11 - Managing Modern Markets

Summary

The combination of well-regulated market capitalism and active government redistribution have led to enormous rises in living standards and reductions in poverty over the last two centuries (Ortiz-Ospina 2017). Changes to how production was organized and the rise of industrialization led to an explosion of expertise, innovation and productivity (as well as the continued exploitation of people in many parts of the world which had been colonized or forced to feed the economic success of dominant powers). People in countries that embraced market capitalism are able to enjoy living standards, comforts and leisure unimagined by their predecessors and still far out of reach of vast swathes of the world's population. These gains were not simply the result of untrammelled markets however. They also rested on the growth of governmental ambition and reach. GDP has grown massively in the last century but, equally importantly, government spending as a share of national income has also shot up since the 1930s: from under 10 per cent in the UK at the start of the twentieth century to over 30 per cent by the end of the century (Brien & Keep 2018).

Ironically, given that their proponents tend to be locked in conflict, it seems to have been the combination of globalization and public spending, especially on social safety nets, that have delivered better living standards and lower poverty. We have talked a lot so far about the safety net side of this equation, but what about the markets side?

At the heart of market capitalism is the idea of the active consumer. The market organizes itself to meet the evolving needs of its consumers, competing for their custom and innovating to get an edge over the competition either by reducing prices or improving the goods or service being bought. Since poverty is about someone's resources not meeting their needs, reducing costs can free people from poverty if it means their resources can go further. When food prices are low, more people can feed themselves. If the cost of heating falls, more people can afford to keep their homes warm. Over a decade of research on living standards and the cost of meeting our basic needs, Loughborough University's minimum income standards programme has offered striking examples of the power of this to improve people's lives (Hirsch et al. 2018).