The Happiness Industry (18 page)

Coase's brilliance was to spot within the Chicago School position a final remnant of metaphysical speculation that they
themselves were not aware of. Up until this point, the Chicago School still assumed that markets needed to be open, competitive, run according to certain principles of fairness, or else they would become submerged under the weight of monopolies. Markets needed ground rules if they were to match up to the ideal of being a space of individual freedom. This meant that they still required authorities capable of intervening, once competitors ceased to play fair or grew too powerful, and the market started to ‘fail'.

Ever the sceptic, Coase did not accept this style of reasoning. Nothing in real economic life was ever that simple. Markets were never
perfectly
competitive in actuality, so the categorical distinction between a market that ‘works' and one that ‘fails' was an illusion generated by economic theory. The question economists should be asking, Coase argued, is whether there is good evidence that a specific regulatory intervention will make everyone better off overall. And by ‘everyone', this shouldn't just mean consumers or small businesses, but the party being regulated as well. This argument was straight out of Bentham: he was advocating that policy be led purely by statistical data on aggregate human welfare, and abandon all sense of ‘right' and ‘wrong' altogether. If there isn't sufficient data to justify government intervention – and such evidence is hard to assemble – then regulators would be better off leaving the economy alone altogether.

One of the most far-reaching implications of Coase's argument was that monopolies are not nearly as bad as economists tend to assume. Compared to a perfectly competitive, perfectly efficient market, then yes, monopolies are undesirable. But this was what Coase disparagingly called ‘blackboard economics'. If economists opened their eyes and looked at capitalism as it actually existed,
they might discover that regulatory efforts to produce efficient markets were often counter-productive. Meanwhile, leaving firms alone to work things out for themselves (using private contracts and compensation where necessary) could actually produce the best available outcome overall – not a perfect outcome, just the best one available. The function of economics was to carefully calculate what should be done, on a case-by-case basis, not to offer utopian visions of perfect scenarios.

Coase's scepticism towards regulation first appeared in a 1959 paper on the telecoms market. This made a stir. While the Chicago School were no friends of government, they had at least assumed that markets needed to be kept in check to some extent, if they were not to become dominated by vast corporations making excessive profits. On the other hand, they were intrigued by Coase's critical style of reasoning, and the radicalism of his conclusions. Director invited the Englishman to give a paper defending his position, a paper which was later published as ‘The Problem of Social Cost', becoming one of the most cited articles in the history of economics.

Scenting blood, twenty-one leading figures from the Chicago economics department arrived. All had read Coase's paper, and a vote taken at the beginning of the evening suggested that all twenty-one of them disagreed with it. In the timeworn style of the Chicago workshop, Coase was introduced by Director, then given five minutes to explain and justify his argument, before he would be torn apart by force of economic logic. As ever on these occasions, when it came to the latter part, Milton Friedman led the way. But on this occasion, something unusual happened – Friedmanite logic did not appear to be working. Here's George Stigler again:

Ronald didn't persuade us. But he refused to yield to all our erroneous arguments. Milton would hit him from one side, then from another, then from another. Then to our horror, Milton missed him and hit us. At the end of that evening the vote had changed. There were twenty-one votes for Ronald and no votes [against].
¹⁴

As one of his students later put it, ‘He had out-Chicagoed Chicago'.
¹⁵
Coase had no ideological axe to grind against government. He was not possessed of any particular love of unregulated, dog-eat-dog capitalism, which was more than could be said of Friedman.

What he
did
have, which the Chicago economists found irresistible, was a desire to question every assumption about how the economy ought to be governed, every assumption about what ‘good' and ‘bad' competition looked like, and to challenge the assumptions of policy-makers that they could necessarily tell the difference between the two. Through his scepticism towards the very possibility of a perfect market, he was even more doubtful of the state's authority than Friedman et al. Scientific economic analysis alone could determine whether a regulatory intervention was needed.

Sympathy for the capitalist

Stigler believed that an entire paradigm had shifted before his eyes. The theoretical case that underpinned government regulation of markets had evaporated, right there in Aaron Director's living room. It turned out that, up until 1960,
even the Chicago School
had been labouring under some metaphysical moral
presumption that certain situations were essentially in need of government intervention and others weren't. ‘Coase's Theorem', as Stigler later christened it, stated that this wasn't the case, and there was no basis on which to believe that regulation could automatically improve on situations that arose spontaneously between competing actors.

Except that this wasn't quite what Coase had argued. The paper he had defended in Director's home that evening in 1960 said that there were no grounds
on principle
to assume that market regulation was ever necessary. There were no grounds
on principle
to assume that one competitor exploiting another was necessarily a bad thing. But nor were there any grounds on principle to believe that regulatory intervention was a bad thing either. Coase was simply making a plea for robust economic analysis of the data available, as an alternative to the utopian propositions of ‘blackboard economics'. To maintain authority amidst various conflicting perspectives on the rights and wrongs of a competitive situation, regulators needed to be staffed by economists who would simply represent the facts.

Stigler and his colleagues had little interest in such even-handedness. What they now possessed was a devastating critique of the moral authority of regulators and legislators, who purported to act in the ‘public interest' but were typically just acting either in their own interests (to create more jobs for regulators) or out of political resentment towards large successful businesses. What regulators and left-wing liberals had singularly failed to recognize was that large, exploitative, monopolistic businesses also generate welfare. In fact, given a free rein, who knew how much welfare they might produce?

From the increasingly bullish Chicagoan perspective, the scale of giant corporations allowed them to work more efficiently,
doing more good for consumers and society at large. The benefit they produced did not happen in spite of their aggressive competitive behaviour, but because of that behaviour. Let them grow as far as they can, as profitably as they can, and see what happens. Why worry about businesses getting ‘too big'? Who is to say that they shouldn't be
even bigger?
By the end of the decade, Friedman was stating the pro-corporate argument even more nakedly. As he put it in a famous article published in
The New York Times Magazine
in 1970, the single moral duty of a corporation is to make as much money as it possibly can.
¹⁶

The question that Coase posed that evening in 1960 was a radical one: regulators had long been striving to protect competitors from larger bullies, but
what about the welfare of the bully?
Didn't he deserve to be taken into account as well? And – as the Chicago School would later seek to explain – might consumers actually be better off being served by the same very large, efficient monopolists than constantly having to choose between various smaller, inefficient competitors? If the welfare of
everyone
were taken into account, including the welfare of aggressive corporate behemoths, then it was really not clear what benefit regulation was actually achieving.

Here was utilitarianism being reinvented in such a way as to include corporations in the state's calculus. Walmart, Microsoft and Apple didn't exist in 1960, but they could not have imagined a more sympathetic policy template than the one that was cooked up in Chicago on the back of Coase's work. Once Reagan was in the White House, these ideas spread quickly through the policy and regulatory establishments of Washington, DC, before permeating many international regulators over the 1990s.
¹⁷
In less than a decade, policy-makers went from viewing high profitability as a warning sign that a firm was growing too large to being
a welcome indication that a firm was being managed in a highly ‘competitive' fashion.

There is one deeply counter-intuitive lesson which emerges from this: American neoliberalism is not actually all that enamoured with competitive markets at all. That is to say, if we understand a market as a space in which there is a choice of people to transact with, and a degree of freedom as to whether to do so – think of eBay for example – the Chicago School was entirely comfortable with the notion of businesses restricting this choice, restricting this freedom, on grounds that it produces more utility overall.

What Stigler, Friedman, Director and their colleagues really admired was not the market as such, but the competitive psychology that was manifest in the entrepreneurs and corporations which sought to vanquish their rivals. They didn't want the market to be a place of fairness, where everyone had an equal chance; they wanted it to be a space for victors to achieve ever-greater glory and exploit the spoils. In their appeals to the limitless potential of capital, these Chicago conservatives were making a similar appeal to the logic of growth as the counterculture and the humanistic psychologists were. With Gary Becker's metaphor of ‘human capital', the distinction between corporate strategy and individual behaviour dissolved altogether: each person and each firm was playing a long-term game for supremacy, whether or not there was a market present.

In what sense is this winner-take-all economics still ‘competition'? Perhaps the clue to the Chicagoan vision lay in their own combative intellectual culture. These professed outcasts, with a ‘chip on their shoulder', believed that no game was ever really lost. Friedman made his career on the basis of arguing single-handedly against a global Keynesian orthodoxy for nearly four
decades, until finally, by the late 1970s, he was perceived to have ‘won'. Coase no doubt impressed his hosts partly by his willingness to stand up for his minority view, and willing them over. The elites of Harvard, MIT and the federal government were entitled to enjoy their period of dominance, but they should have taken these upstarts in Chicago a little more seriously from the start. Because when the neoliberals got to taste intellectual and political victory, they would fight just as hard to cling onto it. Chicago-style competition wasn't about co-existing with rivals; it was about destroying them. Inequality was not some moral injustice, but an accurate representation of differences in desire and power.

The Chicago School message to anyone complaining that today's market is dominated by corporate giants is a brutal one: go and start a future corporate giant yourself. What is stopping you? Do you not desire it enough? Do you not have the fight in you? If not, perhaps there is something wrong with you, not with society. This poses the question of what happens to the large number of people in a neoliberal society who are not possessed with the egoism, aggression and optimism of a Milton Friedman or a Steve Jobs. To deal with such people, a different science is needed altogether.

The science of deflation

The ability of individuals to ‘strive' and ‘grow' came under a somewhat different scientific spotlight between 1957 and 1958, due to accidental and coincidental discoveries made by two psychiatrists, Ronald Kuhn and Nathan Kline, working in the United States and Switzerland respectively. As with so many major
scientific breakthroughs, it is impossible to specify who exactly got there first, for the simple reason that neither quite understood where exactly they had got
to
. The era of psychopharmacology was still very young, with the discovery of the first drug effective against schizophrenia in 1952 and the running of the first successful ‘randomized control trials' (whereby a drug is tested alongside a placebo, with the recipients not knowing which one they've received) on Valium in 1954. These breakthroughs opened up a new neurochemical terrain for psychiatrists to explore.

Unlike the developers of those anti-anxiety and anti-schizophrenia drugs, Kline and Kuhn were not sure precisely what disorder they were seeking to target. Kline began experimenting with a drug called iproniazid, which had first been used against tuberculosis, while Kuhn was trialling imipramine in the hope that it might target psychosis. Had they both been certain of what effect they were looking for in advance, it's doubtful that they would have made any discovery at all. It was because they were not sure that they engaged in extremely careful observation of the drugs' recipients. Thanks to this, both psychiatrists noticed something that was both banal and revolutionary at the same time.

The drugs did not appear to have any particular effects that could be scientifically classified. There was no specific psychiatric symptom or disorder that they seemed to relieve. Given that psychiatrists of the 1950s still viewed their jobs principally in terms of healing those in asylums and hospitals, it wasn't clear that these drugs offered anything especially useful at all. As a result, drug companies initially showed little interest in the breakthrough. The drugs simply seemed to make people feel more truly themselves, restoring their optimism about life in general.