My Critique on free market

Economists have spent decades debating over role of ‘Free Markets’ as a model achieve economic progress of a nation. But world has experienced a skewed growth which poster boys of ‘Free Markets’ could never foresee.

Few Economists argue that efficient allocation in a nation can happen only through free market. Yes it absolutely holds well in a self sufficient nation where demand equals supply. Suppose in a highly unequal society there is equal demand for milk to feed poor children and to produce exotic chocolate and the aggregate demand of milk is way below the production. Now should we allow market to decide which one to produce? If we let market to decide, guided by “individual self interest” market diverts all the milk to chocolate factory with profit motive and rich consumers won’t mind shelling out few extra pennies for exotic chocolate. This deprives poor children who cannot afford milk due to supply side constraints. So in situations like this markets has to be regulated on ethical grounds. Restricting chocolate production may not harm rich consumers but by not restricting it, can malnourished poor children. So there is a probability that rationality of market can ignore few services which are essential for wellbeing of people but are not profitable.  Free markets can never efficiently deliver services like health, defense, police etc. One has to acknowledge role of government as indispensable for well being of people in any economy.

Over years free markets with a limited government has produced more inequality than counties with relatively larger government role. United States is used as synonym to free markets. When we compare Gini coefficient of United States with Nordic countries it is evident that welfare governments are performing better in term of well being (HDI ranking) and have generated relatively less inequality.

Yes there can be no free lunch. Everyone has to own their own bread and butter for their survival. But can market absorb people who don’t have enough resources to acquire those skill set or capital to compete in market? Should we let market exclude them or should government intervene and protect them?

Free markets fail to value commons. If they are not regulated they tend to exploit natural resources. This can lead to growth which is unsustainable for the future generations. So government role is indispensible to regulate markets from over exploiting and polluting commons.

Economists advocate that free markets can create perfect competition. But in relativity this perfect competition can never be achieved. Even in a perfect competition sometimes firms can distort prices using their power accumulated by their size and make market less competitive for small players. This can coerce small players to leave the market and take up some other economic activity as their interest is not profitable anymore. Even in free markets like United States of America we can often see huge cooperation being sued for forming cartel. Cartel harms interests of both producers who supply and consumers who buy form corporations.

As Sigmund Freud says “Men are more moral than they think and more immoral than they can imagine”. One can never imagine individual to be moral. If we look back into history free markets often tend to fail. The failure of free markets boils down to behavior few rational individuals. Greed of these rational human beings turned millions of people homeless and jobless. How fair is it to let millions to suffer for few free market mongering individuals. When in crisis these “free market” poster boys always lobby with minimalist government to intervene and bail them out.  When they cry out to government to rescue them how fair is it on their part to ask state to withdraw its welfare programs, coercing destitute to live in poverty so that state can have less budget deficit.

                To sum it up, if a nation aims to achieve egalitarian government should let people chose their economic activity with fool proof regulation. Government should be allowed to intervene when ever markets are creating inequality and creating unsustainable (bubble) growth.