Market fundamentalism (also known as free market fundamentalism) is a term applied to strong belief in the ability of regulated laissez-faire or free-market capitalist policies to solve most economic and social problems. The single word “Fundamentalism” means a religious movement characterized by a strict belief in the literal interpretation of religious texts, especially within American Protestantism and Islam, and it is originated from the American Protestant fundamentalism movement which arose in the late 19th and early 20th centuries in reaction to modernism, while the term “Market Fundamentalism” was coined by Nobel Prize winner and former chief economist of the World Bank itself –Joseph Stiglitz.
Critics of such policies have used the term to denote what they perceive as an unfounded misguided belief, or deliberate deception, that free markets provide the greatest possible equity and prosperity, and that any interference with the market process decreases social well-being. Users of the term include adherents of interventionist, mixed economy and protectionist positions, capitalists, as well as economists. Critics cite as fundamentalist the unshakable belief, even against the evidence, that unfettered markets maximize individual freedom, that they are the only means to economic growth and that society should adhere to their specific ideas of progress means. Stiglitz (2015) stated in an recent interview “The theories that I (and others) helped develop explained why unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Interestingly, there has been no intellectual challenge to the refutation of Adam Smith’s invisible hand: individuals and firms, in the pursuit of their self-interest, are not necessarily, or in general, led as if by an invisible hand, to economic efficiency.”
The myths of Market Fundamentalism include:
- The market is the only source of innovation and it must be left alone if we want to accelerate technological change.
- Government will always spend money less productively than private citizens; this is why tax cuts are almost always a good idea.
- Regulation of business is wasteful, unproductive and usually unnecessary.
- Financial markets thrive when regulation is kept to a minimum.
- Private firms will always produce a good or a service more efficiently than the government.
- It is wrong to regulate wages or executive compensation because markets always get prices right.
- Government assistance always ends up hurting the people it is supposed to help.
Market Fundamentalism has dominated public policy debates in the United States since the 1980’s, when financial markets started to become globalized and the US started to run a current account deficit, serving to justify huge Federal tax cuts, dramatic reductions in government regulatory activity, and continued efforts to downsize the government’s civilian programs. While Republicans and conservatives have embraced Market Fundamentalist ideas, many Democrats and liberals have also accepted much of this mistaken belief system.
During the 1990s, Williamson’s original conception of the ‘Washington consensus’ became distorted as it was popularized, and evolved ‘to signify a set of ‘neoliberal’ policy prescriptions’. The Washington consensus quickly became associated with market fundamentalism. In Stiglitz’s view, all versions of the Washington consensus, but especially the neo-liberal or market fundamentalist interpretation, are fundamentally flawed. Their policy prescriptions, concept of development and agenda for government all embrace far too narrow a perspective. With respect to the modern role of government Stiglitz argues that the “ideological debates should be over; there should be agreement that while markets are at the center of the economy, governments must play an important role. The issue is one of balance, and where that balance is may depend on the country, the capacity of its government, the institutional development of its markets. In other words, development advice should be adapted to the circumstances of the country” (Stiglitz, 1998). Further, Dani Rodrik has argued that “The idea of a mixed economy is possibly the most valuable heritage that the twentieth century bequeaths to the twenty-first in the realm of economic policy”, and that “successful development requires markets underpinned by solid public institutions” (Rodrik, 2000).
References
Stiglitz, J.E. (1998), “Towards a new paradigm for development: Strategies, policies, and processes”. The Prebisch Lecture at UNCTAD, October. www.worldbank.org
“Longviewinstitute.org. n.d. Market Fundamentalism — Longview Institute. http://www.longviewinstitute.org/projects/marketfundamentalism/marketfundamentalism/
Stiglitz, Joseph E. The pact with the devil. Beppe Grillo’s Friends interview”. Beppe Grillo’s Blog. Jan. 24, 2015. https://web.archive.org/web/20150124040716/http://www.beppegrillo.it/eng/2007/01/stiglitz.html
Stiglitz, J.E. (1998), “Towards a new paradigm for development: Strategies, policies, and processes”. The Prebisch Lecture at UNCTAD, October. www.worldbank.org