Despite what we hear in the news media the free market (less government intervention) does not practically exist. However, that does not deter commentators discussing the negatives and positives of the so-called free market that democratic countries seemingly operate in.
Whilst economically protectionist policies (more government intervention) can have detrimental effects in the markets (countries) they are implemented in, they also can serve to work to the advantage of a trading economy.
In reality, economies of all major trading blocks and nations are best described as being on a sliding scale, with more open economies (less barriers) the UK be considered one, to more planned economies (increased barriers) North Korea at the extreme end.
It is important to keep in mind that despite what is perpetuated on the news and by commentators, the “free market” does not actually exist in reality, and is more theoretical. In practice, all markets in the world are mixed economics.
It is also important to remember that the economy is connected and not independent of other aspects of the world, like the environment, health and future well-being. Economics degrees at some universities are rigid and dictate that economies are separable. However, the work that groups such as rethinking economics is doing to change economic curriculums is outstanding.
The Social Problem and the 2019 General Election
In the 2019 UK General Election this falsehood continued to be perpetuated. The Labour party pushed the narrative that the free market is detrimental to the UK by pushing for more government intervention, through renationalisation and much tighter regulation of the way business operates (Elliot, cited in The Guardian, 2019).
The Labour party focused on its big selling points in its manifesto; free broadband, free adult learning, free dental care, the biggest council house building in a decade, abolishing tuition fees and the establishment of maintenance grants (Elliot, cited in The Guardian, 2019). None of which are bad socially, although how effective a policy of free broadband is questionable (how would the market correct itself in the case of a market failure?). For example, if the sole free broadband provider begun to experience severe technical issues, then where does that leave its customers?
Freer markets as a solution to societal issues
So, why do those who advocate for free markets, or shall we say “freer” markets think of them as solution to all manner of society’s problems?
Solving the societal issues with less intervention
Let us go back to a definition of what a “free market” is, Britannica defines one as:
“An unregulated system of economic exchange, in which taxes, quality controls, quotas, tariffs, and other forms of centralized economic interventions by government either do not exist or are minimal (Orlitzky, 2018). ”
Many economists hold that no one can be made better off without making other individuals worse off, (like the absence of externalities or informational asymmetries, among others) (Orlitzy, 2018).
According to this theory, the indivisible-hand mechanism of self-regulating behaviour, society benefits by having self-interested actors make free economic decisions that benefit them (Orlitzy, 2018).
Many arguments are put forward for using increasingly freer markers with less regulation for solving social issues. From homelessness to climate change, or the quality and safety of council homes.
Indeed, the desire for freer markets can go full circle and begin to adopt protectionist elements. Some advocates for less government intervention in markets, are in favour of the UK leaving the European Union. Such an exit no matter what the end deal is, does lead to a scenario where additional trading barriers are put up with the UK’s largest and closest trading partner.
The advantages of freer markets: Innovation
There are many advantages of freer markets, however, I have decided to focus on one area for clarity and to keep this article concise.
Freer markets are advantageous in that they can provide freedom to innovate more easily. This is probably the strongest argument for less government intervention in markets in the 21st century. A lot of social problems are the result of the lack of innovation.
Without innovation we would not have had steam engine technology or information technology, which has opened markets, created new business models and connected those disadvantaged and excluded from society.
The disadvantages of freer markets: Market Failure
The disadvantages of freer markets are numerous, from profit being the motive for success, market failure, and equality not always equating to equal opportunity. I have selected the one disadvantage that I believe to be most pressing. A free market requires consumption to survive, and it requires this a at unsustainable level, in a finite world.
As the COVID-19 pandemic is proving if people stop spending instead of spending on goods and services a freer market will struggle to stay alive.
Freer markets require spending and production, which consumes vast amounts of natural resources. Freer markets can contribute to increases in pollution, however, they can through emission trading schemes also be used to cut emissions, with intervention! (Such as the European Union’s ETS scheme).
You can see that issues are not black and white and a combination of intervention and freer markets’, work together to achieve targets rather than orthodoxy.
Shifting the sliding scale: Freer markets in the age of Brexit and COVID 19
The challenge the UK faces at present with Brexit and COVID 19 poses significant challenges.
The UK’s withdrawal from the European Union is bringing with it a huge number of unintended/unseen consequences.
The proponents of the UK leaving the European Union argued that a free trade deal negotiated with the European Union would more advantageous than membership itself.
However, the pursuit for freer trade has led to an increase of trade friction (through being a third country) with Department for International Trade officials to advising British business to form EU-based companies to circumvent border issues.
This is an example of an unintended consequence of leaving the European Union, it could be argued however, this was forecast. What this shows is the pursuit for freer markets can in fact have the opposite effect.
COVID 19 poses a significant economic and social threat globally. There is no doubt that economic competition in the pursuit of self-interest between various large pharmaceutical companies aided the rapid development of vaccines. However, those private sector achievements were only matched by public sector intervention.
This article is not comprehensive but does bring key points to the fore.
Both interventionism and non-interventionism in markets have drawbacks. What this article shows is that the trade-offs have undesirable outcomes, which is too damaging for a country to go one way over the other.
For this reason, countries deploy a mixture of the two. The COVID 19 pandemic is one such example with many large economies intervening in markets to bail out businesses and support citizens.