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Can we liberate the market through commons governance?

photo of Michel Bauwens

Michel Bauwens
28th December 2012


“In the Barcelona-based Escola dels Commons we study the commons and right now we are discussing about the market, how current markets work and how they could work, if redefined under commons logic. Monday 17th December we hold a public debate about this in the offices of the Xarxa d’Economia Solidaria (XES) a Barcelona.”

By Wouter Tebbens:

“What if the market would be ruled as a commons? In order to discuss this question we will first explore some key aspects of the so called “free market”. At the end we will also see some initiatives that could be very well seen in line with the ideas of a freed or liberated market.

What constitutes a free market? Its defining criterion seems to be the freedom to trade. Though “free trade” itself is not unregulated. There are many prohibitions or constraints, such as in the market of weapons or health care. To name a few, there are obligations to comply with certification, safety regulations, labeling rules, etc. There are rules on marketing and advertising.

Apologists of free markets generally argue for deregulation; if market players are left free and unrestrained, a fierce competition would bring prices down and assure diversification in line with demand, so they say. Their ideal seems to be that government would be non-existent or at least very much reduced. However in their reasoning they often forget about the protections government offers to these same market players. The very nature of property and the rights one has about a particular form of property is defined by government legislation and it is protected by the “rule of law”, indeed, by government again.

Some examples of government regulation that make markets what they are currently:

Limited liability: a limited company takes limited risks: if things go wrong government or society as a whole takes the burden, for all the costs that surpass the limited liability (often the social capital invested in the company).

Negative externalities: many costs are external to market transactions, but do impose real costs to society: pollution for example is only partially accounted for. Patents: the issuing of a temporary monopoly over an idea, design or production method is a direct government intervention creating property rights, transferred from the commons to the private owner of the patent.

Copyright: the issuing of a temporary monopoly over an artistic expression or software code is another government intervention creating property rights, and only after expiration do these return to the commons, a.k.a. Public Domain.

Contracts can be sanctioned thanks to contract law and the public courts of justice.

The word “free” in “free markets” seems perverted as it only refers to the freedom of a select few, which possess great amounts of capital. If a free market would really advance the freedoms of all participants, then it would be a free market in its true sense. To refer to this concept, the editors of the book Markets, Not Capitalism use the term “freed markets”, in the sense that these markets would be freed or liberated from the capitalistic constraints, and as such would advance the freedoms of all participants instead of just the select few.

Wolfgang Hoeschele in his book Abundance Economy uses the concept of scarcity generating institutions to point to those social constructions that create scarcities in order to control the market and/or extract special gains from unfree participants.

While the commons is by definition different from the state and the market, we could try to apply the logic from the commons on the “market”. A commons is characterised as a resource that is held in common by its users/participants and is governed by a set of rules, defined by its participants. If a market would be organised as a commons, what would be different? First and foremost the governance: the rules would not be set by corporations and governments but by the community itself.

Continuing with Wolfgang Hoeschele we analyse the conditions for monetary transactions in a market that can create abundance for all parties involved. Hoeschele points out that Adam Smith and later free market thinkers have defined these conditions as follows: a) both parties to the exchange must be free to withdraw from the exchange if they wish; b) both buyers and sellers have good information about the market and the goods offered, c) no outside force (such as a State) imposes prices or somehow manipulates supply and demand, d) there is little fraud, e) there are means available to resolve conflicts and enforce contracts. It is clear that in most (if not all) actually existing markets these conditions are not fulfilled – at least not completely – and they create scarcity for some of the participants (and consequently: unfreedoms).

What do these conditions mean or imply? If condition a) holds true, all participants should have sufficient resources to sustain themselves, whether they participate in any given transaction or not. In other words, they could accept a job because it implies certain advantages for them and for the one hiring them (win-win situation). But if one party think she would loose, she would be free to decline the offer. This then implies that the basic resources to sustain oneself should be reasonably well distributed. Also the idea of Basic Income would fit very here well to assure this condition.

Condition b) requires transparency of information, about all aspects of a product, its price and supply and demand. This is clearly never entirely possible, but a commons-based market could require a growing level of product information, like the demanded sales price, the real price at which it is sold, manufacturing information and designs (ranging from open design to completely free manufacturing), information about the work conditions, environmental conditions, which other suppliers exist, etc Certifications for ecological production, compliance with free hardware publication norms etc could be signals of desired quality.

Condition c) could be satisfied once all other conditions hold true. In situations of extreme poverty or other critical situations, condition a) clealy doesn’t hold true, and current price regulations might be useful (we can discuss elsewhere).

Condition d) could be helped by the community nature of a commons-based market. Reputation in the community is typically an important factor for participation and wellbeing. Given the transparency of condition b), fraudulent actors can more easily be signalled and in extreme cases be expelled from the market. Part e) should in that case avoid incorrectly attributed labels of fraud.

Condition e) requires some form of justice system which can judge abuses and impose penalties in a balanced way.

Unfortunately these 5 conditions don’t have direct implications for the elimination of artificial scarcities. As we saw before, copyright and patent legislation turn ideas and expressions of authorship from commons/public goods into private property. Given their non-rival nature, this is clearly a case of generated scarcities. And a very relevant one in the current industrial societies, where a large part of the formal economy is controlled by these state granted monopolies. It is not here the place to insist on the case for a knowledge society based in free knowledge and open access to all its aspects (see here for a deeper analysis), but for a commons-based market, a “liberated” one, such monopolies should not exist. Not in the least part to assure people’s freedoms to participate in the market, the threat of patent or copyright litigations should be expelled.

Other conditions to the commons-based, liberated market could refer to values such as solidarity, responsible use of scarce resources, ecological production processes. One could try to strictly enforce such values in a market regulated as a commons, or possibly a system of voluntary certifications could just be sufficient to make the transition.

Another important element of the market is the currency used for exchange. Most official currencies are government monopolies and have very few democratic principles in the way they are organised (and thus constitute no commons). As Berhard Lietaer and others point out, the design of a currency determines in a large extent the dynamics in a market. For example interest bearing currencies tend to accumulation, while zero-interest or negative interest might provide an incentive for circulation. Nineteenth century economist and businessman Silvio Gesell was one of the first to articulate the importance of local, interest-free money, where money is issued for a limited period and with constant value. In 1934 a group of Swiss businessmen used these ideas to form the WIR, which is an independent complementary currency system in Switzerland that serves small and medium-sized businesses and retail customers. The value is equal to the Swiss franc, though it works differently: when one business buys at another, the first owes the other in WIRs; these debts are settled in the network of transactions of buyers and sellers. The WIR Bank, a cooperative, keeps tracks of these IOUs. It is interest-free and currently ca. 75.000 businesses are using it, which amounts to ca 25% of all Swiss businesses. Over time, the WIR has shown to strengthen the resilience and stability of the Swiss economy as a whole (see Lietaer).

Now several markets exist that use complementary or community currencies. Let us see a recent one in some more detail, the Catalan Mercat Social (Social Market in English). They use their self-defined currency the EcoSol, which is interest-free and has an expiry date, in order to encourage circulation and dynamise the social economy. Participants in the Social Market all come from the social economy, like cooperatives cultivating ecological fruits and vegetables, wine, cheese makers, renewable energy, social/ethical insurance cooperatives, etc. The design of the EcoSol currency has been done in collaboration with the Dutch foundation Strohalm, or STRO: the Social Trade Organisation. They are inspired by the ideas of Silvio Gesell and work globally (in particular in Latin America) to set up local complementary currency systems for local markets. Over the years, STRO has developed also a software toolset to set up such social marketplaces on the web and provide a banking system for the local currency (called Cyclos).

The use of their own complementary currency gives the community obviously more control over their market, but in itself is not sufficient to call it a commons-based market. For that, there be a commons governance over the market. The participants in the market would together define the rules by which they would want their marketplace to work. Ideally the community of participants in the social market would address the above mentioned conditions for a free market. While condition a) is definitely the hardest and could be a long term target, the other conditions should be more easy to achieve. In terms of transparancy the community could decide to require for each product the publication of a more or less comprehensive set of information, e.g. a history of sales, how it is made, by whom, at what costs etc. Possibly there can be gradations in transparancy, and ways to incentivise more transparancy (e.g. better information makes that the product is more visible on the site).

For a real commons oriented market however I would argue that products should be the result of commons based processes. Teams producing certain goods build up strong relations with the people consuming them. Crowdfunding maybe a good tool to develop new products according commons principles (e.g. Goteo). While no single person can produce all goods and services for a modern way of life, market exchanges make sense also in a commons based society. However, focusing on commons based production and requiring maximum transparancy is expected to help avoid the extremes of (over)exploitation of people and planet.

The first market that implements all these ideas is yet to be found, but the main ingredients are there (if you know of examples that come near, let me know!). But markets governed as a commons are already there. And if their communities wish so, they could develop into real commons oriented marketplaces. I look forward to see the kind of rules the communities in such markets will impose on themselves to steer them in the desired direction.”

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