Stephen is an online writer and former English teacher who is interested in sociology, economics, and literature.
Shelby Steele of the Hoover Institute makes the following observation:
"Conservatism is the perfect antidote to underdevelopment. Its commitment to individual responsibility, education, hard work, personal initiative, traditional family values, and free markets is a universal formula for success in a free society."
Few conservatives, and many like myself who subscribe to at least some conservative values, would find much to disagree with here. We might churlishly quibble about what he means by a "free society" and even point out that his words might apply to a drug dealer, but, in general, most people would agree that he has neatly summed up conservative values.
And yet, what he says about free markets deserves closer scrutiny.
Let's look at three different models that offer a way to regulate markets.
Basically, a laissez-faire market is left to its own devices. Governments have no business in interfering with the workings of the market. The philosopher, Robert Nozick, in his 1974 book Anarchy, State, and Utopia, maintained that a state's power should be severely restricted.
In fact, a state should, he claimed, limit itself to protecting its citizens against the use of force, fraud, theft, and the administration. Anything more would inevitably ride roughshod over the rights of citizens.
The idea of a free market has gained a lot of traction over the last few decades. But here's a quote from John Steele Gordon's An Empire of Wealth that shows its limitations:
"Because private enterprise could not bring electricity to much of the countryside, Roosevelt established the Rural Electrification Administration to do so. It worked to form publicly owned, nonprofit, electrical cooperatives to provide power to areas that did not have it. When the REA was formed in 1935, only two farms in ten in the United States had electricity. Just a little more than a decade later, eight in ten did."
There are two important points to make about this state intervention in the market. Firstly, and most obviously, there are some goods and services that a market won't provide because it is not immediately profitable. The second lies in that providing rural consumers with electricity brought them closer to the market. With electricity, they could take a greater part in social life.
For example, listening to the radio would inform them about the world they lived in and expose them to information about goods and services that they might choose to buy.
It was Walter Lipmann who pointed out that most modern economies are so-called compensated economies. In these, the state intervenes to correct inequalities that are naturally generated by a laissez-faire economy. The example above of bringing electricity to rural areas is a good example of this. State intervention in an economy will naturally affect markets.
An example of the effects of non-intervention is provided by the cost of prescription drugs in the United States. The authorities do not directly regulate the cost of these drugs. A 10ml bottle of insulin costs around $450 in the United States, while in Canada the same bottle costs just over $20. It is estimated that the average American spends around $1,200 each year on prescription drugs.
A directly or centrally planned economy does not allow markets free rein. The authorities decide what is produced and how much. Naturally, this will limit consumer choice to just those items that the planners have decided are to be available.
The nearest that the United States came to a centrally-planned economy was during the Second World War. Rubber, for example, was almost unavailable because the limited supply was needed for military production.
The Soviet Union was a centrally-planned economy as it directed resources and production to the state's perceived needs. One of the reasons for the eventual fall of the USSR was the lack of consumer choice.
Friedrich Hayek pointed out that no single individual or group could possibly have enough information about market conditions to make consistently correct decisions about the results of their intervention.
Any Color You Like...
I'm not sure that Henry Ford would have been successful in today's market. He thought that if he offered a reliable car at an accessible price, he would conquer the market. He was right, but he famously observed that his cars were available in black only.
His rather Victorian view contrasts very sharply with conditions today. There is an enormous variety of car models on the market with all sorts of optional extras and, of course, in almost any color you like.
The modern car market creates hundreds of thousands of jobs in manufacturing, sales, and service. It could also stand as an illustration of an inherent problem. Cars are complicated mechanisms, you almost need a degree in computer science to be a mechanic these days.
But your car depends on an international chain of suppliers. Hayek was undoubtedly right when he said that markets were too complicated for any one agent to understand and control. But, in fact, even the markets don't understand their workings.
A change in one part of a supply chain can have effects further down the line that are essentially unknowable. This can have effects on choice and we are used to a great deal of choice.
The Problem of Choice
Most of the world's population would find a visit to a Western supermarket to be a bewildering experience. The sheer variety of goods on sale would puzzle most. As would the year-round availability of all sorts of fruit, vegetables, and flowers. The consumer demands choice and the market both responds and creates that demand.
However, two problems arise:
- Satisfying the consumer's ever-increasing demands results in resources being diverted from sectors that need them more. In the West, the amount of food that we waste would seem criminal in the developing world.
- The more we have, the more we want and we want it now. The price of the desired product is no longer a signal that we can't afford it and have to save if we want to get it. Easy credit means that we can satisfy our desires right now. The problem here is that many of us discount the future consequences of present behavior. We take on debt to pay and don't worry about how we are going to pay it back.
We need to spend a lot more time on education. People need to appreciate the consequences of incurring too much debt in an uncertain world. The market has developed so rapidly that the nature of work has changed. Manufacturing shifts from high-cost areas to low-cost areas, creating jobs in one place but destroying them in another. People are left without a steady income and are saddled by debt.
Shouldn't we spend more time talking to people about debt? And, perhaps, refuse credit to those who may not have the ability to repay.
Markets are amoral. It is how people react to supply and demand that can have immoral consequences. It is natural that a producer will seek to source or manufacture a product as cheaply as possible.
The consequences of this may be initially beneficial in developing economies as new jobs and opportunities open But it may also have wide-reaching and disruptive social consequences as people switch from one lifestyle to another.
Meanwhile, in the developed world, traditional jobs are lost and many may not be trained for the new economy.
All this affects the market—and the market affects us.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.