Is the free market the best means to efficiency and effectiveness? Let’s critically think this through.
What is ‘the market’? The market is essentially a quid pro quo exchange, a transaction. A transaction is not an actor but a procedure involving two or more people acting in service to their own interests. It is an exchange of goods and/or services for something else, presumably an equitable exchange. (Relative to the presumption, how many among us have been on the short end of an exchange?)
Essentially the market is a transaction between buyer and seller—an economic exchange between two actors or agents each seeking maximum gain in the transaction. So is there a need to regulate such exchanges? Many argue that markets are self-regulating. If markets are transactions, not actors, then just who is the ‘self’ doing the self-regulating? There is no self, so no one is responsible for what happens next. But without regulation, how can stability of the larger system, within which the transactions take place, be otherwise ensured?
The market has no built in control center to receive, review and interpret feedback thus enabling adjustment within a rule bound framework to maintain homeostasis of the system of exchanges or transactions. There is no control center guaranteeing or ensuring free access to full and timely information by participants (especially the least advantaged) throughout the period—before, during and after transaction. In fact the rationality of self-interest maximization suggests it is in the sellers self-interest to not be fully transparent—it would be foolish to reveal one’s hand when competing for gain. It is after all let the buyer beware! So just who is really free and safe?
If self-interest maximization is the guiding principle in the market then how is the need for equity/stability through exchange realized? What is the counterbalancing rule to the principle of self-interest maximization—maximize what’s-in-it-for-me—that will ensure the larger system’s (e.g. social, economic) viability is sustained?
Since, in the United States there doesn’t exist a compelling collective vision about ‘we’, there isn’t a shared sense of what’s-best-for-we principle to guide individual action in exchange. Oh there is individualism and an us-versus-them feeling that arises in times of military action against a foe or natural disasters, but we mustn’t confuse this circle the wagons and fight dynamic with a commitment to advancing the well being of the collective we.
With what’s-in-it-for-me being the defining principle it seems clear why there is no ‘we’ coming together to solve our common problems. Hence we don’t have clarifying and productive dialogue to come to terms with dilemmas among shared values toward improving society and its (public) services; instead all there is is unending conflict among self-interest. Perhaps this is why the U.S. is the only industrialized nation without universal healthcare for its citizenry.
Accordingly advocating for free markets for public services (e.g. healthcare, education) is to essentially ignore the need for equity and stability through exchange, particularly for those without leverage. It seems free market advocates believe the fact that the market is free is all that is needed—that freedom plus market transactions afford effectiveness and efficiency of the larger systems (i.e. economy and society). Just how does freedom to buy and sell whatever ensure equity and stability of the system?
Free To Do What
What does free mean? Free from planned action, especially from a central authority like the government? But don’t corporations plan? Don’t corporations exercise authority by deciding what to offer, whom to offer it to, where to offer it, when to off it and for how much?
Does free mean free from constraint and thus free to act or transact as one pleases? If so, then we should rid ourselves of formal/legal contracts since they only limit freedom to act—trust the market fully. But in an interdependent world unconstrained individualistic action is not reasonable or responsible! In an interdependent world freedom to act is always constrained action: our freedom to act is necessarily constrained by our responsibility to not infringe upon the rights of others, unless of course you ignore your ‘I-We’ responsibility of stewardship. Perhaps contracts are necessary since, following the principle of what’s-in-it-for-me, many act solely in service to self-interest.
Where then does the needed guidance of fundamental principles or standards upon which to make adjustments come from for maintaining the system’s stability and viability? If it is open to the desires of the participants—or more likely to the participant with greater leverage—then how is equity and fairness in exchange ensured? Who is concerned about and asks: what happens after what happens next and what are the (short & long term, local & global) consequences of the proposed action? It seems free market advocates say ‘the invisible hands’ will take care of it. Oh please! Why not the tooth fairy?
It’s just business, nothing personal
The business of business is profit: This reflects one of the underlying precepts of the egoistic capitalistic system that we ought not allow concern for the other to interfere with our pursuit of gain—it is not personal it is business. As stated by Adam Smith, “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from the regard to their own interest.” This is reflected in the widely accepted practice that the conduct of business requires pragmatic impersonal interactions to ensure efficient profitable economic exchange. Why else would a corporation’s stock realize an upward bump following the announcement of a decision to layoff thousands of people?
That is to say, the regulation of relationships is the responsibility of the market and such relationships in pure business terms are free of any purely human concerns and sentiments. The market cares not about you as a person: you are merely a source of revenue until that is you begin to detract from profit. It is survival of the economic fiercest and it is surely not for those in touch with their humanness.
Therefore, with the market in charge, we need not concern ourselves with each other as human beings, or our true self for that matter. There is no place for human sentiment of any sort getting in the way; it just makes for inefficiency and ineffectiveness—where effectiveness is measured by profit. We might say that one’s freedom to decide would be inhibited by such concerns. But aren’t these very concerns aligned with long-term interest and represent the mark of a caring society of people?
In the case of human affairs being efficient (with one another) is not the best rule! Who among us longs for being handled efficiently? Shouldn’t someone, everyone, care about the impact of his/her decisions and actions on other people and on our future as a society? Survival of the fittest is not about one individual surviving but rather an entire species; clearly the implication is having concern for the viability of future generations. Again, the market has no what’s-best-for we as a guide. Why create a society if it matters not whether it remains safe for people and viable for future generations?
Who takes care of all things efficiently and effectively? The market! But the market is no one! So who is in charge? Self-interest silly! But no one is watching out for everyone! No one is concerned about equity and stability through the exchange, yet everyone is keeping score of their own winnings.
Still the argument for efficiency and effectiveness of free markets continues with the idea that all that is required is that we seek our own gain through economic exchange—the invisible hand will take care of the rest. (So who, if not self-interest, tied the visible hands in the transactions leading up to the 2008 financial crisis?) It seems that this circular argument is tying a noose around our collective neck.
But Not In My Yard
If the free market is the Holy Grail for efficient and effective management of the exchange of products/services among people in society then why don’t those in authority in corporations use the free market mechanism to organize and manage the transactions within the enterprise? After all, a business organization is nothing if not a series of transactions transforming inputs into outputs! Why not let the free market manage things in its efficient and effective manner?
Why not trust the thinking of Adam Smith in regard to the value gained from self-interest pursuing individuals “…he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.”
Do away with managers and supervisors because all that is needed is the free market mechanism. Who needs unnecessary costs and nanny-type oversight of free individuals who are exchanging their skills and knowledge as they carry out the work of the business! We don’t need high paid executives to centrally plan and control things, just free acting individuals with the omnipresent invisible hands, which are (presumed) reliable and readily available. And most importantly these hands are free and thus could save shareholders a huge amount of money! Talk about reducing costs and maximizing profit!
If free markets are the answer then why do so many corporations seek to monopolize and control things? According to the free market perspective such action is so inefficient. The amount of money spent on lobbying by the Chamber of Commerce, big business, industries and other self-serving interest groups is clear evidence that many don’t hold much faith in the efficiency and effectiveness of free exchange to provide to their needs.
Why is there advocacy for applying markets everywhere but not in the organizing and managing of organizations? Why the inconsistency? It is in the self-interest of the business-minded to make everything thing a market, presenting even more opportunity for profit. It is in the self-interest of the business-minded to forsake enabling people the freedom to act in a semi-autonomous way and instead use mechanistic control-over approaches as the way of organizing and managing the business—talk about central planning and control. The guide in both decisions is self-interest. Essentially the business-minded are for markets everywhere but not in their yard.
The Bottom Line
With the pursuit of material self-interest as the overriding intent, how could there not be a need to regulate transactions among self-serving actors who mistakenly believe they are independent actors? The fact is we are interdependent with everyone else, especially those not actively participating in the transaction. If you doubt that those not participating in the exchange are at risk then just step back and start counting the millions of people adversely impacted by the decisions of a few Wall Street traders or of a few oil company managers. When interdependent actors have no sense of responsibility to others and to the larger systems then such limited and narrow concern will inevitably be de-stabilizing and destructive. How can stability of the system be ensured otherwise?
Economic activity must not happen in a vacuum of self-interest, it must be within a context of cooperation. But if we are each competing toward the maximization of our own gain how could cooperation enter in? While the actors in the exchange are competing they must also cooperate with the rules of exchange and of society. Effectually instead of trying to make markets work everywhere—markets are not everywhere appropriate—we need to formulate rules that regulate economic exchange to reduce uncertainty and risk and to ensure equity and stability of the larger societal systems.
The irrationality of free market efficiency and effectiveness rests on faith in the goodness of self-interest, as does the irrationality that the invisible hands are there to ensure our actions add up for the greater good, especially when we act selfishly. Hey who is to argue the slight of hand flimflam worked for the big banks when their self-interest put a noose around the neck of the rest of us!
The lesson here is when self-interest—what’s in it for ‘me’—directs the decision then the soundness of the decision is greatly diminished by the inherent bias of the decision-maker with the most leverage. They win we lose! As long as self-interest rules, then there are no rules to ensure the viability of society. Remember survival of the fittest is about the entire species, not the individual—survival is not possible without a viable We!
The market cares not about what’s-best-for we only what’s in it for ‘me’; recall Adam Smith’s assertion “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from the regard to their own interest.” When people try as they might “to make markets work” where they are not appropriate it is a losing proposition for all. If they have to be made to work, then they aren’t the solution!