Sabotage

What is there in the organisation of the market that ensures businesses will concentrate only on innovation, and overlook all the other tools in the Veblenian arsenal of sabotage? Well, nothing, really. It is only the state, scorned and despised by Hayekians, that is in a position to try and do something about sabotage. Liberals are quick to point out that government officials are bent on rent seeking and are often corrupt (that is, they are corrupted by the very businesses whose freedom of action these liberals espouse). The free market of neoliberals, in contrast, is supposed to encourage innovation, as admittedly it did to an extent. In reality, however, the freer the market, the more ‘deregulated’ it is, the wider the scope for sabotage.

The real scandal of the costs of deregulated finance is not that it unravelled amid the financial fiasco of 2007-9. It is that its origins had been uncovered and dealt with back in the 1930s, practically to the last detail. Then, during the two decades that led up to the repeal of the Glass-Steagall Act in 1999 and certainly during the decade that followed, sabotage in finance ceased to be a regulatory concern. The behaviour itself, however, did not go away. How could it? How else, asks our friend, the ex-Goldman trader, could you make money in this business?

Economic theory tells us that it is next to impossible to make money in competitive markets. Business bulletins tell us that our financiers reap huge profits, even in the face of market shifts and regulatory shocks. Financial markets are commonly assumed to be highly competitive; so how are super-profits possible? Some eighty years ago [Senator Ferdinand] Pecora found that, inevitably, the super-profits made in finance are traceable to some form of what [Thorstein Bunde] Veblen called ‘sabotage’: they stem from a form of hindering, obstructing, delaying, misrepresenting, destroying or otherwise taking advantage of the ‘dumbest person in the room’.