What exactly does “free market” mean and why it’s good and bad for us.
Free market principles are one of the foundations of capitalism as we understand it today. The concept describes how actors (eg businessmen & women) within an economy are given free reign to decide what the people want without interference from a central authority. Basically, a voluntary transfer of goods for consideration (usually $$) without government intervention.
Benevolent Dictators & Compassionate Capitalism
The absolute best form of governance is a “benevolent” dictator. Some view Lee Kuan Yew of Singapore (1959–1990) as a modern example of a benevolent dictator, transforming Singapore from a 3rd world country to one of the wealthiest countries in the world (5th highest GDP per capita; U.S. is ranked 18th).
A benevolent dictatorship can create results, but in the long term, we have to consider the corruptibility of humans. We have tendencies to be selfish, mean, jealous, greedy, irascible, to doubt others, to hold grudges, to lie…the list goes on. Because of these tendencies, as good as a benevolent dictator can be, they rarely work, especially in the long term. It’s difficult to sustain due to human nature.
And the best type of economy? Compassionate capitalism. If the benefactors of capitalism poured back into their society (had compassion), then that would be the best kind of economy. But in the same way as benevolent dictators aren’t very sustainable, capitalism is so difficult to make compassionate (and hence, sustainable) enough.
Free Markets v. Regulation
So why do people praise the virtues of free markets so?
- It’s difficult to gauge supply & demand from a central authority.
- Innovation and diligence stem from one’s own motivation to survive & create wealth and prosperity.
Can you imagine trying to tell the entire U.S. workforce what to produce to meet the demands of our country and the world? The best example of why that could be disastrous would be something like The Great Famine in China, where an estimated 15–45 Million people died of starvation largely due to mismanaged resources and policies.
But why should we not let free market principles completely control our economy? Because chasing profits doesn’t necessarily take into account the well-being of the general society.
Case in point: the EPA.
Without the EPA, there’s nothing keeping companies from not polluting the environment to the detriment of society because they make more money (and in turn, put more strain on the government) if they do pollute.
Going back further into history. The Industrial Revolution was a major driver making the U.S. a world power. At the same time, robber barons became some of the wealthiest worldwide, doing it at the expense of worker’s rights. If the government didn’t regulate better worker’s rights, would companies voluntarily sacrifice profits for better working conditions?
Solution?
It’s not to say that free market principles are therefore bad. I personally believe that free market principles should be the primary driver in our economy, especially outside of our basic needs.
What we need to do is to embrace our democracy and figure out as a country what’s important to us. But not just what’s important to us, but also to what level we want to be compassionate to the rest of the world. I think that immigration is an interesting topic to explore this.
The two extremes would be no immigration or completely open borders. Theoretically (kind of like free trade) open borders would create the best global economy, but it would be very disruptive to the members of that society. For sure, we don’t want one extreme or the other.
There are two major benefits for host countries for immigration: economic benefit for the host country & moral compassion for those fleeing oppression. How much of either kind of immigration do we want to support that would cause minimal disruption to our citizens?
That is what we as citizens need to argue & experiment on, within the confines of our democracy. In the same way as the argument shouldn’t be free market versus regulation from the government, but how much of either extremes we want, the debate around immigration shouldn’t be about whether we allow immigration or not.
We need to acknowledge the pros & cons of either side and together find the happy medium that creates the kind of society that we want. So what do we need to do? Be informed. Be open to experimentation & change. Keep your politicians accountable.
