23 Things: There is No Such Thing as a Free Market
23 Things is a series that examines and explores the theories presented in Oxford-trained economist Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism. I will examine each of his 23 Things by taking some of the material from his book, and breaking it down through the application of my own lens. For more information, I recommend his excellent book!
What They Tell You: Markets need to be free. When the government interferes to dictate what market participants can or cannot do, resources cannot flow to their most efficient use. If people cannot do the things that they find most profitable, they lose the incentive to invest and innovate.”
As Chang points out, no market is actually a free market. There are always regulations and rules that change the market considerably, and we just unconditionally accept a lot of the existing limitations. Free market economists who claim that people trying to put limitations on the market are politically motivated are equally politically motivated.
Here are a few of the innate regulations to the market that we have accepted as part of our “free market economy”:
In 1819, the UK’s Cotton Factory Regulation Act, was tabled in the British Parliament. It forbade the employment of young children under the age of nine. Older children’s hours were to be limited to 12 hours a day. The new rules only applied to cotton factories, which were especially dangerous. It was an incredibly controversial bill. Opponents believed that it undermined the free market completely. Some members of the House of Lords even opposed it on the grounds that “labour should be free.” Children wanted to work; factory owners wanted to employ them; what was the problem?
Now of course no one today would suggest that workers should not be paid; but part of the reason that large employers close their North American factories and go to developing countries is that between the reduced currency values, and the willingness of hungrier people to do more for less, it seriously reduces their labour costs. It’s the main reason that large corporations support globalization.
Also, this is why large corporations lobby governments to permit such things as Canada’s shameful Temporary Foreign Worker program, which, nominally, was supposed to allow people with hard-to-find skills to come to Canada and work at jobs that are difficult to fill in Canada; but which was actually used by large corporations to create a class of sharecroppers for low-paying service jobs, artificially suppressing wages and working conditions for everyone. The Liberal government has now re-instituted this program due to pressure from lobbyists, after the Conservative government was forced to shut it down because a restaurant owner in Saskatchewan fired a twenty-plus year employee to hire Temporary Foreign Workers to work at a lesser wage, lesser hours, and higher pressure. The Temporary Foreign Worker program is a good example of how necessary wage regulations are, and how some employers will continually try to chip away at them anyway.
As Chang points out, restrictions on immigration have more effect on wages than any other factor, including minimum wage legislation.
When you think about it, the fight against slavery was the first attempt to regulate wages and working conditions. And to this day, human traffickers continue to import workers, often children, to work under abusive and oppressive conditions in order to cheat labour costs.
Working Conditions and Safety
Note how controversial that 12 hour limit of a day’s work was! Now we generally accept that a human being can only work for so long because exhaustion sets in. This is one of many regulations that have been enacted to protect workers in the labour market. The early days of the Industrial Revolution were a horror story of factory owners taking advantage of the poor and allowing human suffering on an unprecedented scale. This sobering video shows a few of the things that child labourers were expected to do before legislation protected them; and a few of those things still go on in places where the laws protecting workers are not so firm. And Karen Silkwood taught us why the struggle must continue.
This one still sticks in the craw of certain large corporations, but most people now agree that environmental regulations must exist to protect innocent bystanders and the planet. In places where those environmental regulations are relaxed, such as China, the results are clear. Contrary to popular belief, this has happened before, resulting in the enactment of a series of restrictions on permitted air pollutants. But companies still try to get past the restrictions. Recently Volkswagen has been caught altering their emissions regulators to cheat at emissions tests without actually lowering emissions.
Food and Drug Regulation
Despite a reputation for permitting lowered standards for big money corporations, the Food and Drug Administration, and regulatory boards like it that exist in most countries, was created to limit what could be sold to consumers and make sure, to the best of their ability, that products for sale were safe. Certain foods are required to be processed in particular ways in order to be considered safe for sale. Prior to these regulatory boards there was no standard of safety for products that were sold for human consumption, and people could make any kind of claims they wanted. As frustrating as I sometimes find them as an herbalist, I recognize their work as necessary and important. Without these boards, disasters like suicides caused by improper application of SSRIs, and like birth defects caused by thalidomide, would be everyday occurrences. Recently, poisoning in pet foods caused renal failure in thousands of cats and dogs because we do not apply FDA standards to pet food.
We require professions that have significant impact on human lives to have licensing systems; such as lawyers, or doctors. We require police forces to serve a public trust rather than any private individual or company. We only allow companies with a certain amount of capital to set up chartered banks. All of these restrictions are, nominally, to protect the public; and to a large degree they do.
Restrictions on Trade
There are rules about what sorts of products may be sold and under what conditions. Businesses that sell faulty products are required to refund the customer’s money. Businesses that sell dangerous products are legally responsible for those products. Countries and even states and provinces restrict what can be imported across their borders and often assign tariffs and taxes to protect their local industries. We do not permit the open buying of votes or narcotics. Even the underregulated stock market, whose lax rules led directly to the 2008 financial meltdown, has restrictions on who can trade and how.
Even in normal times, interest rates are set by a central bank, which restricts what people are allowed to charge others for the privilege of borrowing money; and after the 2008 crisis, interest rates plummeted because of a political decision to build up the economy and increase investment by lowering interest rates. One of the enshrined champions of “free market economies,” George W. Bush, used $700 billion taxpayer dollars to buy up assets that were choking the economy; one of the biggest financial interventions by the State in history.
As Chang says himself:
We see a regulation when we don’t endorse the moral values behind it. The nineteenth-century high-tariff restriction on free trade by the US federal government outraged slave-owners, who at the same time saw nothing wrong with trading people in a free market. To those who believed that people can be owned, banning trade in slaves was objectionable in the same way as restricting trade in manufactured goods.”
So, what restrictions should we impose on the market? Should we favour the wealthy, or the common human being? Should we do what is in the best interests of a lucky few, or what is in the best interests of everyone else? It’s up to us, but only if we demand the right to make the choice.