___ ESPITE its I "X glorification in the I I rhetoric of po-

J—X litical and economic pundits, the free market of today is a false god.

While markets are necessary in human decision-making. they are not sufficient tb coordinate all our interactions and those values that lie beyond price. Markets require rules and regulations in order tb function efficiently and even Adam Smith taught this, lesson.

It is being relearned today in Russia and other societies shifting from socialism to

Smith said markets function to allocate resources only when buyers and sellers meet in market places where each person has equal power and information and where no harmful effects are inflicted on innocent bystanders. Smith's clearly stated • rules' are still necessary conditions for markets to function today.

In fact, markets never were "free". They always relied on rules of human Interaction: the-reciprocal cooperation, trust, and moral obligation that accompanies any free, uncoerced exchange between people. Otherwise markets could have never developed as the civilized means of exchange they became.

So why have we forgotten this essential. cooperaUve basis of markets?

The exaggerated rhetoric of "free" markets so prevalent today is part of an adolescent yearning for irresponsibility. Nothing could be more dangerous than truly free, irresponsible markets, the consequences of which are forever represented in the Wall Street crisis of the 1920s.

Only the calamitous crash of 1929 that devastated millions of people spurred intervention and government regulation, with the creation of the Securities and Exchange Commissions. Even so. it took many years to rebuild the trust and confidence of Americans in banks and securities markets.

So why do economic textbooks teach that markets and regulations are opposites? They cite Smith s observation

that we have an equal propensity to make rules.

Economics textbooks left the study of rule-making and interactions in communities and families to a branch of mathematics called "Game Theory". Game theorists literally study the games people play, along with psychologists, sociologists, political scientists. and anthropologists.

In 1994. game theorists, focusing on these rules of human interaction, won all three Nobel Prizes in economics.

All economies today are mixtures of markets and regulations that can only be Understood from such broader perspectives. It is culture that provides the rules that govern all economies and not the other way aibund as economic textbooks still state.

For example. Russia, in ‘ adopting obsolete Western economic textbooks, unleashed a 19th century form of capitalism rather than its 20th century regulated forms now operating in Europe and North America.

Few Russian economists ever visited the United Sates or any of the advanced industrial countries to see how 20th century capitalism had already evMverf within contract law

slate, and national levels of government.

The Russians now are learning the hard way. as their society's trust, cooperation, and confidence have been eroded in search of the false god of free markets and irresponsible individualism.

The have experienced everything from stock market scams, bribery, corruption, inflation and unemployment, to soaring domestic violence and the breakdown of traditional values.

The US and European debate about what to regulate at what level of government is important., In too many cases tax codes and government regulations have been subverted to benefit the powerful few: financial. corporate and other special interest groups.

The efforts of US voters to form a third party are clearly baaed on this loss of trust in governments now cited by 76 per cent of the American peo pie. according to a recent survey by the Americans Talk Issues Foundation of Washington. DC.

Europe's "social markets and welfare safety nets are also in tatters, as they are in the United States and Canada. But attempting to solve the problem by entrusting it to the

worse.

The deregulation of financial markets in the 1980s accelerated the erosion of national sovereignty, environmental standards, and domestic policy options to present Job security and maintain safety nets. CorporaUons and financial players were allowed to escape national regulations and migrated into the global fast lane and its as yet unregu- ■ iated financial markets.

National politicians, however honest and democratically elected, now ruefully tell voters they are powerless to fulfil their campaign promises and manage the domestic economy because of "global competition."

Today they must deal with hordes of bond and commodity traders and the daily tidal wave of aroupd 81 trillion or more that sloshes across their borders and can attack the value of their currencies at a moment's notice. Footloose corporations seek ever cheaper labour and unprotected environmental resources worldwide.

Instead of countering the rhetoric of false markets, politicians shrink from a vital debate about the complementary role of regulation, both na-Uonal and international. Some are caught in the false polarity between globalism and isola-tionism. All are traumatised by taxes.

But only when we recognise that markets and regulations are essentia] to prosperous, orderly economies can we end the polarisation of post-Cold War politics. National politicians pushed to the wall by global financial markets will soon learn these lessons

Voters are demanding that politicians address irresponsi-. ble global markets and competition by spending more of their time on international agreements to regujate these unstable markets. Something akin to a global Securities and Exchange Commission (SEC) Is now necessary to bring order and restore both confidence of investors and the trust of voters in all countries.

—IPS Feature