Anarcho-Capitalism and the Limits of the Market

While teaching a course on Biomedical Ethics I came upon what I take to be a rather clear example of the limits of the market's power to justly regulate the distribution of goods in contrast to the anarcho-capitalist claim that the market, free of government interference, distributes goods in a just manner based upon consumer choices and individual merit.

In general I believe that the market forces lose all power of regulation in those situations in which the consumer is deprived of the power to refuse a given product. These situations might be termed the "limit situations" for market distribution. Generally limit situations arise when two or more of the following three situations are in effect:

1. the good in question is a life necessity, which we might term primary goods (food, shelter, security, life or death medical care, etc.)

2. business forces have achieved monopoly over the production or distribution of a given good  

3. business forces have achieved the social power to enforce consumption



Here is a basic example:

Situation 1, 2 and 3 all obtain in the classic case of company stores within company towns in which the main, or sometimes only, means of income is to work for the company in question. This often occurred with mining operations. In these cases the only source of basic goods, such as food, permitted in the town is the company store. This is provide for by the market insofar as the town itself is company land. The workers of the company therefore find themselves in a situation where they have no choices if they want to eat and so there is no market regulation on the price of food beyond the limit of how much the same company is paying the miners. This amounts to slavery insofar as the workers income is generally payed entirely back to the original company for basic goods. In actuality the company ends up not paying their "employees" at all.

There are two main responses to this example. First, the workers don't have to work for this company. This is true, perhaps, at an early stage. Perhaps at some point the workers made the choice to work for the company (which is assuming the company did not move into town and slowly buy out all other options). However, to have known what a bad idea this was they would have needed to have had information about how the company was going to run things which was very likely not available to them when they made their choice. They may also have been starving and unemployed, and thus grasping at the only option open to them. Either way there are potentially serious limits on the worker's original right to choose. The second response is that the worker can leave at any time. This is the same response often offered in terms of social contract theory. If one dislikes the social contract represented by a given country one can leave. Of course, as David Hume for example pointed out, this is a worthless response insofar as those who are most likely to want to leave (the poor, the politically persecuted, the enslaved, etc) are the ones least likely to have the power or money to leave. The same holds in our mining town example. The worker has no money to leave and so faces starvation, homelessness and loss of security (basically the loss of all primary goods) if she or he leaves. The only other solution to the situation is one not generally considered a market solution and often reviled by anarcho-capitalists. Specifically unionization, worker-strikes and potentially violence. Of course this choice, too, asks for the surrender of primary goods and so is no more viable from the view point of a just society than the second solution of finding other work.

This example provides us with a basic principle: Market forces have failed in the just regulation of goods when a refusal to purchase a good from a given source results in the loss of a primary good.
   
This principle simply serves to unify the three potential elements of a limit situation we mentioned above. What it reveals, however, is that a limit situation IS a limit situation because it represents the point at which a market situation become implicitly violent. A market situation is implicitly violent when consumer choices are limited to one choice or the risk of loss of life. There need be no overt force used, but if the worker in the example leaves her job she will be homeless and starving far from the rest of civilization. The threat to life would be no more direct if a gun was held to her head.

Of course company towns aren't all that common these days, at least in this basic form. But, one might suggest, if you realize that political and social power in an Anarcho-capitalist utopia is distributed according to wealth you begin to see that business interests in such an environment would have a far greater ability to craft situations in which advanced forms of "company towns" could arise. This would be an extensive conversation in itself, so I will move on.

The example I want to discuss is the development and distribution of medical drugs. In the current American market prescription drug prices are incredibly inflated. One pays, generally, far more than the drug costs to produce and distribute. Why is this? There is a very reasonable answer. Drug breakthroughs take years of research and, for the researchers, years of study and education. Often this research is funded by private companies who are investing in the potential of a future breakthrough. When such a breakthrough arises the company wants to protect its investment. For this reason we have drug patents. During the years in which a drug is patented the company will ask vastly more for the drug than it costs to produce and distribute in order to derive a profit and pay back the years of investment that went into the drug's production.

Here we have a contemporary case where 1 and 2 obtain. 1. Many of these drugs are necessary for the maintenance of life or health (i.e. the consumer can not refuse them without losing a primary good). 2. No other company can offer these drugs while the patent is in place. This, then, meets the principle and becomes a case of implicit violence. The consumer's options are to buy the good from the only source, or suffer and likely die, or resort to violent theft. In general this is a situation which is very often approximated in our current medical industry.  

But patents are government regulation and so the limit case above is one involving both market and governmental forces. Let us assume patents disappear in our anarcho-capitalist utopia. What are we left with? Two choices:

Either, to protect their investment and profit companies guard the secret of their drugs (if this is even possible) so that only they can produce and distribute the drug. This is something like a "natural" patent. The outcome of this option, if it is possible, is two-fold: First, the same situation of implicit violence obtains insofar as 1 and 2 remain in effect. The market has failed to justly distribute goods. Second, medical science as we know it is brought to an end insofar as the sharing of techniques, drug breakthroughs, and theory no longer occurs in order to protect business investment. This also means the end of scientific education as we know it, since there will no longer be a general body of contemporary scientific knowledge available for experts to learn. This is likely to mean the end of the astounding successes science has had for the last several centuries.

Or, secrecy is impossible and there is no way to enforce monopoly situations by which a company can justify its investment in the vast amounts of research necessary for the development of new medical breakthroughs. Business investment in such sciences becomes no longer profitable. Such investment stops. There is no longer a government to supply research grants, however, so there is no other source of money for this research except, perhaps, for private donations. Again, the pace and success of science is crippled if not halted.

 In conclusion, then, I would suggest that there are many limit situations in which market forces can not justly regulate the distribution of goods. I have offered a sketch of what they look like. Furthermore, it is in the short term best interest of a business to produce these limit situations since they are also profit-maximizing and often very low-risk. So, not only are there some cases where an Anarcho-capitalist utopia would fail but rather the very nature of such a utopia would be to produce more and more instances of failure. Remember that failure, in this case, amounts to implicit violence and the loss of either freedom or life. So, the utopia but its very nature tends towards the loss of freedom and life. Beyond this there is the probability that the current success of science we enjoy could not continue in such a world.