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Should the State Adjust the Market? The Case of ROBOR

Should the State Adjust the Market? The Case of ROBOR Economy Near Us (XIII)

The duel between state and market is an old story in the debates regarding the best way to run society. Of course, there are both extremists and moderates in this debate. I am not interested in covering the large array of opinions, but in exploring the essence of the issue. More precisely, I am interested in whether the state has a legitimate role in adjusting the macroeconomic variables generated by the free market and, to a finer degree, to see if we have thresholds or intensities or other contingencies in accepting or requesting the state's intervention in the market (viewed as a free market).

Firstly, I will accept that both the state and the free market have their own failures. Consequently, both the state and the free market would have the “right” to adjust what is wrong in the other's behaviour or results.

Secondly, I will presume that both the state and the free market are pursuing their own interest: the state – the common good, and the market – the private profit.

Thirdly, I will recognize that neither the state nor the market can achieve their own purposes without the other, that is, that there is a mandatory partnership (better said, a “sentencing” to partnership) between the two generic economic actors.

Based on the three “axioms”, it seems the state and the market have the common interest to work synergistically, for both to achieve their purposes at a level, quality, and sustainability which never might be reached separately. However, there are some detrimental peculiarities. 

On the asymmetry of the state-market partnership 

The state and the market are not symmetrically positioned in order to adjust each other when the achievement of each’s purpose is threatened by the other’s behavior. Because the state is endowed (by the Constitutional law) with the power of constraint, it can adjust the market behaviour at any time, while the opposite is almost non-existent. Of course, the state might lose as a result of its adjustments (for example, by reducing its budgetary revenues), but this impact is, in the last instance, caused even by the state's intervention, and is not a reaction of the market, in a direct way. Even if the state internalizes, in a future step, its mistake in adjusting the market and, consequently, cancels that intervention, the change in the market behaviour as a result of the new modification is also a result of the state's intervention, no matter that such an intervention is reparatory. So, if it is the case of an authoritarian state, the market is reduced to a passive actor, that is, to a reactive partner. One might say that, in fact, even if indirectly, the market adjusts, in turn, the state's decisions. I would agree with such an evaluation, but I would point out that this impact is associated with enormous losses for the market, while the state's intervention is not associated with losses for the state (except for the presumed incompetence of the civil servants which are working within the state's institutions).

Of course, in a democratic society, the state is not an authoritarian one, because the norms affecting the market are adopted by Parliament (the most representative structure of the democracy). However, the democratic way of adopting the adjustment of the market by the state is not a sufficient condition to guarantee the success of the norms for market functioning. In any case, it seems that there is a structural asymmetry between the state and the market in the mutual adjustment process. 

The ROBOR case 

Let us examine the current case of the ROBOR (the interest rate at which credit is supplied within the inter-bank market). In the hypothesis that the inter-bank market of the credit is not under collusion (such a case might be examined separately, as an issue in its own right), the ROBOR index is a result of the free working of the specific market. Of course, no state should penalize the market for its legal functioning, no matter which are its results, although, as said before, if the common interest requires such, a state's intervention to adjust that functioning is not prohibited. At this point of discussion, please accept a new working hypothesis: the way of calculating the ROBOR index (as established by the central bank) correctly expresses the “will” of the market. However, this does not seem to be the case, because the conceptual differences between the announcements of the ROBOR index by the commercial banks involved, and the actual banking transactions regarding the inter-bank credit. Within the two working hypotheses, my opinion is against any intervention of the state aimed at administrative (i.e., by the fiscal policy) adjustment of the ROBOR index. Justifying such an intervention through moral considerations (see the mass media denomination of the fiscal intervention – “tax on greed”) is outside of any social rationality, since no lucrative organization should be held responsible (only two entities – the individual and the state – have social responsibility). Of course, if the first hypothesis – absence of collusion – is violated, then the state might trigger a specific verification through its official institution, the Competition Council. If the second hypothesis – the central bank regulation to calculate the ROBOR index – is violated, that is, it does not express the legal functioning of the inter-bank market regarding the credit, then the National Committee for Macro-prudential Oversight must make the appropriate suggestions to update the regulation on the matter. So, it seems clear that no administrative state's intervention targeted directly on the economic actors involved in the phenomenology of the ROBOR index is righteous, and it is redundant to talk about the possible (or, rather, probable) adverse effects of such an intervention at this point. Obviously, an ex-ante impact study of the state's intervention in the matter could had have enormous benefits. 

A utopian suggestion 

Starting from the case of ROBOR index, the question of how the state and the market might achieve a balance regarding their reciprocal adjustment (or control) can now be approached. Taking into consideration the aforementioned asymmetry, it remains to be examined and, maybe, find a way in which the market generally might exert a control or adjustment over the state's decisions which target the market. I will propose such a way, within the following conditions to be strictly verified:

  1. a) the state's decision is not directly focused on the results of the market functioning, but directly on the economic actors;
  2. b) the state's decision does not aim for the common good (the social interest), but a very contextual (usually political) purpose;
  3. c) the state's decision is focused on the area of non-legitimated public intervention (that is, on the area of the private sector which can self-test and self-adjust its own results);
  4. d) accepting the state's decision causes adverse effects which negatively affect both the market and the common good.

Based on the four abovementioned hypotheses, which must be simultaneously verified, then the market affected (that is, the economic actors which are working in that market) might, as John Rawls recommended (see his seminal work “A Theory of Justice”), use the right of civil disobedience. The respective actors should immobilize the amounts due to the state, generated by its decision, in special banking accounts, under the reserve funds label, so neither the deponents nor the state have the right to acquire them until the question is solved amiably or through a final judicial decision. Just the simple possibility of such an action of the market aimed at cancelling the asymmetry between the state and the market in the reciprocal adjustments of relevant decisions might lead, in my opinion, to more moderation in public norming, more mutual respect between state and market, and more benefits for the common good in the society.

 

Illustration: Marjorie E. Wieseman, “Guardroom Interior with Soldiers Smoking and Playing Cards” [painted by Gerard ter Borch the Younger]. In The Leiden Collection Catalogue. Edited by Arthur K. Wheelock Jr. New York. https://www.theleidencollection.com/archive/ (accessed May 04, 2019).

 
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OEconomica No. 1, 2016