On Footballers Wages And The Efficiency Of Free Markets


It is often claimed that free markets are the only efficient and just way of distributing goods and services.

Efficient because the profit motive and competition from other suppliers leads owners and/or managers to continually reduce costs and improve productivity. Just because in an open capitalist society based on free markets all citizens are free to exploit the market in order to provide themselves and their families with a livelihood, the only limit on them is their own abilities, thus, it is argued, a capitalist society is a genuine meritocracy.

But the incredibly high earnings of some sportsmen, corporate managers and media stars raise some interesting questions about this idea of the efficieny and justice of free markets and illustrate how in extreme cases the market mechanism of supply & demand inevitably brings about unjust and inefficient results.

Lets look at the example of world-class footballers to illustrate what I think the issues here are – although I would argue that many of the same arguments would also apply to some highly paid film stars and corporate executives.

World-class footballers are a very, very, very scarce commodity. This scarcity makes them very, very valuable to football clubs across the world. The market mechanism of supply & demand means that the economic value of these particular commodities (the footballers) is almost entirely established arbitrarily by the scarcity or availability of them to the market.

But in football overall the scarcity value has now overtaken their value to the business and is fatally undermining the financial viability of almost every football club  – certainly in the UK. Throughout the world many if not most football clubs are on the verge of insolvency. Even the world’s most successful clubs like Manchester United are finding it hard it to succeed financially because of the level of remuneration that they pay to footballers; levels set by the scarcity of the players and the competition from other clubs.

To be a successful football club these days it is not enough to be a well run efficient business, these days you need a billionaire owner willing to sink hundreds of millions of pounds into a business that in any other sector would be regarded as a basket case.

The free-marketeers will argue that if player wages really have outstripped their economic value to the business then clubs will go bankrupt. If this happens often enough a downward pressure on players wages will “adjust” the market to a level where players wages are in line with their value to the business. They would argue that it is the intervention of the billionaire owners that has distorted the market and put up players wages to these unsustainable levels.

But even if this is so the question I would ask is: in what way can allowing businesses to fail as part of a mechanism to control wages be described as efficient!?

The failure of enough football clubs over enough time may indeed eventually moderate player’s wages but surely this is an incredibly wasteful way of achieving that aim. An international regulatory regime that set financially sustainable maximum levels of players wages would undoubtedly undermine the freedom of players and clubs to negotiate with each other but one would have to ask if it is self-evident that this option is less efficient or just than letting clubs go bust in order to moderate players wages?

There are hundreds and thousands of other people involved in football clubs: trainers, medical staff, technical staff, accountants, administrators, grounds men, cleaners and support staff of all kinds. Football clubs are also fairly unique in the business world in that they have “fans” that are significantly emotionally invested in the business as a cultural entity.

So how can we argue that it is just that all these people are derived of the benefits of the club simply so that a market mechanism can be allowed to take effect on moderating players wages? There is nothing just about it. On the contrary it is profoundly unjust. (And this is without the argument that I have deployed elsewhere that players are in the first place undeserving of such remuneration because the skills they are rewarded for they were born with i.e. the fact that Wayne Rooney is good at football rather than me is entirely arbitrary).

Over and over the free-marketeers talk of the brutal but necessary power of free market competition to bring about “the survival of the fittest”. On a daily basis hundreds of small businesses open – on average 25% of them will have ceased trading within 12 months and 70% will be gone within 10 years.

Each of these business failures represents a loss of a real investment by real people -not just of theirs or the Bank’s money but of their time, energy, imagination, hopes & dreams. How can all this waste and human pain be described as efficient?

Similarly, how can the forces of supply & demand be regarded as just? To be entrepreneurial, hard working, honest and efficient means little if there are so many others also providing the same goods or services that you cannot charge enough to make a profit. Similarly, you can be feckless, lazy and a crook and still end up as rich as Croesus if you have a monopoly supply of a commodity for which there is a constant demand (heroin for example).

I am not seeking o deny that these forces are a reality, they are surely all too real, I am merely questioning the notion promoted by the free-marketeers that these mechanisms are intrinsically efficient and just. In fact I would go so far as to suggest that the mechanisms of competitive free market capitalism are in reality an incredibly inefficient way to distribute goods and services and that the arbitrary mechanisms of supply and demand are inevitably unjust.

I Am Not A Number

Political and Philosophical Dispatches From An Individual Living In A Society

corporate democracy economics freedom left-wing libertarian managerialism moral philosophy politics radical socialist society

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