Market atheism

By Peter Espeut

The recent precipitous announcements by LIME, and then Digicel, of a dramatic fall in phone-call rates have confirmed me in my market atheism. One day, a telephone call on the LIME network cost $8 per minute, and the next day the rate was reduced to $2.99 and $1.99 for prepaid and postpaid, respectively. In response, Digicel dropped its per-minute rates from $10 (day) and $8.99 (nights) to $2.89.

So this confirms me in my long-held belief that all Jamaica is being seriously overcharged by all our telecoms providers. If they can so dramatically cut their rates and still make superprofits, we were previously being rapaciously raped. Indeed, these new rates may still be rapacious.

Profit is usually calculated as return on invested capital. A trader will buy some commodity, add a margin, and resell it. We can then discuss if the margin is reasonable or usurious; but in steps greed.

If an item is scarce and in demand, the vendor may double or triple the price, taking advantage of the situation to make even more profits. The aim is not to make a reasonable profit margin, but to sell the commodity for as much as people will pay for it (as much as 'the market' will bear). The reverse is also true: if an item is in oversupply, the vendor may have to sell it cheaply to move it quickly.

This kind of behaviour - founded in greed - has been elevated by the 'science' of economics to the status of a 'law'. It is one thing to say: "I observe greedy people raising their prices when items are scarce", but it is quite another to canonise greed and to say: "When an item is scarce, the law of supply and demand says that you MUST raise the price." This makes a virtue and an imperative out of price gouging. And if in these circumstances a vendor does not raise his prices, he is behaving 'irrationally'.

CONTRIVING MARKET THEORY

And so the religion of 'the market' was invented, which determines the 'real' price of an item by some 'invisible hand'. And if 'the market' determines that the 'real' price of a cellular call is $10/minute, who are we to disagree? And if tomorrow the 'real price' is $2.89/minute, we say 'the market' is 'working'? 'True believers' will accept on 'faith' any price 'the market' determines.

The religion of 'the market' gives real religion a bad name. Persons who call themselves 'economists' speculate on how greedy people would behave in certain situations, make a giant leap to assert that this is how they 'should' behave (it is now a matter of ethics), and then call this behaviour 'the market'.

Economics, therefore, is really a behavioural science, not an objective one (firms behave to maximise profit, while individuals behave to maximise utility). Economics tries to move from the descriptive to the prescriptive, and people who are otherwise inclined to be atheist put their faith in the 'invisible hand'.

It was Max Weber who wrote 'The Protestant Ethic and the Spirit of Capitalism', arguing that capitalism could not emerge in history until both the material and spirit of capitalism were present. He posits that pessimistic Calvinism (which emphasises the individualistic, selfish and greedy side of human nature) is the very spirit of capitalism.

The stock market is an interesting phenomenon. The value of the shares of a company should reflect the performance of the company, but in reality they reflect 'confidence' in the performance of the company, which is quite a different thing. Confidence is all about perception, and perception can be easily manipulated.

Bernie Madoff and Allen Stanford had the confidence of people with millions of dollars - greedy people, one must hasten to say. And so the stock market is a 'confidence' game. With no change in the intrinsic value of a company, its shares can vary sharply such as to create overnight millionaires - or paupers.

How could the financial system of the 'free' world depend on such a fickle arrangement? Surely there is a more objective way to organise the investment of capital? What we have is obviously in someone's interest. Large numbers of people can be disadvantaged and dispossessed of their money, and then it can be blamed on the vagaries of 'the market'.

As for cellphone rates: if the greedy telecoms companies are left to themselves, they will set interconnectivity charges to their advantage, and per-minute charges to enrich themselves (which they have been doing). They tell us that markets consist of buyers and sellers coming to an agreement on prices. It's about time that buyers have a louder voice.

Peter Espeut is a sociologist and Roman Catholic deacon. Email feedback to columns@gleanerjm.com.