Saturday, June 30, 2007

MY TAKE - WHAT IS A FREE MARKET?

WHAT IS A FREE MARKET?

Introduction to neoliberalism


The idea of free markets is not a new one. The rise of mercantilism in Europe rang in the end of the middle ages, because it represented not only a new way of making a living, but a new kind of society that went with it.

For the first time, Europe saw the rise of a class of people who were neither aristocrats, peasants or clergy. These new individuals, merchants as they would come to be known, made their living not from working the land, or from inheriting and managing huge estates, or plying a trade. They made a living exchanging goods for other goods, or for money, which at that time consisted of precious metals like gold and silver. They invented many new ways of financing businesses.

Many of them amassed great wealth this way, which gave them access to power. They became the backers of kings and governments, which made wars possible. They also participated in the expansion of Western influence worldwide, by entering the trade with new lands and economies. They facilitated the spread of many staple foods, which today feed billions worldwide.

In short, their legacy is both of great advancement in technology, discovery and expansion, as well as all the negative aspects we associate with that period - slavery, genocide, the spread of disease, the creation of racism. In other words, they were neither intrinsically good, nor intrinsically without merit. Morality was important to some, but for many others making money came first, and a few were just intrinsically evil and revelled in death and destruction.

In their day, the limits on their power were clear - kings and warlords would be added to by emerging national governments.


The 19th and 20th Century - colonialism and the robber barons

The invention of technologies, both positive, like railways, steam power and revolutions in agricultural machinery were also accompanied by military innovations - machine guns, howitzers, and explosives of different kinds. Together, they rang in a new era of huge expansion and new markets. Again, these developments were neither all good or all bad. Europe expanded it's wealth by creating new colonies, which were exploited, often brutally, through the barrel of a gun.

These developments gave rise to an old 'new' class, the robber barons. These businessmen used both new technologies, political power and corruption, and anything they could lay their hands on, to achieve great power. Cecil Rhodes both unified and gave a common language to Southern and Eastern Africa, but also rang in the era of colonialism, apartheid, and massive dispossession and disenfranchisement of the African people, something we are still dealing with to this day.

In the United States, robber barons created railways, newspapers, but at the same time, they did so by destroying their competition, small farmers, Native Americans, small cattle and sheep herders (see the Johnson County War, immortalized in the move Heaven's Gate). William Randolph Hurst was personally instrumental in the banning of hemp, a tremendously useful plant, because it allowed a cheap alternative, and therefore newspaper competition, to his vast estates of woodland, which he used to make pulp to create paper for his newspapers. Even though hemp is far more productive a crop, and requires virtually no pesticides and other chemicals to grow, it was banned, and to this day, newspapers are made from slow growing trees instead. Think of all the forests that could have been saved, sacrificed on the altar of competition the unbridled amassing of power.


Today - Straussians, the World Bank and the IMF

Back in 1945, Berlin was in a bad shape. It had been robbed of it's treasures in a genocidal and pointless war, it had been bombed by the allies, and was now slowly being surrounded by Communist East Germany, and the emerging Cold War.

There was nothing to buy in the shops, as the government tried to limit runaway inflation by putting price caps on goods. When these price caps were lifted, prices shot up, but goods again started to appear in the shops.

In Singapore, ten years later, a Harvard graduate and new President of the recently independent city state of Singapore, seceded from Malaysia, faced a set of specific problems. As a city state, he had no hinterland, except a hostile Malaysia. He had no agricultural land, no natural resources, nothing except a city full of people. The solutions he came up with turned Singapore from a Third World backwater, into an industrialized nation. He did this, by attracting foreign manufacturing businesses, and by putting an emphasis on education of his citizens, including higher education. To this day, education in Singapore is characterized not by elimination exams, but by making sure that not a single pupil is left behind, before everyone moves ahead. Slow students get extra attention from the teacher. This is because they value each and every student and their potential benefit to the nation.


Lessons learned, histories misunderstood

So switch to the early eighties, and the Chicago School of Business. A small number for right wing students, who fell under the influence of Strauss, were to achieve prominent positions in the World Bank, the IMF, and many of which became economic advisors to right wing regimes in South America.

Strauss and his followers believed that if only the government could be destroyed, business would take care of everything, and free markets would ensue. And a belief it was, because no country had ever developed by destroying it's own government, and creating a defacto state of anarchy, in which the might of the biggest corporation made right.

They liked the idea of 'creative destruction', of new corporations destroying old markets and creating new ones. Being wealthy and above it all, they would not mind living in such a society, but for the rest of the population this process would be an unmitigated hell on earth.

And this is what ensued in every country they advised. Chile, Argentina, Russia, the Asian financial crisis, all these countries followed their advice, and all of them abandoned either the policies, if they didn't abandon the IMF altogether. And importantly, in true democracies, the people themselves voted out the neoliberals at the very first opportunity that presented itself. Neoliberalism cannot thrive outside of dictatorships.

Neoliberalism has never been shown to work, because the philosophy is essentially utopian in nature. Their policy prescriptions go against everything we know from history on how economies and societies are developed.

In countries with high unemployment, they advice reducing government expenditures. In countries with largely illiterate populations, they still insist on spending less on education. No matter how bad the statistics say an AIDS crisis or general access to healthcare is, they still insist on spending less on healthcare.

And it is important to remember that these policies are not adopted because they have been shown to work, but because the IMF has it in it's power to destroy entire countries - and it does, with alarming frequency. The IMF acts as a Chicago mob enforcer, a predatory lender, not an ordinary lending institution. This is why it can enforce the ideology of neoliberalism on nations who naturally would have nothing to do with it.

WHAT ARE FREE MARKETS

To the neoliberal, a free market is a market where

- corporations keep all their earnings
- corporations pay no taxes
- corporations obey no labour or environmental laws
- corporations do not share their profits with anyone
- corporations can send their profits to any corner of the world
- corporations are not subject to import restrictions or tariffs
- corporations can finagle any money from anyone, including the state (through massive corporate welfare handouts like agricultural subsidies) they can without offending the basic philosophy of neoliberalism - everyone for themselves, or as they used to say in Chicago - ubi est mea - where's mine?

In other words, for the neoliberal, the corporation is supreme. It is the highest form of company, and if they are a kingdom upon themselves, well that only goes to show how successful they are.


REAL FREE MARKETS

I regard a free market to be one where every single citizen can enter or exit the market place at their own free will and judgement.

To me, a free market is a market, where mr. Banda in Petauke has...

- 100 hectares of land
- machinery to work it
- a main road that connects him and his product to the nation and the world

He can then say: this year I will grow maize only, because that will give me the best return on my efforts. Or he can say, I will grow 25 hectares of maize and 25 hectares of soy beans. Or 50 hectares of maize, and 50 hectares of cassava.

He drives his product to the main road, where it is then picked up by a transportation company, and driven to Ndola, or Livingstone, or Lusaka, or any country or city around the world, wherever he can get the best price.

He will inform himself of the market price through a nationally available electronic marketing system, after which he will be paid for his goods, without 'middlemen'. He will pay a minimum of taxation on what he produces, because he has a government that understands that without him and his work, they will not be able to collect taxes from him at all and because, in many ways, he is the economy.

And that, my friends, is a free market.

It is a market where every citizen has not only the right, but the means to sell his or her goods or services, using his or her own judgement, ambition, work ethic and intellect, and make a living. Freedom is not simply about an absence of repression, it is just as much about having real world options. Or to paraphrase the country song, freedom cannot be 'just another word for nothing left to lose'.

HOW TO GET THERE

To get to that situation, several things need to happen.

1) the state must do everything it can to remove barriers to entry into the economy for ordinary citizens

This means that the state must:

- redistribute unused arable land;

- create infrastructure; electronic, financial, and physical (roads, bridges, irrigation works)

- set up or hire companies that help farmers get started in commercial scale farming, and help them through the entire farm cycle, so they quickly can become independent actors in the economy. The same for other businesses.

- provide education and healthcare free of charge

- create an education system that puts real skills central to it's curriculum

Left to it's own devices, these processes, like 'willing seller, willing buyer' land reform, would literally take centuries to be completed. This is why government intervention is necessary.

2) Every citizen must have the opportunity to participate in the country's economic life

- no development can leave the population behind, like FDI does
- we must strive to arrive at a situation where every citizen has a trade or skill, a piece of land, a car or enough money in the bank to participate in the economy


GOVERNMENT INTERVENTION

Free markets cannot exist without the government or state. There have to be rules against monopoly formation. Monopolies are the natural and inevitable result of free competition, because companies are not only out to produce the best and most popular gadget, but also to destroy their competition, which if successful, rings in the end of free competition.

There also have to be protections for labour and the environment. Corporations do not do this on their own. They will engage in a race to the bottom and spend as little on their workers as they can, or pollute as much as they can get away with. After all, they are legally obligated to maximize their profits, which also means reducing costs.

It takes the government to enforce legal contracts, and it takes the government to keep the nation secure - without security, commerce is nearly impossible.

And lastly, corporations, when they get big enough, amass enough power to distort competition, by muscling out smaller companies with better products, buying legislation by bribing politicians, and in some cases, by monopolizing public opinion through massive media ownership, making fair elections based on policy differences between parties impossible. Democracies depend on an informed electorate, which means they have access to different and opposing sources of information.

This is why the government or state is needed, and why free markets without governments do not exist, at least for very long.

CONCLUSION

Free markets are not 'a free for all' for the corporations. They are not a natural state of business either. They are a temporary construct, maintained by government intervention.

Real free markets however, where every citizen is free to enter or leave any (literal or figurative) market place, is what we must strive for, because it is the surest way the citizens of the country can build their own wealth and security. It is how stable societies are built.

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1 Comments:

At 2:08 AM , Blogger Chanda Mulenga said...

MrK,

I like the balance with which you tackle this subject, where you highlight the crucial and indispensable role governments play in effectively regulating free markets.

It is ironic, but also a fact of life, that the concept of fair play itself needs to have a humane heart towards those who can not ably compete, or are, as you rightly pointed out, muscled another way by an already established monopoly.

Good governance, therefore, becomes inextricable from highly functional free markets.

 

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