Market Democracy?


The topic of this paper is located in the field of normative social theory, which I understand as an umbrella term for all kinds of abstract discussion about how society should ideally be structured. The two most prominent types of theories in this field are theories of democracy and market economy. Just to be clear, such theories do not have to be normative. Democracy and markets can be studied or conceptualized as real world phenomena instead of ideals of social order. Nevertheless, I think no one would deny that both concepts have also become synonyms of good social order in their respective disciplines. Interestingly though, in contrast to political theory and the concept of democracy, there exists a lot more agreement in economic theory regarding the question what exactly constitutes good economic order; namely a system commonly known as the free market.

The standard explanation of how the free market system works is found in countless economic textbooks[1] and every student of economics has to wade through at least one of them during her studies. Proportionate to the importance of standard economic theory there is am impressively extensive amount of literature criticizing it. In fact, I would go so far to claim that the critique of standard economic theory is complete. Which is why the topic of this paper is not yet another critique, but an alternative vision of how the market economy should function, motivating also non-standard theorizing on the level of normative social theory.

The alternative vision of the market I am referring to is something we find embodied in many contemporary movements and debates, the example I will mostly refer to being fair trade. Taking such alternative ways of thinking about market economy seriously on the level of social theory amounts to dropping many of the core assumptions and concepts of standard economic theory, as well as employing an integrative approach to social theory that does not define politics and the market as two separate spheres.

The following first section (I.) will serve the purpose of presenting the topic in more detail and introducing the research question: To what extent can political decision-making in the market be justified? In the second section (II.) I will turn to the discussion of this question. The focus of this inquiry was motivated by the fact that much of alternative economic thinking and practices aim at addressing certain political problems, such as the exploitation of people and the environment, within the market system. Calling for market solutions for political problems in this context makes sense because on the one hand, market forces are powerful, global and often directly related to the big problems we need to solve while on the other hand, efforts like the UNFCCC constantly remind us of the incapability of international politics and polities to address them. Therefore I think is intuitive plausibility for thinking about political decision-making in the market. Besides empirical and technical questions, this idea also raises normative queries. For, in the democratic tradition we have come to believe that in any well-ordered society the exercise of political power, i.e. the power of making political decisions, requires justification. If we see the market as an alternative framework for deciding about political matters, the decisive normative question is: To what extent can political decision-making in the market be justified?

I shall conclude the discussion by claiming that this is in fact not the case. Because of the individualistic nature of economic decision-making, market solutions can not replace the laws and regulations produced by justified political institutions.


I. Preliminaries

The central question of this paper, which I will discuss in the second part is: To what extent can political decision-making in the market be justified? Why this question?

Topic and question of this paper were originally motivated by a certain way of thinking about the market economy, which we find embodied in movements, practices and debates related to fair trade, cooperate accountability (CA), corporate social responsibility (CSR), sustainable development and do forth. Behind all these different labels we can identify several coinciding features, such as a concern for certain problems that are directly related to our economic practices (e.g. the exploitation of people and the environment) and the idea that these problems can be addressed within the market framework. The latter is the reason why one could label this perspective on market economy the politicized market. I choose the term politicized because firstly, according to this perspective, all of us as market agents (producers, traders and consumers) cause certain problems that are of a political nature, for they are conceived as problems we commonly face as a society. Secondly, these problems are not only caused by us interacting within the market framework, but can (and should) also be addressed within the market. This turns the market economy into a genuine political arena; a place where a community of individuals tries to find solutions for their common social problems and a place that is usually occupied by conventional political actors and institution such as government or the state.

A more normatively charged version of the politicized makret is Paul Ekins’s progressive market.[2] This specific conception of market economy differs from others in the way it conceive of the agents acting within the market framework as well as the outcomes they produce. The progressive market is inhabited by progressive consumers and progressive producers and besides other well-know market outcomes, such as a certain distribution of economic benefits, these agents facilitate progressive policies.

The clearly positive connotation of the term progressive suggest that there is something inherently desirable or good about this arrangement. The reason why Ekins uses this term, is because he presents the progressive market as a potential remedy for a great amount of social problems that are directly related to or caused by our economic practices. The consumers and producers are referred to as progressive, insofar they a) recognize this connection between the economic decisions they make, the actions they consequently take and the (potentially) problematic effects this causes for them and for others and b), insofar they take personal responsibility for these effects and are therefore concerned with the question of what constitutes good economic practice when making economic decisions. If market agents behave in such a way – so the idea – the choices made in the market, such as the preferences voiced by consumers purchasing decisions and the products offered and the production methods employed by the producers, or not only of an economic but also of a political nature: They are not only based on considerations of economic self-interest, but also on considerations of social benefit. Therefore, decisions and actions in the progressive market can also be said to be about progressive social policy.

Ekins’s motivation for proposing this concept is a practical one: to use the market and its powerful mechanisms, instead of the state or government, to foster social policy that aims at solving the (global) problems associated with our economic practices. The fair trade movement poses an excellent example. Fair trade is a social movement as well as an alternative trading system. Proponents of fair trade consider conventional international trade as problematic, because it leads to an unfair distribution of gains from trade (especially between the global north and south) as well as the unsustainable usage of natural resources. Therefore they have come up with an extensive list of criteria of how production and trade should be structured, in order to solve these problems.[3] Now one strategy of the fair trade movement is to lobby for a FWTO; a Fair World Trade Organization. In other words, they are going the orthodox way of turning to the political system to addressed the problem they have identified. On the other hand – and this is what I am really interested in here – they have put in place an alternative trading system, which is an attempt to solve the identified problems within the market framework. Here the strategy is that all market agents along the supply-chain, and last but not least the consumer, become aware of the problem, understand that that they are to some extend responsibility for it and eventually take actions to solve it. In other words, the strategy is to address political problems within the market framework.

Now, from a practical perspective this strategy and the notion of a politicized market seems to be a quite useful remedy to the obvious incapability of international politics and polities to deal with many of the worlds most pressing problems. Rising global temperatures, people dying because of their working conditions in developing countries or the the sharp decline in biodiversity, all these things are very serious global problems and it seems that if we would just start to act more responsible as economic agents, we could in fact use the undeniable powerful global market forces to improve things, in spite of political deadlock and powerlessness.

From a normative perspective however, the notion of a politicized market raises the question of justification that is inseparable from our modern way of thinking about political solutions, power and decision-making. The central modern ideal of good social order, according traditions of social contract theory, deliberative democracy, public reason theory and most generally liberalism, is the demand that legitimate norms and authority have to be justified to those governed by them. If we now turn to the market instead of the political system for the resolution of political problems, the same justification requirement should apply to this politicized market. Hence, the central normative question is; are the workings and outcomes of the politicized market justifiable?

To give a more concrete example of what this question is asking, think of a European consumer, a farmer in South America and an NGO issuing fair trade labels. Does any of them have the legitimacy to decide what counts as a fair practice for the other and do they – individually or together – have the legitimacy to decides what counts as a fair trade for all of us?

Before going about answering these questions, I would like to point out that the notion of a politicized market and the described research question pose an intriguing challenge to significant parts of longs established social theory. Namely, it calls into question the often rehearsed.

Thinking about the market as part of the political sphere is quite contrary to a very influential tradition in and outside of economics, which sees the market as a political vacuum of purely private exchange. I refer to the latter as standard market theory and by that I mean the old familiar tale of free and competitive markets[4]. According to this paradigm of economic theory, the market consists of a group of rational individuals, who try to satisfy their economic desires as best as they can (homo eoconomicus) under the constraint of given resources, technology and everybody else’s preferences regarding different consumption options. The mechanisms that facilitate and structure the social interactions between individuals are a), voluntary exchange which ensures that every economic interaction is to the benefit of all involved parties b), the price mechanism allowing for universal exchange and coordination and c), competition ensuring that no single individual can determine prices. Finally, we end up with the famous invisible hand dynamic – the magic of the free market – which ensures that the utility derived from given resources is maximized on the individual as well as on the aggregate level under the constraint of given resources, technologies and given preferences.

In the context of this paper the important characteristic of this conception of the market is that all market components (individuals, goods, interactions) are defined as private. This has the peculiar consequence that effects caused by market agents, but not reflected in the price mechanism (such as pollution) are defined as externalities – things that do not matter in the market and that have to be dealt with by someone or something external to it.

Turning to the politicized conception of the market leads us to drop many of the central assumptions and concepts of standard market theory: the homo oeconomicus, purely private exchange and externalities as well as a the guiding concern for economic efficiency – these are all things which do not seem to fit any longer if we think about what happens in the market in more political terms. What we are then left with is a much less defined and less understood market place, consisting of the bare market mechanisms (voluntary exchange, price, competition) and a group of individuals, engaged in social interactions related to the exchange of things, but, prima facie, no different from people in other social contexts. There is something highly interesting and stimulating about this way of looking at the market economy, for it leaves us with many open question concerning what people in the market actually want, by what principles their behavior is governed and – from the normative perspective – by what principles is should be governed. The key point here is that theorizing about the politicized market seems to require us to look at social theory from a more integrative perspective.

In accordance with standard market theory, there exist a very influential tradition in social theory that understand the market and the political as two clearly separated spheres. According to this tradition, on the one hand we have the market with its logic of individual utility maximization and private exchange by means of voluntary exchange. On the other hand, we have the political system with its quite different logic of finding common solutions for common problems by means of binding regulation and laws. Both systems ought to be clearly separated in the sense that a) it would imply a logical contradiction to make political decisions in a purely private market and b) the political system should never intervene if market mechanisms are working properly.

Although most pronounced in economic theory[5], this bipolar view of social theory is also quite popular with theorists from philosophy and political science.[6] Here it also becomes evident that the political stance of the theory or its author (e.g. market liberal or leftist) usually does not affect the basic agreement about the market and the political being two separate spheres. The disagreement is usually rather about where we ought to draw the line between both systems – what problems (think of health care for example) are to be addressed by a system of private exchange or by public choice mechanisms.

However, there also exists a long tradition of looking at the political system and the market from a more integrative perspective. One of the classical works that is always cited in this context is Karl Polanyi’s The Great Transformation (1944), in which Polanyi argues against the Smithian idea of the free market as a natural economic order, maintaining that economies have mostly been and should be embedded in social relations. Introducing economic methodology to political science, another integrative approach as been rational choice theory, as presented for instance by James Buchanan, Anthony Downs or Robert A. Dahl. More recently and quite in opposition to the basic assumptions of rational choice theory, Peter Ulrich has argued for a socioeconomic conception of individuals in the market and an economy that is embedded in civil society.[7]

Independent of all these different authors and standpoints, there are at least two fundamental reasons why it seems very sensible to approach social theory from a more integrative perspective. One, because both, political and economic theory, have the same basic subject matter; the social world we have created to facilitate coordination and cooperation. Consequently in both fields we are facing the same basic normative question: According to which principles society and its basic institutions ought to be structured? Thomas Hobbes and Adam Smith, the founders of modern political and economic thought exemplify this point by telling us a quite similar story about how individuals, motivated by rational self-interest, evolve from living in an inferior, natural society, to living in a superior society structured by certain desirable institution (the state and the free market).

Two, if it is indeed correct that political and economic theory face the same fundamental question, then the only way to justify why we should treat both as being fundamentally different fields would be to assume individuals to fundamentally differ in both social context. It is often claimed that this is precisely what has happened in economic theory by basing everything on the Wealth of Nations and neglecting Smith’s other great work; his Theory of Moral Sentiments.[8] It seems intuitively questionable to assume that somebody will become a different person just by walking from the community center to the supermarket. This intuition is confirmed by the success of rational choice theory and behavioral economics. Many people in politics care a great deal about there personal economic benefit (money!) and at the same time many people care about more then money, when making economic decisions. Even in situation where market behavior can (to a large degree) be explained by models based on the assumption of economic utility maximization it is still unlcear which came first: the behavioral pattern or the theory about how one ought to behave economically rational? If people behave in a certain way in the market, this might simply be due to the fact that they have been taught to behave like this by the very theories that are in question. Sociologists call the the performativity of economics[9].

Admittedly, we have now touched on a great amount of arguments and debates that can not be attended to in a satisfying manner within the constraints of this paper. Nevertheless, what has been shown is that there are very good reasons for calling the strict divide between the economic and the political sphere, popular in many works of social theory, into question. Especially from a normative perspective the basic problem of the theorist in economics as well as politics (again, think of Hobbes and Smith) is the same: What is a good system facilitating coordination and cooperation between members of society? Consequently, and this is a key claim for the following discussion, moral arguments or requirements – such as the justification requirement and the related liberal lines of argumentation – should apply equally to the political and the economic social realm.

The notion of a politicized marked is a case in point for the integrative approach to social theory, because it builds on the fact that people can also act and reason politically in the market and that there is no reason why we have to observe the merely theoretic distinction between private exchange and its ‘externalities’.

In summery, the goal of this first section was that a certain way of thinking about the market – what I have called the politicized market – is an interesting and relevant topic for normative social theory because firstly, it is something we find embodied in already existing economic practices (fair trade) and secondly, because it offers an alternative, more integrative way of thinking about the market economy, then the much criticized standard theory. In the second section I will now turn to the discussion of my research question.

II. Market Democracy?

How can we address the complex question of justifiable political decision-making in the market? In order to avoid getting lost in related meta-debates, we first need some uncontroversial common sense conceptions of justified political decision-making and democracy. At least in the liberal, tradition justified political order starts from the axiom of normative equality and liberty of individual citizens. This is to say that people have the same moral or political worth and are not bound by natural or metaphysical obligations to each other or to some authority. Consequently insofar they are governed by a set of norms and institutions, they should allocate to each individual the same amount of basic rights and obligation. Further, any inequality in rights, as any authority claim in general, consequently requires justification: An argument that shows to the affected individual why such claims have authority over her. In the context of such accounts the typical reason given for the rightfulness of social norms as well as state authority is a mutual benefit: Society as a whole as well as its members, so the argument goes, are usually far better of, if they subject themselves to a set of cooperative norms and institutions. Hence, a relatively uncontroversial notion of justified political decision-making is based on the requirement of an equal and free citizenry and a context of common social problems that provide good reasons for common social norms and decision-making institutions.

In modern, constitutional democracies this is reflected by the fact that citizens are allocated the same basic rights and obligations, they are equal before the law and they have the same amount of basic political power: One person, one vote! Further, constitutional norms as well as laws and the state more generally are justified by reference to the benefits of the governed. In order to ensure that this line of justification is tested and reproduced further central features of democracy are a high degree of transparency, public debate and participation. In a nutshell, democratic government is justified government of the people, because it is government by and for the people.

Given that what has been said so far is correct, the same democratic standards of justification should apply to instances of political decision-making in the market. In other words, if the market ought to be an arena of political decision-making it should also be a market democracy. But what could a market democracy look like? How can grasp this unorthodox idea? Samuelson and Nordhaus provide a helpful thought by stating that what goods and services will be produced in a market economy is determined by the “dollar votes” of consumers[10]. This analogy between using money for buy something and making a political decision offers us a way of thinking about the market as genuine political arena, where produces make offers with regard to what and how things ought to be produced and consumers vote on these “policies” with their “dollar votes”. Whereby in our context of the politicized market, we have to also include further actors into the picture, such as the third sector agents (e.g. NGOS such as the Fairtrade International) and the media. What we end up with is a kind of a kind of direct democracy for economic related policy. In this market democracy the policy cycle is not driven by power dynamics between society, interest groups and governments but by producers, activists and consumers and the logic of supply and demand, competition and price. What remains true for political decision-making in the conventional arena as well as in the market is that it has to be accompanied by public information and debate, in order for the individual to make well-informed decisions.

In the following I will explore the analogy between the market and direct democracy in order to determine how plausible the analogy and thereby the idea of justified political decision-making in the market is and where the analogy starts to collapse into a disanalogy.

2.1 Direct Market Democracy – An Analogy

Intuitively, the analogy between direct democracy and the market makes sense, because in both systems the individual retains her decision-making power. In contrast to representative democracy, there is no delegation of political power, which seems to make things easier for the normative theorist, concerned with justification – at least at first glance. What is special about the market place however, is that the default mode of decision making remains individual, in that no aggregation of preferences takes place in the way it does in conventional political systems. In the market place individual A decides on her own, if she wants to buy fair trade coffee or not and no matter what she decides, B can still choose to do whatever she prefers, irrespective of A’s choice. In politics on the other hand, we usually aggregate preferences by means of decision-making rules – such as majority voting – so in conventional political systems we would expect a vote on fair trade coffee to lead to binding decision-outcome, requiring for instance that all coffee available for purchase has to be fair trade coffee. Such common solutions based on collective decision-making are foreign to the market system, which is an important disanalogy with respect to conventional political systems and I will return to this point in the following disanalogy section (2.2). For now let us stick with the analogy.

The fact that a market democracy would rely on individual decision-making seems to suggest that the burdens of justification are significantly lower, because in the market any consumer can buy whatever she wants without some collective choice mechanism getting in her way. However this does not really lessen the burden of justification. Market democracy is just as demanding in a normative and practical sense, as nation state democracy. To see this let as look more closely at what kind of justification is required here.

Direct democracies employ collective choice mechanisms such as majority voting and hence require constitutional justification. That is, they require a justification of their basic normative order, which consist of the basic rules governing everyday politics. To see this, think of a direct democracy where an agreement is found by relying on simple majority rule. My point is that we in such a case we would need a general justification (e.g. a social contract) regarding the appropriateness of the majority rule. So to justify the decision outcome of majority voting to the minority who lost the vote, we would have to remind them of their agreement to having the vote in the first place, assuming that such an agreement does exist. Now, in the case of a market democracy, we might be tempted to think that constitutional justification is not necessary, for in this case there is no collective choice taking place. However, this view would be mistaken for two reasons.

One, because also in the market there are mechanisms – such as price – which create a systematic interdependence between individual choices. A’s decision to buy an apple is usually not dictating by B’s decision to buy an apple. Nevertheless, there might be such a high demand for apples from people who value them more then B that in the end B cannot afford to buy an apple, or the land necessary for producing the apple is used more profitably by cultivating pears, so the apple isn’t even offered to B in the first place. The market does not satisfy every person’s preferences as they are, but it does so under the constraint of all other preferences, according to the underlying utilitarian ideal that things should end up in the hands of those who value them most. This is a way of organizing things on can reasonable agree or disagree with and therefore requires justification. So in politics as well as in market we have to be concerned with the question, if the system governing social relation is actually acceptable for the governed.

Two, some outcome being the direct result of someone’s decision is not sufficient for the outcome being justifiable to that person. Someone signing a contract of purchase for a house is not sufficient for justifying the claim that this person has to actually buy the house, because someone else might have forced him to sign the contract at gunpoint. We except the choice of any individual only as basis for normative claims about what is acceptable for her, if the choice is made under certain ideal conditions, which is the reason why ideal choice situations have played such an important role in normative theory[11].

Now granted, there are many different philosophical accounts of how constitutional justification precisely works (e.g. social contract theory, deliberative democracy or public reason theory). But what these two points show is that the market mechanism is in the same need of justification as other component of a societies basic order. Further, no matter which theory of justification you prefer, they are all based on or aimed at societies that are governed by general democratic principles of freedom, equality, openness and participation. Hence, if we understand a market democracy as a justifiable system for addressing our global common problems, this would require the existence of a global democratic market were every dollar-voter has the same right, capacity and opportunity to cast her vote. Further, I think Ulrich’s (2005) point of the market being embedded in a society, resembling the ideals of civil society and a public sphere, is paramount. Simply think again of the work NGOs do in order to inform consumers about problematic economic practices and rally for change. The market democracy – just as state democracy – requires on open society populated (at least partly) with politically active citizens, who understand themselves as part of a community, who develop and deliberate about visions of how this community should be structured or improved and who cooperate to actually realize these visions. This is the much talked about third sector besides the market and the state where political and business practices are monitored, where initiatives and movements are started and where information is provided, shared and discussed. Without such a public sphere filled with civic participation, the market is just a place where people trade goods for money, not engaging in political decision-making.

A more practical reason why the market democracy has to be embedded in a civil society is the importance of typical civil society actors for the political process. The analogy between markets and direct democracy clearly suggest that we understand consumers as voters, but who are the politicians in this picture? Who proposes policies? Who sets the agenda? One obvious answer would be to point to the producers. Just as politicians with their double role of offering policies and maximizing votes, producers in the market democracy would have the objectives of maximizing profits and suggesting to the consumer, what they believe to be good (or fair) economic practice. As the example of fair trade shows however, in realty it is also – or maybe even primarily – movements and initiatives from the realm of civil society (such as the Fairtrade Labelling Organization – FLO), which develop the policies that consumers can then vote on with their money. These kinds of actors are also necessary for dealing with a general problem of direct democracy: We cannot and also do not want to vote on everything. To be informed and actually vote on every bill in parliament is something even professional politicians do not seem able to do. Despite all the reasonable demands for more elements of direct democracy, we as citizens are even less capable and willing to deal with all of these issues. Therefore, what is know as liquid democracy[12] might be a more realistic model of comprehensive direct democracy. Liquid democracy is a hybrid between direct and representative democracy, where people could personally vote on every issue, but in many cases actually delegate their vote to someone who is an expert in the matter and whom they trust to make the right decision in their place. Delegating votes to experts or other trusties reduces the individual workload in a direct democracy system. In a market democracy this kind of political division of labor would also have to take place and we can already see this happening today. Think for again of NGOs providing product labels, guaranteeing fair, sustainable, or ecological economic practices. In their PR-efforts, such organization engage in agenda setting, trying to bring their issue (e.g. the problematic practices associated with the production of clothing, coffee or meat) to the attention of consumers. They further offer the consumer the opportunity to entrust them with the decision and control over what specifically counts as fair, sustainable or ecological. In this sense they are much like political parties and without such intermediates it is hard to see how consumers or voter could directly decide or control everything. In a market democracy no single individual can, nor would anyone want to, have to make an informed decision regarding every economic transaction. At least not in today’s complex economies. That is why – although in principle retaining all decision-making power – we have to rely on things such as the fair trade labels and trust the organization standing behind them to collect all the necessary information and deal with all the technicalities we do not have time for. For the same reasons we would need an independent media providing us with reliable, selected and condensed information so that dollar voter can make informed decisions on whom they should entrust with their vote. Therefore, constructing a market democracy requires the incorporation of typical civil society organizations, in order to get the policy cycle spinning in the market.

So far we have seen that the analogy between the political market and direct democracy is sensible to some extend. The main insight from the discussion so far is that a market democracy, not surprisingly has the same demanding requirements as state democracy. Only considering the functioning of regular markets, inclusive social theorist such as Karl Polanyi have taught us that a well-functioning market has to be embedded in the favorable social and political institutions. This holds even more true for the democratic market, were every consumer is supposed to be able to make an well-informed, political choice regarding making consumption choices.

We have also seen that there are obvious differences between how decision-making works in the (democratic) market and in a conventional political context. Thus I will now turn to the discussion of these differences and the limits they uncover regarding the analogy between markets and direct democracy.

2.2 Direct Market Democracy – A Disanalogy

The most obvious problem with notion of dollar votes is that dollars are not votes, but money. In democratic politics One Person one vote! is an important principle, because it is a necessary condition for equal political power of all citizens. In a market democracy this principle would translate to One Person x dollars!, which describes the problem of unequal power distribution when votes are translated into money.

One token of the disanalogy between votes and money, namely that some people have or earn more money then others, is relatively easy to deal with in this context. The market mechanism does not require the huge inequalities we have come to know from our capitalist societies. Capitalism – as I understand it – allows for the unlimited accumulation of capital (which essentially means money, for in the market everything has a price) and money accumulation becoming the overall goal of all economic and most political activities. There are many ways to limited accumulation and unequal distribution of money, such as taxation, political regulation of wages, a basic income etc.. Therefore the huge inequality in money votes we see in many societies today is something we could change and this change would not require abandoning free, competitive markets. It is correct however that the market mechanism does not work if we do not allow any inequalities in the distribution of money and economic goods, because ending up with more or less – economic incentives – is what makes the market tick. But this is not a problem for the notion of dollar votes insofar we assume that everybody has the same opportunity to make a certain amount of money. This is analogous to the point that an equal distribution in political power it is not important that everybody votes, but that everybody has the same opportunity to cast her vote. In the same way one could argue that if the market is perfectly fair, everybody has the same opportunity to cast the same amount of dollar votes, at least when inequalities in the distribution of money are not so excessive as they are today. It should be noted that in practice it is probably far more complicated and demanding to approach the ideal of equal opportunity of all to dollar-vote then regular voting. But there are more fundamental disanalogies between money and votes.

Consider for example the fact that in a market democracy you have to work and earn money in order to vote. This is quite irritating, because in conventional democracy everybody has the right to vote, simply in virtue of being a citizen – a member of that political community. Now one could say that the same holds for market agents. Insofar people are acting in the market, buying, selling and trading things, they are market citizens and can vote on all market related issues. This might be satisfying in the context of the standard market model, but it will not suffice in a market democracy. It is not important that I have a say in how coffee is produced and traded, insofar as this is just a private matter of two people voluntarily exchanging something. I should however have a say in how coffee is produced and traded if this practice is associated with causing problems for society and now the question is how this problem ought to be resolved.

Generally speaking, money votes are only cast by those who consume and this is not only a problem because we believe that all people should have a say in political matters that concern then, but also because people who consume a certain product can be expected to have a special interest regarding the question of how that product is produced and traded. If say there was a referendum on the question if we should introduce a higher tax on gasoline in order to preserve the environment, we would not only want all car drivers to go to the polls, but we would also want bike riders to be heard. An even worse idea would be to only let people vote on a higher gasoline tax by voluntarily paying the higher tax directly at the gas station.

One might be tempted to argue that its is not a problem if only consumers of coffee vote on the matter of how coffee should be produced and traded, because the vote of these consumers has no consequences for all other consumers and citizens. Everyone else is not bound by their decision, so why should they have a say in the matter in the first place?

This brings me to the second significant disanalogy between the market and direct democracy democracy, which concerns the mode of decision-making and the respective outcomes produced by both systems. The essence of this disanalogy is that a market democracy does not necessarily produce common solution, such as state regulations and laws, but merely market shares: It is possible that in some point in the future all coffee being sold is fair trade, but for now it is only a small percentage. The underlying reason for this nature of market outcomes is of course the already mentioned nonexistence of collective choice mechanisms. In a market democracy people might think about what matters for others, or they might even contemplate about the social good they should try to achieve, but at the end of the day, the decision they make is individual – it holds only for them.

Now, one reaction to this disanalogy could be to simply say, there is no problem. In a market democracy – so the argument – people voluntarily cooperate and agree on appropriate means for achieving their goals, but they do not extend their agreement to the whole of society. With every transaction they constitute a mini-society in which they unanimously agree on the right way of doing business and there is no reason why anyone else should have a say in the matter.

A model of political decision-making that embodies this idea is called Functional, Overlapping and Competing Jurisdictions (FOCJ)[13]. According to this economic approach to federalism, we should organize our political system – at least when it comes to the provision of certain public goods – more like the market, where we can choose between different competing producers of goods. In the political realm, this would lead to citizens being able to choose between different democratic administrative units (“FOCUS”), competing with each other for the provision of specific public goods – say education – which citizens would then pay taxes for, to the FOCUS providing the service. So the idea is to organize the state more like a multitude of clubs, and then each citizen of e.g. Germany would at the same time be a citizen of different clubs, providing different services and tax burdens. This is thought to be a good idea, is because it will bring two virtues of the market to the political system: efficiency and individuality.

I cannot discuss this idea in detail here. I would like to emphasize however that even if we assume that FOCJ works for some things that are now done by the centrally organized nation state, it is entirely unappropriated for resolving what I have so far referred to as common or political problems. The reason why we need any political system in the first place is that we need a system that provides us with certain common and binding norms and regulations, facilitating coexistence and cooperation in society. A classic example would be traffic regulation. Every society having reached a certain size and level of technology needs rules that govern how people behave when getting from one place to another. Unless people have completely internalized these rules and never break them they have to be enforced and in any case they have to be common: If A behaves according to a set of rules telling her to drive on the left side of the road and B behaves according to a set of rules that tell her to drive on the right side, they will eventually crash. Should they indeed crash they will quickly learn that the same kind of unity is required when it comes to judicial and enforcement institutions. If you and I are members of different clubs, this might be nice because your club is better tailored to your preferences and my club to my preferences, but this is no political solution to problems we have in common social space.

The same applies to a market democracy where we have only individual decision-making for addressing common problems, such as the preservation of the very ecosystem we all life in, or establishing fair working conditions and fair distribution of gains from trade, something we might consider to be a matter of human rights. Insofar we are dealing with such common problems in the market, we need common and enforced solutions (such as a global carbon dioxide trading system, or a global fair trade law, backed by the WTO). Insofar we further want the system providing these solution to be justified, we need everybody – at least in an abstract sense of One person one vote! – to have an equal say in it.

There are two more ways to react to the second disanalogy between the market and democracy and the resulting problems for the notion of a market democracy.

First, one might make a pragmatic utilitarian argument by saying: Yes! It is indeed the case that we actually need a common solution for these kinds of problems, but in face of the fact the we do not have a global political system that can deliver such solutions, we should still use the market democracy in order to take what we can get: 5% fair trade is better then no fair trade at all. Clearly this is a statement a proponent of fair trade would agree with, which is exactly why it is politically worthless. Before the political system has determined what is the better common solution, fair or conventional trade, the word better denotes nothing more then an individual claim. The only way to support the claim of betterness without reference to a justified political decision, is either to point towards the existence of a mysterious universal common good, or to assume that there exists already a comprehensive consensus regarding the matter. Both of these strategy are dubious and in any case unhelpful were the betterness or rightfulness of some practice is in dispute. At the same time this is of course not meant as an argument against people acting according to what they think is right in the market. If people think that it is required of them to act as ‘responsible’ consumers and produces and thereby produce and buy fair, sustainable or ecological products this is all good and well. But we have to keep in mind that this is far from having a justified political decision regarding what counts as fair, sustainable or ecological for everybody.

Second, one could react to the problem of individual market choice and solutions, by changing the concept of market democracy. A proponent of deliberative democracy[14] for instance might argue that the notion of a market democracy is fundamentally mistaken in the way it interprets what such initiatives as fair trade are all about. A more accurate interpretation would maintain that it is not the market but civil society itself where the political solutions are to be found. The market on the contrary is merely the executive branch of a society using market forces in order to implement the solutions they have found through public deliberation. Maybe this description is indeed more adequate for theorizing about the phenomena I have tried to capture with the notion of a market democracy.

Be that as it may, I am very skeptical about the possibility of finding the needed political solutions through the use of public reason or deliberation, even in a perfectly civilized society. The reason for this is simply that there exist several, equally reasonable answers to political questions such as what is fair trade, or if and how we should save the planet. In a pluralistic society we have to expect people to have different opinions and believes and therefore no matter for how long they deliberate, they probably will not end up with the one solution that every body accepts as the most reasonable or rational one. Therefore ideas such as public discourse and ideal choice situations cannot lead us directly to the right solutions that should be adopted by society. What is always need to in real social settings is a decision-making mechanism that provides us with solutions in spite of endless reasonable debate.


In a sense, my conclusion is trivial, for it is not very surprising that the decision-making mechanisms of the market – an economic system designed to allocate economic benefits – prooves inadequate for dealing with political issues according to democratic standards.

Nevertheless, as I have tried to show in the first part of this paper that the notion of a politicized market does seem to capture the important insight that a certain tradition of thinking about the market and its relation to political matters has become somewhat obsolete. We think that market agents are directly responsible for the consequences of their (economic) decisions, irrespective of them being reflected in the price mechanism. And when we criticize someone for his economic behavior we do not think that this critique only applies to him in his role as a member of a political community, but not as consumer or producer. Market agents are citizens and as such they can be criticized for not behaving according to social standards. Saying that this does not hold in the context of market exchange is schizophrenic.

What the right standards of good economic practices are is a genuine political question and cannot be resolved by dollar-voting. This has the important implication that the market cannot serve us as a shortcut for arriving at justified solutions to our pressing global problems. We still need justified political mechanisms of collective choice.

//submitted by guest writer Flo

//if you would like to submit your own article to our Demos project, please write us at m o r a l e c o n o m i c u s (at) m a i n s t r e a m (dot) c o om


Cohen, Joshua (1997): Deliberation and Democratic Legitimacy. In: Bonham, James and William Rehg. (eds.):    Deliberative Democracy. Cambridge

Ekins, Paul (1992a): Towards a Progressive Market. In: Reifner, Udo and Ford, Janet (ed.):          Banking People. New York. 43-54.

  • (1992b): A New World Order, Grassroots Movements for Global Change. London / New York.

FINE (2001): Fair Trade Definition and Principles, As agreed by FINE in December

  1. 2001. Fair Trade Advocacy Office. Brussels.

Frey, Bruno S. and Eichenberger, Reiner (1999): The New Democratic Federalism for Europe –     Functional, Overlapping and Competing Jurisdictions. Cheltenham.

Habermas, Jürgen (1996): Drei Normative Modelle der Demokratie. In: Die Einbeziehung des       Anderen. Frankfurt a. M. 277-293

MacKenzie, Donald; Muniesa, Fabian and Siu, Lucia (Eds.) (2007): Do Economists Make             Markets?. Princeton.

Polanyi, Karl [1944] 1957: The Great Transformation. Boston.

Rawls, John (1999): A Theory of Justice, Revised Edition. Cambridge.

Samuelson, Paul A., Nordhaus, William D. (1948 [2009]): Economics. New York.

Sen, Armatya (1987): On Ethics and Economics. Oxford

Stone, Deborah (1997): Policy Paradox, The Art of Political Decision Making. New York / London.

Ulrich, Peter (2005): Zivilisierte Marktwirtschaft: Eine wirtschaftsethische Orientierung.   Freiburg/Basel/Wien.

Walzer, Michael (1983): Spheres of Justice. New York.

[1]   Samuelson 2009

[2]   S. Ekins 1992a and 1992b.

[3]   S. FINE 2001

[4]   S. for instance Samuelson 2009.

[5]   A standard example would be the concept of mixed economy, found in Samuelson 2009.

[6]   S. for examples Stone (1997) and Walzer (1983)

[7]   S. Ulrich 2005.

[8]   “Indeed, it is precisely the narrowing of the broad Smithian view of human beings, in modern economies, that can he seen as one of the major deficiencies of contemporary economic theory. This impoverishment is closely related to the distancing of economics from ethics.” (Sen 1987: 28)

[9]   S. MacKenzie et al. 2007.

[10] S. Samuelson 2008: 28.

[11]         Think of Rawls’s Original Position in A Theory of Justice (1999: 102ff.).

[12] For a short introduction you may watch:

[13] S. Frey and Eichenberger 1999

[14] S. for instance Habermas 1996 or Cohen 1997.

Mainstream Idea