In Praise of Free Markets

UK is covered in evidence of free markets. Almost every town has a market place or square, where local producers have for centuries brought their crops and wares on market day to sell to local people. If any producer of potatoes, for example, tried to charge a higher price than the going rate, they would probably have to take their unsold produce back home with them. Unless, that is, there was some unique and desirable characteristic about their particular potato variety. The market was competitive and the market price would emerge as a result of that competition. That was how the free market, Smith’s ‘invisible hand’, worked for the great benefit of customers.

The neoliberal conception of the free market is not quite like that. It conflates the market with international trade. The mercantilist system Adam Smith confronted was one of government imposed tariffs to protect home markets from imports and the provision of subsidies to encourage exports. In so doing it interfered with international competition, keeping prices on the home market artificially high, clearly against customer interests. Such protectionism limited the overall size of markets and therefore the economic gains that might be made by the division of labour. That provides perfectly reasonable grounds for the crusade against protectionist government interference in markets, though other globalisation issues are also relevant.

A market that is free from government tariffs and subsidies is not necessarily free in any other sense. In fact, most markets which are free from government interference, tend to become uncompetitive, if not monopolistic, and so not working for the benefit of customers. That is the result of the perfectly natural process of the most successful competitors increasing their market share, a process which continues till monopoly, or some monopoly inhibiting cartel, has been established. Such monopolisation proceeds unless arrested by government imposed regulation to protect competition. That lesson was learned in the 1930s, but has long since been disregarded and most regulatory protections set aside.

The neoliberal doctrine multiplies the destructive effects of monopolistic markets by asserting the dominance of shareholder interests above all others. The monopolist, or cartel member, is therefore taught it is their duty to ‘make as much money as possible for stockholders’ and adopt a default strategy of market plunder.

That is where we are now as revealed by the many markets dominated by ‘the big four’ or ‘big six’ which include the recipients of public sector privatisations that now mercilessly exploit their market power. Something of the extent of criminal exploitation by the self perpetuating organised money establishment has been revealed in the Panama Papers and more recently the Paradise Papers, even tarnishing the reputations of H M the Queen & Son.

Genuinely free markets, where producers and providers compete for custom, are not just the best means of delivering value where it is most needed, but also the nudge for further innovation and development, such as an even more desirable variety of potato.
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The World’s Greatest Crimes?

As an academically qualified neoliberal economist and management ‘scientist’ employed as a corporate executive with strategic management responsibilities – ie what Milton Friedman referred to as a corporate official – J Brigham (forgive this degree of anonymity) is presented with all sorts of exciting decision opportunities. They include possibly fraudulent dealing that could be tremendously beneficial for shareholders. The whole purpose of her job is ‘to make as much money for stockholders as possible’ to quote Friedman again. So how should those decisions be made?

The analysis for such decisions aims to calculate the net present value resulting from proceeding with a deal, compared with the calculation of not proceeding. Typically, Brigham admits, the more the net gain, the greater its apparent illegality. But such decisions need to be assessed clinically, without clouding its measurement with qualitative adjustments such as ethical values or what Brigham refers to as ‘religious considerations’.

If the deal could be shown to be fraudulent, then the company would risk being fined, but only if the fraud is uncovered. So the calculation of net present value of going ahead needs to be adjusted by a calculation of the anticipated fines, reduced by the probability of discovery, as well as taking into account the considerable number of years between gaining the benefit and paying the fines. Having carried out all those due calculations, decisions to go ahead would, according to Brigham, almost invariably be persuasive.

But what if she were to be held personally responsible for the fraud and punished accordingly? Would that change her decision? ‘Well, of course it would, but the decision was actually taken and implemented by the company, which is a legal person in its own right. It’s the company that must pay.’

That argument is worth consideration. Continue reading The World’s Greatest Crimes?