If some markets look free, it is only because we so totally accept the regulations that are propping them up that they become invisible.
-Ha-Joon Chang – 23 Things They Don’t Tell You About Capitalism
When people debate political economic policy, the same theme surfaces. One side believes in “free markets” while another promotes “regulation”.
“When the government interferes with free markets, it creates inefficiencies.”
“When the market is inefficient, everyone suffers.”
“The market knows what is best.”
“Competition and free markets are best for consumers.”
The latter argument often appears when arguing about education or healthcare. But a majority of political issues connect to the ideas of “free markets.”
But what exactly is a “free market”? Many people say that a “free market” allows producers and consumers to exchange goods, labor, and services freely. The government should only intervene and regulate when necessary. Most do not assert that a free market should have “zero intervention” as that would imply a failed state or political anarchy.
But exactly which interventions are “necessary”? Most free marketeers cannot agree.
For example, market forces favor employing children in factories because children are able to work competently for lower wages. Should the government intervene and prohibit the employment of children in heavy industrial jobs? For a long time, there was no such law. But many today would say “yes”. We should regulate the labor of children. Yet doing so flies in the face of “free markets.”
Should one be allowed to patent intellectual property? Because one could argue that the formation of artificial monopolies based on patents defies “free markets.”
Should there be a minimum wage? Many free marketeers disagree here. But others lend support.
Should countries impose quotas or tariffs on foreign goods to protect domestic jobs? Free marketeers often espouse the benefits of lowering trade barriers. They argue that quotas and tariffs prevent countries from taking full advantage of their competitive advantages in production and therefore produce market inefficiencies (a.k.a. wasted opportunities for growth). To impose such restrictions is an impediment to the free market.
Many free marketeers have no qualms over an unrestricted flow of capital (e.g. goods and finance) across borders. But very few would also argue for the unrestricted flow of labor (e.g. deregulated immigration control). This despite the fact that market inefficiencies created by immigration control far surpass the inefficiencies formed by trade barriers.
Should consumers be allowed to sue producers for selling them faulty products or making false promises? According to the truly “free market”, they should not. According to the “free market”, consumers bear the responsibility informing themselves and dishonest producers fade out as news of their deceptions grow (though the “free market” would not hold them liable for past damages).
The point is that there is no such thing as a “free market” anywhere on Earth. Any nation with a government also has some kinds of regulations in place that in some way restrict market activities. While some markets carry more restrictions than others, no market is completely unfettered.
More often than not, those who argue for free-markets are responding to a particular policy under discussion. For example, one person may argue in favor of minimum-wage hikes to help lower-skilled workers achieve a more livable income.
“That is a terrible idea,” others will say. “Increasing the minimum wage will only drive unemployment, prices up while eroding purchasing power. The free market ought to decide the value of an individual’s labor. Read a damn econ textbook.”
While they may have a point (though research shows that such problems are less pronounced in practice than in textbooks), arguing from the moral high ground of free markets can be misleading. A free marketeer likely supports many regulations. But when they politically disagree with the regulation under discussion, citing a fair “invisible hand” is a convenient argument.
No nation has a completely free-market economy. The existence of a government guarantees some form of regulation in the form of taxation, trade barriers, or immigration control. The only reason some markets look free, as Chang observes, is that the regulations that frame those markets are invisible. Or rather, only the political fringes discuss them. Few people engage in debates about whether or not children should work in mines and factories. Decades ago, people agreed that hazardous manual labor could harm children’s development and therefore chose to regulate the market.
Whether for selfish or selfless reasons, there are regulations that even the most ardent of free marketeers will endorse. This suggests that free markets are not defined objectively, but rather by culture.
It also serves as a ray of hope. If the decline of child labor in the Western world can subtly re-define a “free market”, perhaps progressive lawmaking and shifting norms can turn other economic injustices into history textbooks.