My good friend Lanre Olagunju, a free market adherent believes that the majestic clockwork of the market gravitates towards prosperity and abundance. That the concept of free market is pristine and only the external actions of men as evidenced by greed distort it. How do we tell this to folks who far off the American dream of home ownership, went in bed with bankers and got stuck in the debt they won’t pay in a lifetime? How would we convince coal miners in Wales who will like to trample on Margaret Thatcher’s ashes because she left them bare to the fangs of the markets? The market rewards greed – a sprint race to corner the profits, walk out of the door and slam it against the approaching next man. It is not only because the man is greedy in its brutish nature but because no other opportunity is seemingly so easy and harmless for greed to thrive than the one advanced by free market. It is the absolute opportunity in the greed that the free markets provide as seen in other economic ideologies that hangs a millstone on its moral compass.
According to Adam Smith, we are meant to believe that the unseen hand of the market converts individual act of selfishness into socially desirable outcomes. That there is a selfish imperative for the individual if the market is to function. Greed and fear is revealed between a borrower and saver respectively is the basic swing of the society structure. However for a free market to live to its best function, there should be no cloud on the underpinning factors – price, competition and incentives. In myth of the free markets, prices are based on sound fundamentals and derived from a competitive turf with the right incentive to both parties.
In reality, the rush by every party is to maximize gain can be cruel as seen of monopoly, information asymmetry or bloated incentives. Imagine I meet a trader to buy a LG Television in Tejuoso who says the product is original. He also swore that he didn’t make a dime of profit on the transaction but sold it at a give-away price. However, when I got home, the fake product malfunctions. Though it was a free market with voluntary transactions, he maximized profit based on the information solely known to him. He also had an incentive to do so because the gain was great. If I also knew it was fake, I could have bought it for a tenth of the price. Do we agree the market is ever free?
Imagine in 2000, we analysed what our telecoms boom will be and the eagerness of the Nigerian to buy recharge cards, would we have sold our telecoms licenses so cheap and given bogus tax holidays? So do we have equal information to make the best judgment that transmutes to socially desirable outcomes? Free markets leaves chances for individuals to engineer its own ruin. Nigerian banks incursion into the stock markets was left to its devices and like a train on a full horn, its wreckage can be retold.
Free market favours the brave momentarily and in that matter of the brave to corner the glory, it might punching hard on the weak. A company wants to build monopoly or transform into an organised cartel who fixes the price and abolishes the concept of free market. A company discounting the environmental consequences of its operations on a pedestal of free market might be declaring huge profits and poisoning the stream that leads to a community. In every economic activity, there is a private value and social value of any economic activity, however free market traders discount the latter. The discounting in the social value of transaction ends in bust and boom cycles, spillovers, environmental degradation and other externalities.
The unregulated sub-prime market was too tempting because the levers of control were withdrawn on the altars of free market and its ruins is plastered in history. While the world will no more believe in the destructive tendencies of communism or socialism, never forget that these ideologies were never meant to breed psychopaths like Stalin, it was the opportunity of central control even for the meanest time that brought greed to bear. Leadership structure or an external visible hand was supposed to transmute communism into a state of equilibrium where all workers/parties are equal, each according to its own ability/interest, symptomatic to free markets.
Crisis lies in the opportunity oozing from the supply end of free markets and other sets of absolute economic ideologies . Microsoft would wish no one else in a software business. Google would wish we had no search alternative and so on for every brand. However, competition and incentives are the pride of the free market but it must be hinged on fair rules and vigilance to breed and protect innovation. Can a large company take opportunities in free markets to advance monopoly by crowding out its new challengers?
We must abolish the naked opportunity to individuals and entities to overreach their greed and cause disharmony to the society. That’s why the government as an external factor is prime. Social democracies in Scandinavian countries are example of how to contain the godless contraption of free market with the hands of government. While I don’t believe in excessive control, the rules must be clear with punishments that guarantee non-repetition of breach.
But clearly the complex between the markets and government grows in our face. Here comes the question that after the global economic crisis premised on the greed on bankers and mortgage lenders to sell toxic products, has there been adequate punishment? Who are the biggest donors to democracies and why do governments who worship at the altar of free markets stepped in to socialize risk while capitalists made away with gains in boom times? Did the bogus bank executive bonus not end up in the echo chamber? Why would we want a system that discounts government ability to temper the perennial cycles that distorts harmony and stability that our world requires? The worries are always on how much government control could be but do we know how much greed can bring disequilibrium and inequity free market system? I don’t believe in absolutes. We have seen amazing technology such as Internet, space technology and medical research wholly funded by government. As written by Lanre, I also believe in the amazing power of markets but that myth of it being is free is what I dissent. Not that I lack conviction by not standing by an ideology, I just tend towards pragmatism, asking myself what works in a situation. The facts keeps changing and I ask myself, what do I do sir?
I also change my mind.