BP, the Gulf spill, and classical liberal theory

The Gulf oil spill is offering a teachable moment as to how understanding emergent processes in the social sciences deepens and improves classical liberal analysis. Classical liberals more than any other branch of liberalism have emphasized the role of spontaneous orders in society, particularly the market. In this they offered a powerful corrective to managerial liberal ambitions of bringing society under rational administration and egalitarian suspicion of inequality, let alone earlier Marxist ideals of planning the economy. But every emphasis means not looking somewhere else, and the classical liberal emphasis on the achievements of spontaneous orders brought with it its own blind spot.

Today the Gulf of Mexico crisis is helping to illuminate it.

An unnecessary and usually unexamined assumption by most classical liberals is that voluntary contractual processes generate patterns of resource allocation that reflect individual preferences. It is this belief that underlies a frequent argument, particularly by libertarians, that government is always inferior to the market in doing whatever the market can be said to do. Government, even democratic government, is supposedly intrinsically inferior to markets in reflecting and facilitating our desires.

This frequently encountered classical liberal belief stands in theoretical and practical tension with another even more basic argument by classical liberals: that feedback processes generated in spontaneous orders facilitate cooperation and coordination by simplifying the information people need to act effectively to attain their own goals. Prices make possible far more complex chains of cooperation than would otherwise be possible. Absent prices, economies would fall back on barter, and absent market generated prices the feedback signals economies generate would fail to coordinate different plans. This insight is central to classical liberals' devastating critique of socialist planning.

The Gulf crisis shows us why assuming these two arguments are compatible is wrong. The second insight is vitally true and the first is disastrously false.
Any simplification eliminates information. A useful simplification does not eliminate vital information. With market prices, all I need to know in making a transaction is its money cost and what I expect to gain from it. At the individual level this is often true, and when it is not true, it usually causes only limited difficulties that can be rectified by product differentiation (although too much differentiation eliminates much of the utility of prices).

As such, most prices reflect instrumental values: something’s value in terms of other things. As individuals we weigh instrumental value with non-instrumental values. My house may also be my home that I love, and so is “not for sale.” I may buy locally and not from a chain because I value a vital local community in which to live over a few dollars saved by buying elsewhere. Values like living in a prosperous community and having a home are difficult to express in money terms. When we exchange these kinds of values for money (someone offers a big enough inducement to sell my home) there is always a sense of loss that would not be the case if it had only instrumental value. For example, I grew up in this home, inherited it from my parents, and it is a storehouse of cherished memories. But the price I am offered is too good to pass up, perhaps because I need the money for medical bills.

Corporations are created to serve only market values, to generate money income for their shareholders. No other values matter. A CEO who sacrificed share value to preserve any other value would risk a hostile takeover. Thus, for a publicly held corporation EVERYTHING is instrumental, and ultimately is valued only in terms of the money it can generate. Were it a human being, a corporation would be appropriately classified as a sociopath: it is unable to sympathize with others, it has no conscience. Any damage it causes to others is evaluated only in terms of what it costs the company. It the damage brings in more money than the corporation has to pay out in recompense to its destructiveness to others, then so be it.

BP’s actions in the Gulf of Mexico are in perfect accord with corporate sociopathy, as this short talk by Kindra Arnesan, a Louisiana fisherman’s wife, makes crystal clear. http://www.youtube.com/watch?v=jkYJDI8pK9Y Assuming most of my readers will not speak with an accent similar to hers, you will have to listen closely. It will be worth the effort. BP’s actions are entirely in terms of saving money and whenever any more humane value intervenes, it is cast aside. As recent news from Massey Energy an Goldman Sachs indicates, BP is not along. We are dealing with systemic features of advanced market economies, not individual failings of bad managers.

The flaw in the usual classical liberal perspective is assuming that acting within systems of coordination has no impact on how our choices are translated into signals able to guide others in their plans. By translating our choices and their impact into prices, the market process enables them to help coordinate the exchange and production of instrumental values. This is a wonderful achievement.

But at the same time this makes non-instrumental values, the recognition of which are what makes us human, largely invisible except at the level of individual choice, where we take our own non-instrumental values into consideration when acting. When powerful organizations systemically unable to take non-instrumental values into consideration act on human beings, the results are inhuman, and when the organizations are powerful enough, ghastly.