The Myth of the Free Market: You’ll Find a Unicorn Before You Find a Free Market

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I wrote an article recently about Capitalism’s Top 1% becoming the new aristocracy, based on the news that social mobility is no greater under capitalism’s meritocracy, than under the medieval oligarchy.  Some responded, in line with a wider misconception, that if we only had ‘true’ free market capitalism these injustices would be a thing of the past. Today’s piece is a response to that argument.  There never has been, is not and never will be a capitalist free market economy – and here is why.

The Myth of the Free Market

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Capitalism is meant to pivot around the free market.  The theory goes that if only the market were rid of government meddling (regulation) then true competition would reign, with corporations battling it out to provide their goods and services to rational, all knowing consumers.  This, according to supporters, would provide stable and accurate prices and quality for goods and services as competition would aggregate supply, demand and pricing.  Corporations who provided a good or service which was not wanted, was above the market price or below the market quality demanded by the rational consumer in this open, free market would simply fail and those who met demand would win.  Therefore the success or failure of a company would be directly proportional to its ability to meet the needs of its consumer.

So, some might argue that recent failures assigned to capitalism – the bankers bailout, the corporatisation of government, the decline in social mobility – are because we do not have REAL capitalism as outlined above. They might argue we are in fact in a post capitalist, state capitalist or fascist state.  There are valid arguments in favour of all these possibilities.  But whatever state we are in, it is as a direct and inevitable result of capitalism.  These outcomes are not aberrations, but natural and logical given the reward mechanisms of the system itself.

It’s the Monopoly, Stupid…

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While arguments in favour of inviting private interests into the public services rests on the idea of competition, corporations themselves are rabidly anti-competition.

If a McDonalds opens opposite a Burger King, Burger King aren’t over the moon that the capitalist theory of competition is being exercised, they’re figuring out how to kill the opposition.  The argument goes that the consumer is the ultimate beneficiary of this struggle, as the consumer will be tempted by lower prices and better quality goods to win them over.

These arguments overlook some key issues.   They ignore that it makes sense for the corporation to seek out a monopoly – a free market gained monopoly would have no different traits than a socialised monopoly, except democratic accountability would be removed.

They also fail to consider that the consumer is not solely a consumer, they are also a member of their society so may well be impacted by the competition in more than one way (i.e. they might benefit from a price cut as a consumer, but lose their job as a result of the bigger corporation pushing their employer out of the market).

The facts bear this theory out.  With the rise in ‘free market’ policies of the Thatcher and Reagan governments in 1980’s US and UK, perhaps we would see a dramatic rise in competition?  Surely this new, free market would end monopolies and usher in a new era of dynamic, consumer responsive businesses vying for attention.

Let us use food as a case study.  In 1990, only 10-20 percent of global food retail was delivered by supermarkets. Today, that figure has soared to 50-60 percent.  That is, over half of all food sold in the world, is sold through supermarkets.

The UK has lost 90% of its specialist food retailers – that is butchers, bakers and fishmongers – since the 1950’s. In Britain today, 97% of food purchased is bought in supermarkets, with only four corporations making up 76% of those sales.  In the US, 72% of food is purchased in supermarkets. As these figures continue an upward trend, we can see that monopolies are being created in food production.

If we take a look and test the theory that the consumer would benefit from this process of corporate battle, proponents of the idea point to the drop in the proportion of household budgets in developed countries spent on food.

During the rise of the supermarket since the 1950s, the percentage of the US household budget spent on food dropped from 32% to 7%. In the UK the proportion spent on food has dropped from 33% to 15%.

But, with supermarkets making record profits, and household food budgets down, who is paying the price for our food?

The answer is the farmer and the environment.  In Brazil, more than 75,000 farmers have been delisted by the big supermarkets. Thailand’s top supermarket chain has carved its supplier list from 250 to just ten. The tiny country of Lesotho has actually all but killed off its domestic farming industry with 99% of its food purchased through supermarkets utilising foreign agri-business.

Seventy years ago, there were nearly seven million American farmers, today there are two million. Between 1987 and 1992 the US lost 32,500 farms a year and now 75% of US produce comes from just 50,000 farming operations.Family farming and smallholding have been the big victims of the supermarkets.  This means farmers in developing countries being exploited, and consumers in developed countries so far removed from their food chain that they could not tell the difference between beef and horse.

The inflation in food prices in recent years has been masked not only by supermarkets pressurising food producers to ever decreasing incomes and unsustainable farming practices, but the makeup of our food is being diluted…in short, the price might stay the same but we are getting less for that price.  The still breaking horse meat scandal is just one example of this.

So when it comes to food, the free market has seen a few corporations rise to dominate the market, set their own prices and lead to negative social impacts. While some consumers might see a fall in the price of the food they are buying, they cannot be sure that they are comparing apples with apples and while perhaps benefiting as consumers, they are losing out as producers.

In fact if we zoom out to what is happening in business overall, for the last three years the US has seen a consistent fall in the total number of businesses.  In the US, start ups (new businesses) have fallen as a share of businesses in the economy from 12% to just 7% in just the last few years, whilst still on average employing not more than ten people each. These patterns are reflected across developed economies globally.

The market is being constituted by a decreasing number of businesses, fewer new businesses are being launched and the monopolies created produce negative impacts on communities across the globe.

What Keeps the Free Market Free?

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What keeps a free market free? As we have seen above, it is not in the interest of the corporation to maintain a free market.

The corporation has no reason to apply any kind of ethics whatsoever.  Adidas employs child and sweatshop labour in the Far East because it is cheaper than employing people on a living wage, with decent terms and condition.

Historically the government as the purported servant of the people, has been the enforcer of rules necessary to restrain the ‘market’ from behaviours which, while logical from point of view of the corporation, lead to undesirable social outcomes. However, the logic of the corporation is then to seek maximum influence over the regulator.  In this case, corporations use their vast wealth to buy influence in houses of parliament or government across the globe.

In the US, by 2011 the largest thirty corporations spent more that year on lobbying government than they spent on taxes.   Big oil alone spent over $169m in lobbying the US government in 2009.  Between 1998 and 2008 (the year of the bailout) the US Banking Sector spent $3.4bn lobbying for deregulation, reduced capital requirements and avoiding the regulation of derivatives (which caused the financial crisis).  When they aren’t lobbying, they are simply gaining positions of power within the government itself to directly redraft legislation to suit them.

In the UK, corporations with outstanding tax issues with the HMRC (the tax collector) are currently in working groups with the HMRC to redraft the very tax rules they are doing their best to avoid.  The largest accountancy firms are also using consultancy positions within government as tax policy advisors, to market themselves to tax evading corporations who hire them to break the rules they wrote.

In the US, there appears to be a revolving door between Monsanto (controversial purveyor of genetically modified foods)  and  the Food Regulating Agencies.  Islam Siddiqui, vice-president of Monsanto-funded lobby group CropLife is now a negotiator for the US Trade Representative on agriculture. Roger Beachy, a former director of a Monsanto-funded plant science centre has become the director of the National Institute of Food and Agriculture. Michael Taylor, former vice president of Monsanto, is now the deputy commissioner of the Food and Drug Administration (FDA – the US’s food and drug regulator).

There is a major problem here.  The outcomes of the above are that when corporations break the law, they are either not tried or are given a fine which comes nowhere near the profits reaped by breaking the law.  Worse, corporations are buying the drafting of laws which make their unethical and damaging behaviour legal.

We have seen recently that banks have instituted fraud on a global scale by simply making up the LIBOR rate at the cost of savers and pensioners, and to the benefit of their traders who specialise in debt, not capital.

In 1950, corporate taxes made up 30% of federal revenues in the US. By 2012, this had fallen to just 7%.  In the UK, Corporation Tax rates were cut from 52% to 35% over just two years between 1984-6 and has continued to be cut until it stands at just 21% today.

Corporations do not want any rules which stand in the way of making profit. Left unregulated, they would simply operate in ways which maximised their profits regardless of social outcomes.  When we introduce a regulator, corporations seek to and succeed in compromising them.  The issue is not to blame one or other of the players, but the game of capitalism itself.

Pulling Our Heads Out of the Sand

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It is time to get real.  There are a number of sheer economic realities which also undermine the idea of the so called free market. I would recommend reading Professor Steve Keen’s Debunking Economics to get a better handle on those.

But whether it be sheer mathematical reality, or social reality, the free market myth is nothing but a nonsense.  It is a self serving nonsense propagandised by its beneficiaries.

In 2008, the banks did not uphold the principle of free market values and keeping the state out of the market – they begged the state to use tax payer money to cover their debts whilst only they enjoyed the profits. The IMF recently estimated that this bailout has so far cost the taxpayers of the world £7.12 trillion ($11.9trn).  That is the equivalent of a £1,779 hand out to every last human being on earth.

The truth is that most of the globe now labours under corporatized states.  Every new policy is tested against the reaction to it by ‘the market’, as if it were this free, independent, aggregated assessment of the worthiness of state actions.  It is not. It is simply big businesses reaction to the action of the state.  All the market reaction tells you is whether or not a cabal of corporations think they can make a profit from it.

In conclusion, not only is the market not free, but it never can be.  It requires legislation to prevent rational corporate behaviour which would undermine it, and any regulator (state or otherwise) will be corrupted by corporations seeking to influence them.

The sooner we abandon this madness, the sooner we can answer the bigger question: how do we create a means of economic organisation which has the highest chance of meeting our social goals?

Surely, underneath all this GDP growth nonsense is a basic ambition to increase living standards around the world, to raise the levels of health, education, social cohesion and progress (technological, scientific etc) across the globe such that we can all benefit from it whilst not destroying our planet.

We labour away under a system which forces us to abandon these goals for the sake of a limited number of overbearingly powerful people and corporations to increase their profits.

The answer cannot be to unleash these people on the world without even the token regulation they have now, but to fundamentally transform our social, political, economic and environmental organisation.

We must abandon the myth of the free market, just as we gave up on Santa Claus and Unicorns – it is time to put away childish things so we can become grown up caretakers of ourselves, each other and the planet.

21 thoughts on “The Myth of the Free Market: You’ll Find a Unicorn Before You Find a Free Market

  1. rcandrewz says: “Freedom means freedom FROM government ”

    Not to me & not historically.
    To the Ancient Greeks “freedom” meant the freedom to participate IN Government.

    In fact, among traditional societies “freedom from government”, in other words, to be exiled/outlawed, was among the most severe forms of punishment where upon the criminal was declared outside the protection of the law & thus completely free from government.

  2. There never will be a free market as long as legal tender laws and/or state issued currencies exist. It is this basic monopoly money commodity principle that is the root of why free markets cannot exist. Only in a barter market can the seed of monopoly be overcome. And even in such a barter market, centralization of wealth in the hands of individuals operates to generate forces that spiral toward monopoly control. The diversity of circulating commodities does operate however to retard the growrh of market monopoly due to the spread of commodity wealth among the various participants in the economy.

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  4. For me one word would describe current political and corporate system: CORRUPTION. We have corrupt politicians who shields corrupt corporations. It is a shame that we have only a tiny minority of uncorrupted politicians. I am not aware of any principled corporate leaders.
    Nothing would change or work until we have a robust anti-corruption law that applies equally throughout society (including the Royals).

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  6. Pingback: AnimalFarm.org » RT @Scriptonite: There never has been, or will be,a capitalist free market. Here’s why http://t.co/UpN02PZmZe #mayday #occupy #ows #bankste…

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  8. Pingback: AnimalFarm.org » There never has been, or will be,a capitalist free market.Here’s why http://t.co/tDGAdW0wdU #occupymayday #mayday #ows #iwd #wheresdaddyspig

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  11. Pingback: AnimalFarm.org » RT @Scriptonite: There never has been and never will be a capitalist free market economy – here’s why. http://t.co/d6eTeenpbz #anon #ows #w…

  12. So your argument is BECAUSE government in fact has always controlled the market we need more government?

    Interesting because last time I checked that is the spawn of Circular Reasoning.

    The problem with government is all brands of it are evil because the working definition of government is coercion and oppression and last time I checked that hast nothing to do with a free people or market.

    Freedom means freedom FROM government not to become enslaved and beholden to it.

      • Well we first need to define what free really is and it certainly isn’t defined by allowing anyone or any entity to oppress or manipulate something, that is the opposite of free.

        I think we all need to understand that the working definition of government is coercion.

        Also and with all due respect the question should be what regulates?

        The answer is “market forces” but because bureaucrats who dictate the markets with their laws of regulation can be bribed and are on a daily basis market forces have never really been allowed to function properly.

        You yourself agree there is no such thing as a free market and I concur but where we disagree I think is you seem to feel more government is needed to control the market where I fell less is needed in order to have a true free market.

        If I missed your argument, I apologize.

        It is assumed by many that if we let everyone run wild in the market companies and individuals would charge $100.00 for a single tomato but what they fail to realize is no one would buy a $100.00 tomato and would simply stop eating them if that became the norm.

        I will not insult you by asking where do market forces come from because I am sure you know they come from the actions of humans in the market place.

        So, this being the case what is it that scares people into thinking a truly free market or society for that matter is an evil proposition?

        I would suggest because people feel a sense of calm with the “order” of things they cannot deal with chaos in the market or in society, so they opt to be controlled and that is why the free market will never actually ever be free, because most people are afraid of freedom, they fear chaos and would rather be dictated to which also explains the democratic oligarchy that has come to rule over us.

        But I digress.

        • Just quickly, there are two ‘working’ definition’s of
          freedom – positive and negative as famously elucidated by Isaiah Berlin… ‘

          ‘It follows that a frontier must be drawn between the area of private life and that of public authority. Where it is to be drawn is a matter of argument, indeed of haggling. Men are largely interdependent, and no man’s activity is so completely private as never to obstruct the lives of others in any way. ‘Freedom for the pike is death for the minnows'; the liberty of some must depend on the restraint of others.”

          http://en.wikipedia.org/wiki/Negative_liberty

          please excuse my shameless wiki stealing for the quote – I haven’t yet had breakfast

        • What a silly example, a £100 tomato. Just grow your own then there is no market to partake in. Give them to your neighbours for free, as mine do: socialism!

  13. Yep, lot of good stuff here. This touches on a lot of the same issues that my upcoming “paper” / “web book” on capitalism deals with. The latest version of my rough draft is here:

    http://www.rationalrevolution.net/articles/capitalism_evolution.htm

    Scroll to the very bottom for my section on why free markets are an oxymoron that will never exist.

    I’m actually farther along now and will have the full version out hopefully within a month.

    As for this question: “The sooner we abandon this madness, the sooner we can answer the bigger question: how do we create a means of economic organisation which has the highest chance of meeting our social goals?”

    I address in my paper (not in the posted rough draft) and call for a “distributionist” system, which is a system where capital ownership remains private, but capital ownership is relatively equally distributed to all people (think of this like giving everyone equal shares of all stocks in the stock market, though its much more involved than that).

    • Alot more than the job of one blogger to do I’m afraid. There is some really exciting stuff happening in economics though, check out the Debunking Economics link and I reccomend reading the book. There are alsoe exciting things happening around Moving Your Money and ofcourse community gardens and so on which mean you can personally decouple from the system to some degree whilst working with other thinkers about a new idea. The point of the essay is not to present some complete new idea, but to debunk the present paradigm and give people the prompting to conjure and seek out new ideas. The rising economic schools are the place to look for inspirational new ideas on organising, which I allude to in the piece.

  14. “Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population. Moreover, under existing conditions, private capitalists inevitably control, directly or indirectly, the main sources of information (press, radio, education). It is thus extremely difficult, and indeed in most cases quite impossible, for the individual citizen to come to objective conclusions and to make intelligent use of his political rights.” — Albert Einstein, Why Socialism? May 1949

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