Discussing how to solve conflict people generally tend to search for a “third party” that can approach the issue causing the conflict from without, an external “power” that does not have anything to do with the involved parties. The logic is essentially correct if the aim is to minimize corruption. In a dispute between A and B, anyone working directly or indirectly for B cannot be a neutral arbiter. And the same goes for anyone with ties to A. Only someone who doesn’t personally, directly or indirectly, have a relation to A or B, and who doesn’t personally gain from the outcome of or a solution to the conflict, can be trusted to settle the dispute.
The logic is equally applicable when there is a conflict between a person and an organization, as is the case when a person is involved in a contractual conflict with for instance the government. Only someone, a person or institution, without ties to the person or the government can be trusted to provide a solution that is truly neutral, a solution that thus doesn’t give one of the parties benefits at the cost of the other. This makes true justice a difficult task in most state societies, since government not only upholds a monopoly of the use of force – but also claims the monopoly of setting rules for justice as well as defining what is justice in government courts.
This problem has been well-known to theorists and politicians alike for centuries, which is why we expect to find some sort of safeguard in most political and state systems. For instance, the United States government has the monopoly to settle disputes in the court system – but the courts are a power in the government that is essentially “separate” from other powers (the executive and legislative). Of course, such a system cannot truly provide neutral arbitration, especially not when government is one of the parties in the conflict, but most people tend to agree it is “close enough.”
This “close enough,” which is often falsely described as a guarantee, is sometimes taken as an argument for the state. In essence, it is not so much an argument for the state but against the market’s possibility of supplying such goods and services. This is a false argument, even if we accept the assumption that the “close enough” solution to the arbitration problem is, as advertised, a guarantee.
The reason it is false is that it is based on system thinking. The market, it is claimed, cannot supply neutral arbitration simply because there are interests in the market that have interests in the conflict and how it is settled. The fallacy, of course, is to see the market as a system. Were it a system, then it would certainly have interests in the conflict, the parties, as well as the solution to the conflict.
On the other hand, were the conflict really a problem in the market, accepting for a moment the assumption that the market is a system, then there is no reason to assume the market cannot internally find a solution to the problem. After all, the reasoning is based on the assumption that both parties are “parts” of the market and that the market, therefore, is not neutral to the case. If this were true, then the market should be able to settle any dispute between two of “its” actors. An “internally” settled dispute must be better than any dispute involving external parties, especially when the case is that both parties in the conflict are parts of the same “system.”
Not many would agree that this is a real response to the critique, however, even though it does essentially follow the line of thinking of most – if not all – of the criticism of market arbitration.
A couple of truths following this statement of market as a system and arbitration should be noted. If accepted, a solution is not very difficult to imagine. Actually, an “internal” solution is likely to occur and the problem would, in most cases, simply vanish. If rejected, we must also reject the notion of the market as a system. The only reason an “internal” solution, as mentioned above, can be rejected in the case when it is obvious that the parties in conflict are “parts” of the market is to state the parties are not parts of the same system. Thus: they are not actors in the market or the market is not a system.
A premise for the problem discussed is usually that the parties involved in conflict of some kind are actors in the marketplace. After all, if the argument is used as an argument against anarchism (which is, by definition, the alternative to the state) the parties cannot be anything but actors in the market. Hence, the market cannot be “a system.”
This conclusion does however not prove that the alternative to state arbitration must have an interest in one of the parties or one of the possible outcomes of the conflict. It proves only that the market is not a system, and thus that the parties in the conflict are actors that are acting in the market but not as parts of a market system. The parties are thus not parts of a homogeneous whole and must therefore be essentially independent.
There is nothing in this statement saying another actor in the market cannot also be independent of other actors, and there is also nothing saying a third party – an actor in the marketplace – cannot be equally independent with respect to both parties in the conflict. Such a party, even though it is an actor in the market, perhaps even the same niche market as the parties in the conflict, must theoretically be able to take a position between the conflicting parties and arbitrate!
Yes, there might be problems with such a third party’s independence, but such problems do not arise because there is no one in the market that can be independent of both parties – they arise because it is difficult, perhaps very costly, to find someone who is truly independent (or: equally dependent) of both parties. Nevertheless, this rules out the criticism that “the market” cannot supply arbitration in conflicts “in the market” without necessarily being unfair and unjust. “It” certainly can supply such services, the argument against this is invalid.
Looking back at the alternative, that the State – an actor that no doubt has interest in the outcome of conflicts (even if “only” to enforce its own laws) – has a monopoly of arbitration between parties in conflict, it should be obvious which alternative is superior. The state system offers the monopoly product arbitration and can only supply “close” to just solutions to conflicts. The market can supply such services that are essentially, if not fully, neutral enjoying the fruits of competition in supplying the best services for arbitration.
The latter may be costly, but the cost should be nothing compared to the coercive system of a state monopoly. The problem of arbitration in effect boils down to whether one believes products, in this case justice, are best supplied by a monopoly or by a market with multiple actors supplying a variety of products.