expect using tax credits and other subsidies. The Inflation Reduction Act, signed by Biden in the summer of 2022, promises a giant $369 billion of these incentives over a ten-year period. This at least faces up to the fact that much of the power to shape the future is in the hands of asset managers and banks, and it is their calculations (and not those of consumers) that will decide whether or not the planet burns. There is no economic reason why a 15 per cent return on investment should be considered ‘normal’, and there is nothing objectively bad about a project that pays 6 per cent instead. The problem, as Christophers makes plain, is that investors get to choose which of these two numbers they prefer, and no government is likely to force BlackRock to make less money anytime soon. Where ‘de-risking’ continues to fall short is in moving from ‘carrots’ to ‘sticks’: there are precious few conditions imposed on the beneficiaries of green tax credits, let alone adequate penalties for those continuing to invest in fossil fuels.

The more ambitious, if politically unpalatable, option is a wholehearted Green New Deal, in which the state takes vast amounts of cost and risk onto its own balance sheet. Once it is accepted that electricity does not behave like a typical commodity, and that the urgency of decarbonisation exceeds all narrow cost-benefit calculations, then it makes sense to abandon reliance on markets altogether. Something akin to a wartime mobilisation might then take place, in which the state stretches its financial credibility to the absolute limit to invest in renewables at the pace that the climate emergency demands. Just so long as nobody expects this to make money for the state in the process, as Keir Starmer’s proposed Great British Energy project assumes it will be able to do.

Christophers’s​ The Price Is Wrong might be seen as the third part of a trilogy, following Rentier Capitalism (2020) and Our Lives in Their Portfolios (2023). What links these books is an effort to understand profit in the wake of Thatcher and Reagan, and to challenge the terms on which privatisation and marketisation have been sold. The mechanics of the electricity sector have some things in common with other cases that Christophers has picked through in recent years, including housing, public service outsourcing, care homes, land and infrastructure.

In all these cases, the goods on which society depends have been privatised in the name of encouraging market competition, but with results that look nothing at all like a ‘free’ market, and with predictable beneficiaries. These goods haven’t just been privatised, but ‘assetised’, in the sense that they have been packaged up, quantified and managed in ways that suit the calculations and interests of financiers. (The difference in the case of renewable energy is how unusually treacherous the assetisation project has been, to the point where it has often proved impossible to get the necessary turbines and solar panels built in the first place.) The financial sector deals in the language of risk, but it seeks out situations in which profitability is effectively guaranteed, a certain level of return baked in. Sectors with minimal competition or which the state cannot abandon altogether fit the bill perfectly. The derogatory term for this is ‘rent-seeking’, which is supposed to be an unusual and illegitimate mode of profit, but the disquieting implication of Christophers’s recent work is that this is simply how capitalism – at least in its current guise – likes to work.

The effects of this economic settlement are all around us, in the spiralling wealth of financial elites, the dilapidated public realm, unaffordable housing and continued investment in technologies – such as coal-powered generators – that harm us. Attributing all of this to ‘the market’, as if nobody designed it and there are no centres of power within it, prolongs the failure to understand it. Capitalism, unlike markets, has command centres. Capitalism, unlike markets, shrouds itself in complexity. On the other hand, the implication of The Price Is Wrong is that, contrary to its own subtitle, some version of state capitalism could save the planet, and indeed might be our best hope. But too many policymakers still have a mental block when it comes to abandoning the liberal ideal, in which the market gets us there without having to plan anything.

Keynes famously hoped for the ‘euthanasia of the rentier’. He was a liberal first and foremost, but was also uncommonly alert to the threat that capitalism posed to liberal ideals. The Price Is Wrong illustrates a central problem of capitalism from the Keynesian perspective, which is that it features not one price system, but two. There is the price of goods (such as a megawatt of electricity) which is set by supply and demand today, and there is the price of financial assets (such as the right to a windfarm’s revenue stream) which is set by expectations for tomorrow. Those expectations are determined by sentiment, convention, politics and culture. All of these are malleable, but adjusting them requires centralised authorities willing to step up and shape them. The myths of the ‘free market’ and ‘entrepreneurship’ have been a gift to rentiers, enabling inordinately high profits to be presented as an accurate reflection of innovation and courage, rather than a political settlement that nobody dares challenge. There is no shortage of financial capital available to support the energy transition, just a debilitating insistence on the rewards demanded for doing so.

Capitalism in this nakedly ‘antimarket’ form is beyond justification. At various points since the global financial crisis, leaders on the political left have attempted to point this out. Jeremy Corbyn and Bernie Sanders used their respective platforms to name and denounce a system that extracts without promising anything in return. Ed Miliband hung his 2011 Labour Party Conference speech on a Braudelian distinction between economic ‘predators’ and ‘producers’, which proved too much for Britain’s predator-aligned newspapers, and too nuanced to survive very long in the Westminster hubbub. He remains the last outpost of this kind of critical thinking in the shadow cabinet (following Starmer’s U-turn on his £28 billion a year decarbonisation spending commitment, a Conservative Party website led with the taunt ‘Where’s Ed?’), and the one front-bench politician who is receptive to analyses such as Christophers’s, which continue to be funnelled in his direction by the post-Corbynite think tank Common Wealth.

One curiosity of this critique is how much it owes to Keynes, and how little to Marx. It is precisely the lack of industrial exploitation of labour, and the absence of technological innovation, that are considered the central defects of contemporary capitalism. Instead, capitalism appears dominated by financial expertise, which floods and reconfigures everything from housebuilding to universities, public infrastructure investment to healthcare. The productive economy stagnates, while profits are wrung out of every available social and public utility by alliances of elite legal and financial services firms, sweating assets and expanding property rights. Liberal economists and pundits have latched on to the idea that Western capitalism is beset by ‘secular stagnation’, but Christophers goes further in setting out the way capitalism still manages to thrive despite the absence of productivity gains or prosperity.

Perhaps there is some hope to be found in the ingenuity of those who find the antimarket intolerable, and fashion their own escape routes. Academic publishing, for example, is one of the most egregious rent-grabs around. Scholars, editors and reviewers work for free, so that large copyright-protected conglomerates can charge libraries several thousand pounds a year for digital access to journals they can’t do without. The profit margins of the big scientific publishers run as high as 40 per cent, enough to make the boss of Shell blush. Hence the enthusiasm for projects such as the not-for-profit Open Library of Humanities, set up by Birkbeck academics in 2013, which now publishes 33 open access journals per year. When it’s capitalism that’s the problem, and not markets, the only alternative is post-capitalism.

But the central fact of the climate crisis is that there is very little time, and the scale of the political challenge increases with each passing day. The importance of acting as swiftly as possible scrambles our usual political and moral coordinates, forcing us to look beyond the political and economic solutions we might usually hope for, and more favourably on those which are considered ‘realistic’. Waiting for solutions to emerge in a bottom-up fashion, whether from activists or from markets, is not sufficient. Only the state has the power, the money and the coordinating capacity to direct capital investment at sufficient scale and speed towards the renewables sector. In practice, the distinction between a ‘de-risking’ state (which tops up private sector profits) and a Green New Deal (which builds new public infrastructure) may be less clear-cut than it appears on paper. The priority, as it has been now for decades, is to go as big and as soon as possible.