Media Spotlight: The Truth About Markets
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By John Kay
Any book with the word ’markets’ in the title usually ends up in the technical finance section of a library, according to John Kay.
But although The Truth About Markets contains the offending word Kay does not think his book should be sandwiched between tomes filled with financial jargon.
He believes economics is more than facts, figures and charts - that it’s fundamentally about people and human behaviour. To this end we are introduced to Heidi and Herman from Zurich, Delhi’s Ravi and Nandini and Mexican brothers Raoul and Pedro to illustrate the effect markets have on people.
But market factors are identified as just one aspect of these people’s lives, with geography, politics and culture all affecting their happiness.
So we learn of Raoul’s Mexican life as a skilled machinist but find that he earns less than his brother Pedro, who works as a kitchen porter in Los Angeles. Kay explains the factors affecting their lives such as proximity to friends and disposable income, and concludes that Raoul is the happier.
Introducing real people helps explain how various markets have evolved and cuts through financial jargon, with the goal of telling the truth. But more than this, Kay wants to explain why Ravi and Nandini have such different lives from Heidi and Herman.
Starting from first principles, readers are given a whistle-stop tour of thinkers who have influenced markets and economic policy including Karl Marx, John Rawls and Robert Nozick. From their theories the everyday realities of markets are explained.
Clearly a believer in markets as a force for good, Kay says the world is more equal due to globalisation but confesses the debate is fiercely contested. After all, Switzerland, with a population of five million, has the same productivity as India with around 600 million people at the time the book was published in 2004.
Although the book was written before the credit crisis Kay recognises the importance of government in regulating risk and managing markets.
There is a thorough discussion of capitalist models ranging from the US free market to European social democracies. The author slams the academic interpretation of the US model in which government is held only to be useful for the enforcement of contracts.
Kay claims the US government has more influence over markets than most like to believe, although government is not as influential as in a social democracy such as Sweden.
It is argued that poor states are poor due to the quality of their economic institutions and their limited ability to impose a regulated market system. And Kay says debt relief for poor nations is not a long-term solution, despite the emotional appeal.
The conclusion paints a bleak picture of the future for poor nations as it is argued that prosperity has arisen in rich countries after centuries of evolving politics, civil societies and economics.
Only when there is a sustained period of stability and authority can a market work properly, and there’s no quick fix.
This book is good at explaining market theory and practice, and by involving real people it has a brave stab at making markets relevant. But it proposes no alternative to the disparity of wealth around the world, just the hope that globalisation will even things out.
Book review by Samuel Dale
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