Does Free-Market Thinking Motivate Hierarchy?

Written by Blair Fix

Economic Development and the Death of the Free Market, Part 5

Although we do not commonly think of them this way, hierarchical relations involve altruism. In a hierarchical relation, one person submits to the will of another. By doing so, the subordinate suppresses their own self-interest, and instead does what their superior commands. This is a form of altruism (Fix, 2019b). The question that concerns us here is – how do societies motivate this submissive behavior?

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An obvious way is to openly promote subservience. Societies that take this route will promote submission as being beneficial to individuals. The Hutterites, for instance, seem to do just that. Their belief system promotes ‘obedience’ and ‘surrender’ as good for both individuals and the group (Wilson, 2015). Other religions similarly promote submission. Obsequium religiosum – religious submission – is a central tenet of Catholic dogma (Council, 1964). Confucianism advocates tsun-wang – submission to authority (Wood, 1995). And in Islam, ‘submission’ is implied in the name of the faith itself (Lewis and Churchill, 2008).

To promote hierarchy, however, this appeal to submission must have an asymmetry. To function, hierarchies require both submission and dominance. So behind the appeal to submission, there must be an assumption that not everyone submits. Some people must have the right to wield authority. In religious hierarchies, this asymmetry is often maintained by appealing to the authority of God. Everyone submits to the will of God, but not equally so. Some people – those with power – claim to speak for (or derive their authority from) God. This leads to doctrines like the ‘divine right of kings’ (Figgis, 1922). The pharaohs of ancient Egypt went so far as to proclaim themselves gods (Collins, 2014).

Using the language of Michele Gelfand (2019), we might call the appeal to submission the ‘tight’ approach to motivating hierarchy. It openly asks individuals to submit to authority. Is there a corresponding ‘loose’ approach to motivating hierarchy? I propose that free-market thinking – with its emphasis on choice and freedom (Friedman, 1962; Friedman and Friedman, 1990) – may be one such ‘loose’ approach.

This claim appears, at first, to be contradictory. So-called ‘loose’ cultures value freedom and autonomy, which are the opposite of hierarchy. It is possible, however, for the idea of freedom to lead to its mirror opposite. The reason has to do with the concept of ‘freedom’ itself.

In an important sense, ‘freedom’ is impossible among social animals. The problem is that there are two types of freedom that, when applied to all individuals, are contradictory. First, there is ‘freedom to’, which is about one’s ability to enact one’s will. Second, there is ‘freedom from’, which is about one’s ability to avoid the undesirable actions of others. The two types of freedom contradict one another. Everyone cannot, for instance, be free to be racist while also being free from racism. One person’s ‘freedom to’ comes at the cost of another person’s ‘freedom from’.

Much like proclaiming that everyone should be submissive, advocating for ‘market freedom’ for all individuals is a contradiction. This, I believe, may be how free-market thinking motivates hierarchy. When applied to the real world, the ‘freedom’ of the free market is marked by an asymmetry. In abstract form, free-market theory stands for the autonomy of individuals. But in more concrete form, the theory stands for the autonomy of firms.

This switch is apparent in neoclassical economic theory. The theory proposes that ‘perfect competition’ (implying atomistic competition between individuals) is the ideal form of social organization. But the same theory accepts that firms (which organize using hierarchy) are the basic unit of production (Mankiw, 2012).

This switch from the autonomy of the individual to the autonomy of the group, I propose, is how free-market ideas promote hierarchy. It is easiest to see how this might work by applying the idea to ourselves. We use the word ‘free will’ to describe our own freedom to put conscious thoughts into action. Yet when we look inside ourselves, the concept of ‘free will’ is contradictory. Individual humans are a community of cooperating cells, organized in a hierarchy. This means that our ‘free will’ is predicated on a large number of cells being ‘unfree’. If you are free to lift your arm at will, this requires that brain cells have control over muscle cells. So the ‘free will’ of the individual is predicated on the ‘unfreedom’ of most of the individual’s constituents.

I propose that the same principle applies when free-market ideas are put in action. While, in principle, they stand for the autonomy of the individual, in practice they stand for the autonomy of business firms. By promoting this autonomy, these ideas may implicitly legitimize the hierarchy within firms. The ‘freedom’ of the free market therefore translates into the power of firm owners to command. It is ‘power in the name of freedom’7 . This doublespeak may be why free-market thinking has spread at the very time that hierarchy appears to have increased. Contrary to the theory’s scientific claim, the ideological effect of free-market thinking may be to facilitate the growth of hierarchy.

This idea is speculative, but consistent with the available evidence on cultural beliefs. On that front, Figure 13 shows a curious trend. Countries with a more individualistic psychology (as measured by Gerte Hofstede’s (2010) ‘individualism index’) tend to have more managers. Similarly, countries with a ‘looser’ culture (as measured by Michele Gelfand’s (2004) index) also have more managers.

Figure 13: Cultures become more individualistic and looser as the number of managers grows

I plot here measures of cultural beliefs (within countries) as they relate to the managers’ share of employment. Panel A shows Geert Hofstede’s (2010) ’individualism index’ – a measure of individualistic psychology. Panel B shows Michele Gelfand’s (2004) index of cultural ‘tightness’, where ‘tighter’ cultures have stronger norms and a lower tolerance of deviant behavior. For sources and methods, see Part 6.

This result is counterintuitive. It clashes with common sense. One would think that an individualistic culture with loose norms ought to have less hierarchy. Yet the reverse seems to be true. This evidence supports the idea that free-market thinking may paradoxically serve to stoke the growth of hierarchy.

Footnote:

7 I thank Jonathan Nitzan for suggesting to me the phrase ‘power in the name of freedom’.

This article is part of a new research paper draft (“Economic Development and the Death of the Free Market “) being presented serially. Here are the parts:

1. Evolution of Free Markets and Hierarchy
2. The Growth of Hierarchy with Economic Development
3. Energy and Hierarchy
4. Rethinking Free-Market Theory
5. Does Free-Market Thinking Motivate Hierarchy?
6. Conclusions and Methods
7. References

Caption graphic credit: Clip from David I of Scotland knighting a squire, Wikipedia. Full image:

King David 1 introduced radical changes in hierarchy to Scotland during his reign 1124-1153. From Wikipedia:

The term “Davidian Revolution” is used by many scholars to summarise the changes which took place in Scotland during his reign. These included his foundation of burghs and regional markets, implementation of the ideals of Gregorian Reform, foundation of monasteries, Normanisation of the Scottish government, and the introduction of feudalism through immigrant French and Anglo-French knights.

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