Ten Rules for Socially Efficient Markets

The following are ten market rules or principles well established in market theory that are essential to the New Economy.

Rule 1: Value life more than money. Life rather than money is the appropriate standard for evaluating economic choices and performance. Generally the best indicators of the health of human societies center on the condition of the most vulnerable among us. For example, we might ask how many more people enjoy secure and adequate diets this year over last. Being our most vulnerable members, the status of children is an especially sensitive indicator. Know the rates of infant mortality, childhood malnutrition, teenage crime, and out-of-wedlock pregnancies and you have a remarkably clear picture of a society’s state of health. For natural systems, biodiversity and the size of fragile fish, bird, and frog populations are excellent indicators of the state of ecosystem health. Taking life as the measure requires developing new tools for making choices as to how we will use our productive resources and for measuring market performance by it’s contribution to healthful living.

Rule 2: Put the costs on the decision maker. One of the market’s greatest strengths is its capacity for self-organization. These decisions, however, will best balance individual and public interests only to the extent that the private decision maker bears the full costs of his or her decisions. This is one of the most foundational and widely accepted of market principles. An unregulated market dominated by powerful global corporations with the economic and political power to externalize their costs onto the wider society allocates very imperfectly and creates powerful incentives for irresponsible behavior. 

Rule 3: Prohibit unregulated monopolies and absentee ownership.  In an economy comprised of many smaller buyers and sellers, no individual or firm is able to have a consequential influence on market price—thus maintaining pressure for efficiency and preventing any firm from capturing unearned monopoly profits. Human-scale firms in which participants can maintain relationships of mutual trust, caring, and accountability have other important benefits. They tend to be highly productive and innovative, contribute to building and maintaining the social fabric of the community, and provide a more satisfying work life for their members.  There is less need for hierarchy and bureaucratic control and greater possibility for real participation in decision making.   

Rule 4: Distribute wealth equitably. One of the most important benefits claimed for the market is that it sets priorities based on the real preferences of consumers and thus achieves a democratic and socially efficient allocation of resources. Since one dollar equals one vote in a market economy, this claim rests on a strong—but rarely stated assumption—that income and assets are distributed equitably throughout the socity. A global economy in which those with incomes of less than a dollar a day are competing with others with incomes of more than a million dollars a day will not allocate efficiently. Aristotle observed more than 2,000 years ago that a society without extremes of wealth and poverty is more likely to be a healthy society. It is still true.

Rule 5: Require full disclosure. Market theory assumes that individuals make economic choices based on full information regarding the quality, contents, technical specifications, production processes, and safety record of the products and services from among which they are choosing, as well as the policies and practices of the company that produce them. Public policy should consistently side with the consumer’s need to know and require full disclosure of relevant information by sellers. Laws that require factories to inform the public regarding their toxic releases into the air and water and require processed foods to carry labels with nutritional information are positive examples of rules essential to efficient market function.

Rule 6: Share knowledge and technology. Adam Smith correctly condemned trade secrets as an unjustified barrier to fair competition. There is a legitimate case that those who produce beneficial innovations should have the opportunity to gain a reasonable livelihood from the product of their creative labor, but they should also be expected and encouraged to share that product with others. The current system of intellectual property rights rarely benefits the actual inventor or innovator as it most often places the rights in the hands of a corporate entity from which the actual inventor may gain no benefit. Intellectual property rights have a limited place, but should be defined narrowly and granted for limited periods of time following the basic principle that the public interest is best served by the free and open sharing of information and technology.

Rule 7: Maintain diversity and self-reliance. The model of a global system of diverse local bio-communities that function with a high degree of self-reliance in energy and materials is a key to insulating local communities from the instability of the present global economy. A community engaged in the use of its own resources to meet its own needs is more likely to manage its environmental resources responsibly for the long-term and less likely to experience major economic shocks because an absentee owner decides to relocate a factory or changing market conditions in a distant land result in the loss of a market or supply of such essentials as food or energy.

Rule 8. Manage your borders.  Preference for self-reliance does not mean closing one’s borders, but it does require managing them to assure that that the conditions of mutually beneficial exchange are being fulfilled as recognized by trade theory. Among these conditions, trade must be fair and balanced financially and environmentallyand ownership of the means of production must be national. So long as trade is balanced and ownership is local, there will be little of the economic instability and colonization that come with long-term flows of financial capital. 

Rule 9: Maintain an ethical culture. Market ideologues deny both its possibility and its importance—elevating pathology to the status of a social good and teaching that altruistic behavior is naive and socially counterproductive. Yet it is self-evident to any thinking person that ethical behavior and an ethical culture are essential to both the efficient function of the market and the general health of the society. The importance of ethical behavior should be a central theme of any valid economic theory and an essential subject of public, religious, and scientific education.

Rule 10: Recognize Government’s Necessary Role. Government is the necessary guardian of many of the conditions essential to efficient market function, such as maintaining public infrastructure, protecting the rights of living persons, limiting the growth of individual firms, assuring that costs are internalized and equity is maintained, providing incentives for full disclosure and sharing knowledge, and managing border cross border flows. We grant government coercive powers specifically because they are essential to its role in protecting our rights and freedoms from those who would abuse them. We can no more afford to eliminate government’s role in regulating the market than we can eliminate its role in enforcing traffic rules or laws relating to theft, rape, and murder. 

These ten rules of efficient markets frame the essential elements of a New Economy policy agenda.

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Abstracted, adapted, and updated from David Korten, When Corporations Rule the World and The Post Corporate World: Life After Capitalism.