A True Free Market

Original Version published in “Being Reasonable” by this author

First, we need to set the mood. Let’s all repeat The Materialist Mantra. (If you are into "mantras" you should start the process with an "ooooohmmmm" or some such calming pronouncement.)  Okay, ready; altogether now, with conviction, speak it from the heart –

The world is divided into winners and losers. 

Enough is never enough.

Excess is success.

And for the right price you can buy anything.

The final phrasing should be followed by a deep sigh... aaaaaaaaaah.

Since the ‘08 financial crisis you don't hear the mantra spoken as often or as loudly, but it’s coming back. For the record, I'm a big fan of free markets. I just believe this makes me a rare commodity... much more so than you might imagine. Let me explain.

One of the primary properties of democracy, from its ancient beginnings to the present time, has been the idea of its symbiotic relationship with a free market. As that great iconic fixture of economics, Nobel Prize winner Milton Friedman in his book, “Capitalism and Freedom”, remarks,

"Historical evidence speaks with a single voice on the relationship between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity."

Apparently, the freedom to engage in economic transactions either leads to, or stems from, the freedom to choose your government. Understanding the mutual dependency of a democratic political system – based on equal rights – and a free market economic system – based on the right to engage in uninhibited transactions – is vital to understanding where the system breaks down, and it does break down. Anyone who has driven by a healthy, fit, male standing on a street corner holding a sign saying, "Will work for food", has witnessed the extent of this problem.

To put it simply, Friedman and his Chicago school economists are only right to a point because democracy and the free market are co-dependent if we understand the nature of freedom.

Pure freedom is a myth, real freedom can only exist under a system of mutually agreed upon constraints. In simple terms, the classic ideal of a free market as an unconstrained market is nonsense.

If you free a market from constraints you remove the laws protecting the integrity and equality of transactions, more specifically, the laws that enforce contracts and protect the participants from coercion and deceit. With no constraints, the "free" market becomes just another arena for the exercise of power.

Laws and regulations create and preserve the market by legislating equality, by compelling participants to adhere to their contracts, and by invalidating and, thus, counterbalancing, coercion. And in cases where disputes over interpretation arise, laws create a forum for adjudicating the arguments. A true free market is a market regulated to produce fair outcomes. It is a market free of power and deceit, and it can only exist in the presence of well-defined and strictly enforced laws.

If you doubt what I am saying, try and get hold of a free trade agreement between two or more nations. They are huge complex documents full of conditions and arbitration procedures designed to level the playing field. The goal of these agreements isn't freedom from rules; it's an acceptance of the same rules to provide equal benefits for all. Yet, somehow, among the vast storehouse of rhetoric that accompanies a free market system, this basic truth gets misplaced and we are inundated with "free-marketeers" preaching to us about the evils of regulating the marketplace and how this infringes on market efficiency.

The gross deception is that while free-marketeers are praising the concept of a free market what they actually are seeking is an environment suitable for "free enterprise", and that is based not on equal trade, value for value, but on pure materialism, achieving the “big score”.

The free market is where you take your goods and services for fair trade. The free enterprise system is where you take your competitive advantage and trade for individual wealth. The free enterprise doctrine is founded on greed and materialism, where everything of value is measured in dollars. Don't get me wrong on this; wealth creation can be a good thing for an economy, but not if its ultimate outcome is to concentrate resources in the hands of a few, or few hundred, like-minded individuals whose lifetime goal is the accumulation of wealth.

Materialism has become the reigning ideology among the business community in North America, and probably most other places in the world. The allure of going into business at present is to make your fortune, so you are always on the lookout for this “big score”. If the consumer wins as well, that's good, and, if not, that's too bad. Generations have passed since I received my business degree and, granted, my memory isn't what it once was, but I still remember vividly many of the discussions we as students had about what the future would hold for us. At graduation, most of my friends went on to various roles in the business world and they were all good solid people who I was proud to know and spend time with, but we were young and wanted to be successful, and I remember how we used to joke about the ethics of business. With enough incentive any of us could have been enticed to see things that weren't there, or miss things that were, and the intervening fifty plus years of living have done nothing but reinforce this opinion. As business people are fond of saying, "It's a dog eat dog world" and "Ya gotta be tough to compete".

Consciously or unconsciously, as we become part of the process, we find bits and pieces of the "Materialist Mantra" seeping into our value system until finally we adopt it wholly and without reservation. Equality is the ideology that supports a free market, and materialism is the ideology that supports free enterprise... and as a nation we proudly proclaim our goal of sustaining both, which means, of course, we don't truly understand either.

Just to give you a better view of how a free enterprise system might manifest itself; imagine an economic system where more money can buy a business or individual "more equality" as in better protection for their rights. You can even buy extra "rights" in the form of tax concessions, tariff protection, and stiff regulations against competing products, or reduced enforcement of existing regulations, or cheap raw materials such as minerals, water and timber from public lands. And all you have to do is create jobs, make big contributions to political campaigns, and hire lobbyists to keep your wants and needs on the minds of the decision makers. If you still manage to screw things up, the government may even have to step in and pay your bills (Isn't that socialism?) because the jobs you created might disappear. It doesn't take much to imagine that scenario, does it?

Noted sociologist Warren Johnson writes in his book, “Muddling Toward Frugality”, that "Equality... is an important value, but it conflicts with the values of the free enterprise system, which require inequality to motivate people". Simply put, that last statement is the monkey wrench that gets thrown into our economic system. We have been taught that being equal doesn't motivate people. We need some special carrot on the end of a stick to move us forward to a better life, both as individuals and, collectively, as a society. Money will buy us a better life; and part of that life is the ability to expect better health, more security, special advantages for our children, greater influence in the political arena, better protection for our rights, and more respect and admiration from the general population. Lots of money makes us "more equal" or "privileged"... a winner. On the other hand, if you don't have excess money you have less value to society; you have less security, no special advantages, no influence on government, and less respect from your fellow citizens... a loser.

Any staunch free enterprise proponent will tell you the system works, and it works because the basis for its success is competition. If there is no chance of winning no one will risk competing, and if there is no chance of losing it isn't a competition. This competitive spirit is what has made us a great society. We are naturally competitive because our survival instinct has always rewarded an aggressive approach. To promote competition is to promote our survival and to inhibit competition is to sacrifice our chances for success. If everyone were to get an equal share regardless of skill or effort there would be no incentive to compete. Therefore, the cost of interfering in a competitive marketplace is the destruction of our society, because giving everyone an equal share destroys competition.

Does some of this sound familiar? I've been hearing it all my life. During the peak of the Cold War it was a staple of any economic discussion. I don't really object to it, including the statement that an equal share for everyone has a negative impact on motivation. However, the trick is not to confuse "equal rights" with an "equal share". In a democracy, everyone is entitled to equality, or equal rights, but not everyone is entitled to an equal share of the nation's wealth. You can make the argument that all people are entitled to a minimal share, or subsistence share, as a human right, but if you work harder or longer or smarter, or do more difficult or dangerous work, then you are entitled to more than those who don't.

The basic argument in favor of competition is a strong one and I agree with much of it, particularly the part concerning the need for progressive incentives to improve ourselves. I also believe we have an inherently strong desire to compete because that is what helped our species survive. The mere fact that we exist means that everyone who went before us was competitive, and successful, so why shouldn't we be the same.

What makes most of the preceding statements about competition feel phony is that the people who use these arguments to justify their actions are generally hypocrites. First of all, if you look close enough you will find most free-enterprisers are not seeking competition. What they are seeking is "competitive advantage". We tend to assume that a competition is a contest that happens between equals, or near equals, but this is seldom the case. Is it really a competition if some contestants are able to purchase competitive advantage; if you can skew the process so your chance of winning is so much higher than your chance of losing as to make it a remote possibility? For a competition to exist there has to be some leveling of the field, a counter-balancing of one strength or weakness for another.

Try looking at it from this perspective: If free-enterprisers seriously believed in the supremacy, and necessity, of competition, wouldn't they push for government policies that lead to more competition. For instance: Why not educate each and every child in our society to the college or vocational level of their choice and then release them into the world with absolutely nothing – no debts, no personal wealth, no family connections – arranging the contest so as little as possible could interfere with the direct competition, thereby ensuring the purest form of competition? It won't happen, of course, because one of the reasons we justify chasing excess wealth is to pass it on to our children so they won't have to "go through what we did". In other words, so they won't have to compete. As one of my economics professors used to say, "It may be a rat race but who says we all start at the same line." Indeed, some people are born at the finish line.

This is where free enterprise unravels into elitism and special privilege at a cost to those who can't protect themselves. When you amass large amounts of wealth you apparently join the good-old-boys-self-protection-and-advancement-society. It used to be called the upper class.

Did you know that after the sub-prime mortgage debacle no Wall Street executive ever faced charges even though their actions caused a financial collapse that lead to a world-wide recession, six million homes being foreclosed in the United States alone, an almost unimaginable increase in government debt, which has yet to be paid off, plus untold individual tragedies for millions of families all over the world? I will bet few of us are even surprised that these guys got away with it.

Of course, upper class children and their children's children go on to enjoy those same benefits and, thanks to the family wealth, they never really have to run the race. However, if they decide to compete, say for a governor's chair and, maybe, eventually, even the presidency (think about guys named Kennedy, Bush, or Trump), they are well situated far and above the person on the street who doesn't have their family resources.

Free enterprisers who talk the talk don't walk the walk. A large percentage of wealthy business people in this world didn't pull themselves up from their bootstraps. They got a substantial handout from mommy and daddy, and their family name and position in society often continue to play a part in their day-to-day business dealings.

I suppose, theoretically, a competition where everyone is totally equal will always end in a tie anyway, so there has to be a competitive advantage for someone to win. The pertinent question becomes was it "earned" or "purchased". Competitions are how we select the best people, the best ideas, the best designs, the best products, the best of everything – at the best price. A properly regulated free market is how we are supposed to ensure competition will bring us that result. A free enterprise system doesn't use the same rulebook and, as a result, all it will ever provide is less than the best, second rate. Friedman was right about the close relationship between democracy and a free market... but which one do we repair first to try and achieve the other.

Just a Picture