The “Free Market” Doesn’t Exist, and Doesn’t Work

The concept of a “free market” is a seductive idea that has captured the attention of many bright people. Unfortunately, that theory overlooks the realities of complex systems. (Based on a response I sent to a message from a free-market advocate.)

Originally published 2005

Free-market advocate Russell Nelson (the “angry economist”) wrote to me, saying:

As long as the political process dominates the economic process (as it does), then the economic  process will have a strong interest in dominating the political process. There are two steps necessary for recovering our nation from the morass it has fallen into:

  1. People must realize that their control of markets through their purchases is infinitely  more sublime, active, concentrated, and inescapable than through the political process.   People must give up trying to control economics through politics.
  2. Once politicians have no influence over the market process, they will have nothing to sell  to market entities. They won’t like that, and they’ll continue to try to gain power.  People  will need to resist that.

Essentially, we need a “freedom of markets” amendment to the Constitution.

Ah. A free market advocate. I used to belong to that camp, so I’m familiar with the core beliefs.

The Problem of Time Lag

Unfortunately, that concept neglects the time lag built into the system. For example the science behind the deadly effects of partially hydrogenated oils has been known since the 50’s. It took until the 90’s for widespread awareness of the dangers among the general public, and until 2006 for labeling to be required — much less making the ingredient illegal.

The free-market concept also fails to take into account the ability of well-financed campaigns to manipulate public opinion to a corporation’s benefit, the incredible difficulty of educating the public even with respect to its own health in the absence of such funding, and the enormous harm that results, in the interim.

Tobacco companies fought such a rear-guard action in the 80’s, with fake “research institutions” whose job it was to present “the other side” to the media and to politicians. Oil companies did the same thing in the 1990’s, to fight awareness of climate change.

You express the belief that disinformation campaigns would not be necessary, were it not for the potential of legislation. But the power of legislation lies in its ability to rapidly embody wisdom. And even if we remove legislation from the equation, those campaigns would still be necessary to impede the rate at which the public becomes informed. 

The power of legislation lies in its ability to rapidly embody wisdom. Click To Tweet

But even absent all of those obstructionist forces, the simple fact is that the time it takes for the market to become aware puts profits in the hands of the unscrupulous, and causes irreparable harm to those who have yet to become informed. (No one, meanwhile, can be fully informed about everything — which is why legislation can have such a beneficial impact on society.)

The Problem of Awareness-Prevention

And it gets worse! When the public does become informed, what’s to stop a corporation from simply changing the label of a harmful ingredient? Corporations tried to do just that, when in 2003 the FDA enacted labeling laws, to take effect in 2006. They tried to change the name of partially hydrogenated oils to something else. Similarly, they wanted to change “high fructose corn syrup” to just “corn syrup”. But in each case, the FDA was on the ball, and stopped them. Absent such a regulating agency, what then?

I became rather less enamored of giant corporations, and less trusting of their benevolence, when I began to research the ingredients in the food supply that are causing America’s epidemic levels of obesity, cancer, and coronary artery disease, as described in What’s Wrong with American Foods? The two most prominent ingredients are high fructose corn syrup and partially hydrogenated soybean oil, neither of which were in the food supply 30 years ago.

Those ingredients are highly profitable, so they continue to be used. Meanwhile, the medical industry and the diet industries profit from the harm they cause. Yes, there are multiple causes for disease and obesity, but the two I mentioned play a significant role. They account in large measure for the increasing percentages of the population that have these problems.

The Problem of Zero Incentives

But there is no incentive in the current economic system to solve such problems, much less a “free market” system.

The problems mostly go away by using more costly, healthier ingredients in everything we eat (and I do mean everything. If you begin reading food labels you’ll be in for a shock). People become healthier, medical costs go down, and diets become unnecessary. People become more energetic, as well, so productivity improves.

Food companies have no incentive to take such actions, however, absent massive public education. But it will take a truly massive educational campaign to counteract the advertising generated by multiple conglomerates who are pedaling adulterated foods, and profiting from it. Who will pay for that education program? Corporations have the means. Public health advocates do not.

Drug companies and the medical industry have every incentive to treat disease, none to prevent it. So they’re not going to engage in the education we need. HMOs and insurance companies have done some. They even have some incentive. But they also profit from people’s fear of disease, and by denying treatment. (They do try to educate to some extent, but there is only so much they can do — and they can be sadly misinformed by medical educations that were sponsored by drug companies.)

It’s not that the drug companies, HMOs, and insurance companies are consciously implicit in the problems. It’s just that nowhere in our economic system is there any incentive to address the real problem. “Free markets” do nothing to address that fundamental issue.

Government, of course, has motivation, on behalf of the people. In European countries, they also have the means, and they are aided and abetted by more consciously-directed corporations, which are required by law to have employee representatives and representatives of the local community on the Board of Directors. But in America, where corporate money effectively determines the outcome of elections, where tax loopholes deprive the government of funding, and where corporations run each other without input from average Americans, the government has little in the way of means.

In summary, then, the way America’s social systems are currently put together, there is no person or enterprise that has both the motivation and the means to solve the problems. Those with the motivation have no means, and those with the means have no motivation.

No one has both the motivation and the means to solve society's major problems. Click To Tweet

Now, that litany is merely where I started. During 5 months of research for a book on the subject, I became even more alarmed by impact of these corporations on the environment and the global economy. I don’t expect you to find these arguments convincing, because it’s only when one sees the system as a whole that the relationships become clear (for that, see the link below).

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