The Myth of the Free Market – Labour Article
Since Thatcher, Reagan, and the rise of neoclassical economics, the concept of the free market has become a fundamental device in conservative rhetoric. While Conservative economic doctrine in the UK is increasingly unclear, the concept of the free market still does a lot of work in justifying Conservative approaches to policy.
Conservative arguments for the free market usually have the same basic structure.
It is argued that it is possible to remove regulation to such an extent that no corporation or individual is made artificially immune from failure or barred from success. Under these conditions, consumers are motivated by self-interest to buy the best products ‘with their feet’. Because the information is non-distorted, the price reflects the actual value of the product. By extension, at points of market contest the best producer wins. Each person’s enlightened self-interest scales up with others’ into an invisible hand which alters signals in the market to an efficient result.
In free market arguments, the antipathy to the free market is government, as the organic is to the artificial.
Therefore, when the government provides goods, services, subsidies, and other initiatives it tends to crowd out opportunity. It also distorts information and incentives and changes the market based on the undue influence of limited and ‘ideological’ perspectives. By contrast, the free market enables the market to see the whole ‘elephant’ by incorporating each individual’s partial aspect. The government, on the other hand, totalises a single narrow aspect and is thus inclined to fail.
So how is this argument used? Why should we care?
All this logical machinery is used to establish that given the existence or potential existence of the free market, unbridled, un-taxed and unregulated pursuit of self-interest is justified both morally and economically. All the decisions of individuals in the market are unfettered, so the result reflects what everyone wants anyway. Conservatives and libertarians often quote a passage from Adam Smith “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest.” The invisible hand is transformative, it makes raw individualism moral.
The problem with Conservative appeals to the free market is that government activity has been quintessential to the development of some of the most exemplary modern businesses. I’m not going to make the usual argument and refer to the entire amenity, transport, political, diplomatic, educational, legal (and more) infrastructure required to maintain modern high performing economies.
Although these forms of government intervention are totally relevant, pervasive government influence is even more direct.
Steve Jobs is accredited with making personal computer technology viable and attractive for household use. As pointed out by Noam Chomsky, Rutger Bregman, and Mariana Mazzucato it was actually the government that took the entrepreneurial initiative to commit large amounts of resources to develop the technologies that are used in Apple and others’ computers. Jobs’ genius was actually in marketing and business leadership. This didn’t make the PC viable, rather it provided a way of marketing it. 30 years of government-led research and development and buying of computer technologies actually made the personal computer viable. More recently, the iPhone’s technology almost entirely consists of government-developed tech.
Without the government’s ability to sustain extremely costly long-term capital injections and market protection, the private computing sector and smartphone technologies may not have been developed at all or at least not as quickly. The rationally self-interested firms in the free market would simply not have been able to innovate to this degree, and if they could, they would not have taken the risk.
Elon Musk’s SpaceX also relies on close government support. SpaceX’s main customer has been the United States government. SpaceX’s first-ever launch of humans into space was done in close partnership with NASA. Elon Musk’s Tesla received 4.9 billion dollars in government subsidies to mitigate COVID and had the audacity to complain about other similar subsidies. Even the libertarian mises institute is up in arms at the level of government aid that Elon receives at Tesla.
As for Bezos, here is a massive list of government subsidies to Amazon. A government transfer that stands out among these is Amazon’s auctioning of HQ2 to the highest bidding state. The price that the winning state had to pay for introducing 50000 new jobs at HQ2 was $3bn in-state, city tax breaks. After receiving applications from 238 cities, Bezos settled on the location that he was always going to, America’s capital and culture capital (Long Island, New York) where Bezos owns a house and a newspaper. In 2013, Amazon earned more through government grants than it paid in tax.
The most ground-breaking technologies and exemplary companies have been originated and sustained by the government. But the under-provision of basic human needs is justified on the grounds of sustaining the non-existent, impossible, and perhaps undesirable ‘free market’. The taxpayer has funded and supported these innovations but, in the name of the free market, they are not permitted to reap the rewards. Inequality in the US and UK is extreme, so extreme in fact that to say nothing of it is just next door to justifying mass theft.
Yet I am not against any of the people I have mentioned. I don’t have to be. The problem is with the conservative free market utopia; by believing that we live in it, we over attribute the success of these businessmen to inbuilt talents and not to the mountain of taxpayer scaffolding that props them up.
Written by Junior Labour Writer, Joseph Cradick
Point of Information
Context is key – A Conservative Response
The claim that taxpayers don’t receive the rewards from these companies is untrue. Computer technology is the foundation of society. If it had not been for this innovation, we would be back several decades into the past. 80% of US citizens own a smartphone. Amazon offers lots of benefits to people, from their online store and Amazon Web Services, which hosts many popular companies like Netflix. SpaceX doesn’t yield any benefits to the wider public right now. But, the future rewards of cheap space travel will be huge.
To imply that the taxpayer doesn’t gain anything from these companies is simply wrong. It would be just as wrong for me to deny monetary inequality. But these graphs are important for the UK. The Office for National Statistics showed inequality in the UK was declining. This was pre-coronavirus though. No doubt there has been an uptick. But that is because governments across the world had to intervene in the free market to artificially close business.
For government interventions, context is key. Early computers were, yes, invented through the government but they were done for military use not public. Private companies later used this research and technology to benefit the public. Many items start life originally being designated for military use and then later used by the public.
With space travel, that initially started as a war with the USSR. The free market enabled people like Elon Musk to get big for the government to realise that they would be better off if it partnered with SpaceX. As was stated in the article, the government is treated as a customer. This is good because as you say, the main argument for the free-market is it enables choice. Everyone, even the government, is a customer. The government is the ultimate personification of the customer is always right, as they set the law.
The invention of many items has mixed histories between government and private companies. But ultimately, it is not the government that sells them, thus not determining their success. Does this mean we don’t have a genuinely free market? Yes. Do government grants and tax loopholes benefitting larger companies who don’t need them present a problem? Absolutely.
No market can be fully free. It is about striving for the least government intervention possible. What the article demonstrates most is that governments need to step back.
Written by Junior Conservative Writer, Kieran Burt
A free market is what you make it – A Liberal Response
A truly free market would be transformative and progressive and it is for these reasons that it has never been implemented. But we should try.
What does it mean for a market to be truly free? When there is equality of opportunity that allows hard work and talent to be rewarded through employment. This truism would lead to some on both sides of the aisles to triumphantly cast me as a dyed in the wool, iron-hearted, milk-snatching Thatcherite. Nothing could be further from the case.
This is because true equality of opportunity is only increased by a systematic fight against all forms of unjust disadvantage. There is nothing equal about the opportunities accorded to the ethnic minority compared to the ethnic majority. Nothing equal about the doors opened by a private education compared to a state education. And, nothing equal about the old boys club compared to the glass ceiling. A free market is not opposed to an active and interventionist state; indeed a truly free market requires a state that is prepared to eradicate privilege of all kinds.
Furthermore, there is nothing that prevents a truly free market more than entrenched and generational disparities of wealth. The rich child never truly has to compete when the poor child is never accorded a chance. The corrupting effect of poverty on the free market continues throughout life. If the consequences of failure when attempting to build a company or start a new job are so dire that the risk is not worth it, then a great wedge of society is forever barred from dreaming. A society that is serious about a free market cannot abide by poverty; not only does it prevent true equality of opportunity but it is simply inhuman to argue that the losers of any system deserve poverty as a result.
The central problem is that proponents of free markets today tend to be fundamentally dishonest. It is a magic word used to cover and justify systematic advantage. When Republicans in the US and Conservatives in the UK talk about the free market, they are telling the government in so many words to stay away from their money. They don’t want to be taxed in order to create a playing field that would swiftly erode the majority of their gains. They don’t want actual, real competition. Their rhetoric masks the politics of exclusion; a “free” market for me and not for thee. Are we expected to believe that in a truly free market the best and brightest by and large happen to white, male, and born into wealth? I don’t think so.
As take a leaf from a great man, we should look to the Third Way between these two preceding perspectives. We need to reclaim the truly progressive promise of a free market built into a relatively equal society. The free market could be a great force for good but it needs a watchful state to keep it free and fair. And a truly free and fair market society would not allow poverty.
Written by Guest Liberal Writer, Nathaniel Amos