Travis said:
The American socialists (read that both democrats and republicans with
the republican being slightly less socialistic in their policies) are
the cause of that with new regulations, taxes, controls, etc... They
have hardly left the economy alone. The only way a free market works is
if you leave it alone. The minute you start trying to regulate it you
get the graph you shared.
All markets *require* some form of regulation. You think they don't? You
think that anyone should be able to sell anything at any price?
What about me downloading a song for 99p from iTunes and selling it for
20p to 100 different people? Copyright violation? That's a form of market
regulation. What about selling milkshakes outside schools, with rat
droppings in them? Public health? That's a form of market regulation.
Market regulation is needed for five (that I can think of, possibly others
too) reasons:
1. To prevent monopolies and cartels. This is very basic free market
stuff. Free markets rely on consumers being able to choose between
competing providers of good and services.
Consider the following three supermarkets: Megamart, PriceCo and
Waterson's, which command 40%, 30% and 20% of the supermarket market share
respectively.
If the number Megamart buys out Priceco and Waterson's, then many
consumers will have very little choice about where they do their weekly
shopping, and the company can charge whatever they like for products of
dubious quality. Theoretically a new supermarket chain could be started by
someone aiming to undercut Megamart and/or offer better quality products,
but the barrier to entry is enormous when entering a monopolised market --
the massive advertising budget aimed against you alone will blow your
start-up business out of the water. A situation like this is not just bad
for consumers: it's bad for small businesses too.
Maybe Megamart decides not to buy the other two chains, and instead their
chairmen all have a secret meeting and decide to double to price of all
canned goods. This is known as a cartel. Even though they're not
technically a monopoly, as Priceco and Waterson's remain separate
companies, they effectively form a single pricing bloc, so from a
consumer's point of view they might as well be one.
2. To ensure openness. To be able to make choices on their consumption,
people need to accurately compare the products and services offered to
them by competing businesses. Add a bit of market regulation and you make
this possible.
Say, you enforce a requirement for milkshake salesmen to publish full and
accurate lists of ingredients on their product packaging. Then people
could make an informed choice between a £1.20 milkshake that contained rat
droppings and £1.50 milkshake that didn't.
3. To protect consumers. Having a healthy economy is good, but it's not an
end in itself -- we desire a strong economy to ensure people a decent
standard of living: to be happy. Without protecting consumers from the
small proportion of businesses that turn out to me unscrupulous, you end
up sacrificing the population's overall happiness for a small amount of
additional economic success, and then you're missing the whole point of
why you wanted that success to begin with.
Whatsmore, a consumer constantly worried about being taken for a ride by
rogue traders will be more frugal with their money. The free flow of money
is what keeps a market economy working.
4. To protect employees. OK, in many industries strong unions are
sufficient and government regulation is not required. But some sort of
oversight is needed to prevent companies from paying poverty-level wages,
sacking women who request maternity leave, sacking people once they hit
50, sacking people for whatever reason they want really... hell, why don't
we sack her for refusing to sleep with the managing director?!
Again, this relates slightly to the second point -- if companies are
forced to be open about their unethical treatment of employees, consumers
can boycott them. But boycotts against Nestle and Nike have had limited
effect.
If a company increases their wages, yes it will effect their
profitability. But not as much as you might think: happier workers tend to
be more productive; whatsmore the business will have a lower staff
turnover rate, so less HR and training costs. It is unlikely to effect the
economy much as a whole -- these employees now being paid a decent wage do
not represent a drain on the economy -- they're out there spending that
extra cash!
But a company on its own has no incentive to increase the wages for their
lowest paid staff. Even if the managers really *want* to see their
employees earning a decent wage, they have a responsibility to the
shareholders to keep the bottom line down. With minimum wages enforced by
government, the whole industry increases its wages at the same time, so no
individual company loses out to a competitor paying lower wages.
5. To create monopolies where they are desired. Yes, in contrast to the
first point, sometimes monopolies are desired. If I have written a book
and want to sell copies, I don't want my first purchaser to go and make a
million photocopies and go and sell them for half the price. I want to be
the only damn person selling that book.
In these circumstances where a product requires significant effort in the
design and preparation stage, but very little in the manufacturing stage,
a limited form of monopoly needs to be granted. Otherwise there is no
incentive to actually *do* that design and preparation -- I can just wait
for someone else to do it and then start manufacturing based on their
design. In principle, that is what copyrights and patents are.
So to summarise, for a free market to succeed, we need:
* For any given product or service, there must be independent
competing suppliers;
* Consumers must be able to make informed decisions between
the suppliers;
* Consumers must be protected;
* Employees must be protected; and
* Creativity must be rewarded.
A market might be able to hobble along with four out of five, but a
successful market needs all five. Government regulation has so far proved
the only successful way to achieve this.
--
Toby A Inkster BSc (Hons) ARCS
[Geek of HTML/SQL/Perl/PHP/Python/Apache/Linux]
[OS: Linux 2.6.17.14-mm-desktop-9mdvsmp, up 29 days, 21:53.]
Bottled Water
http://tobyinkster.co.uk/blog/2008/02/18/bottled-water/