When taught economics, one of the first things you are told to accept is that there are so called ‘free markets’. These being ‘free’ in the sense that if untouched by state intervention they will produce efficient outcomes due to the laws of demand and supply and should not fail, most of the time anyway. However this is false. ‘Free markets’ do not actually exist. Every market has some rules and boundaries that restrict the freedom of choice for consumers and suppliers. The term ‘free market’ is actually not an economic one but in fact a political one. It is used by politicians/organisations who want to introduce market liberalization (normally not on some countries but others i.e the IMF in Asia) and strip back, in many cases, much needed government intervention into certain markets.
Markets develop and change with time and so has the term ‘free market’ also been altered. Even though the actual definition of a ‘free market’ hasn’t changed from that of a market with no government interference whatsoever. Let’s take the example of the 1819 Cotton Factories Regulation Act in Britain of regulating child labour. At the time the proposal cause massive controversy with opponents seeing it as undermining freedom of contracts and thus the very foundations of the free market. However today it is unimaginable to think that any promoter of the ‘free market’ would advocate for a return to child labour, even though a true believer in such a market would see it as right and just. Another example is the stock market, one of the most thought ‘free market’ markets where anyone can buy and sell shares as they please. But even the stock market has a degree of government regulation. A person cannot just go to the steps of the stock exchanges in the City of London with shares and sell them. They would have to go through a round of checks and meet certain requirements to begin trading, which is natural practice around the world.
It is well known that the Conservative Party in Britain, and throughout the most of its history, has been an advocate of a small state and letting the markets be relatively ‘free’. With David Cameron saying only today that “I believe that open markets and free enterprise are the best imaginable force for improving human wealth and happiness". However it is also widely known that the Conservative party believes in tighter immigration laws. Both of these ideas however go completely against each other. To believe in a ‘free market’ is to believe in the free movement of labour as firms would demand the lowest cost of labour possible and at the present time this would come from overseas countries such as China, India and many Eastern European states, this would also lead to cheaper goods for consumers (which they would demand) thus leading to market efficiency. However then the Conservative pledge to limit immigration in Britain while also advocating for “open markets and free enterprise” doesn’t go hand in hand. Hypocrisy many would cry.
The belief that markets, if left to their own devices, produce efficiency would suggest that capital (money or assets) would flow to places where success of investment is greater. But as Joseph Stiglitz, Nobel Prize winner in Economics pointed out, that instead of capital flowing from Western Countries to the more prosperous economies such as the BRIC’s (Brazil, Russia, India and China) where the prospect of large profits was greater in the last decade or so. Capital in fact flowed in the opposite direction and the prosperous economies actually fuelled to the Western Countries, creating a culture of people living beyond their means and thus fuelling debt problems, which is now the big problem facing the West and the World. So as some economists and politicians claim that they are trying to defend the market from political interference by the government. They are lying. The government is always involved, in some way or another, in markets and those proclaimed as ‘defenders’ are as politically motivated as anyone else.
Author: Thomas Viegas
Author: Thomas Viegas