Why the Free Market is an essentially Flawed Concept

For those that don’t know the free market is “an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions.”

Its my opinion that this system has two inherent problems. The first of these is the fact that if a system is based purely upon supply and demand, when there are two suppliers selling the same product, the cheaper supplier will always win over the more expensive regardless of the actual origin of the product.

The person selling at a lower price will have had to cut production costs somewhere (or cut their profits; highly unlikely in a capitalist system) and the easiest way of doing this is in the pay and support of the workers. Health and safety costs money, providing basic services for the working classes costs money. By eliminating these, a cheaper and therefore more attractive product (to the buyer) is produced.

The second problem of the free market is the fact that it is the ideal environment for a monopoly to form. I'm all for industrial competition but once a monopoly has formed everyone is at a loss as the monopoly can decide prices and gain control over the entire system.

The connection between these two points should be obvious. As the cheaper provider gains more market share they can cut prices (ie. wages and health and safety), in turn increasing their market share again and eventually leading to a total monopoly at the expense of the working classes.

Thoughts?

I disagree.

Everyone is both a supplier and consumer of products and services. While cost savings may squeeze wages, competition squeezes prices, which benefits the consumer. If a company gets "greedy" and makes to much profit, other companies will enter the market and compete for those profits. There's no room in the free market for leaches.

In addition, competition encourages innovation, either to make efficiency savings or develop new products/services and to offer them at affordable place.For example, it's the free market that turned computers from multi-milion dollar room-sized installations they were 30 years ago, into cheap devices we can all own and use.

With regards to monopoly, that is why we have government controls to prevent these things, and by and large, these work pretty well.

IS any of this at the expense of the "working classes"? Well, pretty much everyone had so work in some way or other. There's no free lunches in a free market. People have the right to direct their own lives, and pursue whatever job/profession/business venture they choose.

If there is a problem in modern society, it's that often people don't realize they have choices. That comes down to education I guess.

If competition squeezes prices, then what does the price squeeze lead to? Once again, reduction in wages and benefits.

Also your point regarding competition breeding innovation is completely true. But as soon as a new product is released its innovation is rapidly matched by the market competitors which again leads to the original imbalance where the producer who cuts wages and benefits the most gains the most market share because their product is cheaper.

The free market builds a system where all that matters is the actual price of the item or service not the cuts that are made behind the scenes.

I think its totally ignorant to suggest that "People have the right to direct their own lives, and pursue whatever job/profession/business venture they choose". While this is idialogically true, the imbalance produced by the free market not only supports the people who get rich at the loss of the working class, it actively encourages it and exaserbates their greed. The free market forces the bourgeousie to make the cuts which created and maintain them, all the while forcing down wages and the benefits which the workers can expect.

Free Market? What’s free about it?



In debating, setting the premises almost always assures the win of one side or loss by the other. The definition offered could as well be that for laissez fare. Or a synonym for caveat emptor. Maybe “free market” is to be nothing more than a warmed over version of the 19th century’s Gilded Age? Back in the 50s to 70s, the term “Free Enterprise” was an amalgam of private enterprise and free markets. Today, we’ve dropped the “enterprise” aspect of this catch-phrase.

More: Is the term “individuals” to include the fictional person, corporations? “Majority of decisions” begs to know which are and which are not? Like little guys get to make the little ones and big guys get to make the big ones?



Gfad, do you mean “origin” as place of source, or were you meaning to say “quality” or “usefulness” or “reputation” of the goods under comparison? Origin as a place would not seem to be relevant to a free market system



Say hello America! In 2006. We are rapidly going backwards from the EPA, OSHA, wage and hour, labor standards and so on, won in the 1945-1980 period. Is this the real Neo Con Agenda?



Say hello Wal-Mart.



This applies well only if the supplier part, i.e. worker, is equal to the consumer part. In real life it is not. And therein lies the rub.



This is like visiting Michael Jackson at Never Never Land. It ain’t real life. There has not been any competitive market in the US for 50 years. After WW2 there was the Big 3 auto makers. GM, Ford and Chrysler. There was also the Little 4 auto makers. Packard, Studebaker, Nash and Hudson. And there was also Willys, Crosely, and the post war Kaiser Frazier Co. GM is on the verge of bankruptcy. Ford is on the verge of bankruptcy. Chrysler was bought by Daimler-Benz after actually going bankrupt once and then being on the verge again. Renault - socialist France - bought Nissan and is now playing Footsie with Ford. Or GM. It varies from week to week.

Exxon merged with Mobil, to give us ExxonMobil. Texaco merged with Chevron, to give us TexacoChevron. Conoco merged with BP. And etc. Island Creek Coal Co. was one of the largest in the 1950s. Pittsburgh & Midway Coal Co. Was likewise a large one in the 1950s. So, by 1960, Continental Oil Co - Conoco - owned Island Creek and Gulf owned P & M.

Competitive? Not on your life. Say you want to build a new power generating plant. So you don’t know if you want to use oil or coal. So you call Gulf and Conoco and Island Creek and P&M for bids. This is Never Never Land. So neither the oil industry nor the coal industry cares which way you go for your power. Banks have merged. Energy companies have merged. Computer companies have merged. Insurance companies have merged. I assert in every case, the merger was anti-competitive whatever else it might have been.



Yes, let’s blame today’s autocratic economic oligarches that run America on the little guys. The consumers. The workers. They are just too dumb to make good choices. That’s equal to blaming the Jews for the Holocaust.


[edit on 8/28/2006 by donwhite]

Again, you're only seeing one side of the coin.

Wages can't be cut too far, or the employee will leave for another, better paid job. the company will have to hire cheaper, less skilled employees, and productivity, and therefore profits, will suffer.

No-one is FORCED to take a low paid job. It's a result of their own choices through life. If someone chooses to study hard at school, to read, to learn about business, and money, then they'll be in a position to choose a better paid job. Or be self-employed. Or start a business. Those aren't opportunities only available to the rich. The last time I checked, the US did have a public school system and public libraries.

Like I say, it's about education. You've read Marx I see. Now try some Keynes, Smith, and definitely some Napoleon Hill.

Huh? Jews? Holocaust? I thought we were talking about economics!

It's all to easy for someone who feels hard done-by to look to blame someone else. It's the corporations fault. It's the government's fault. It's the system's fault. Hey, it couldn't possibly be THEIR fault could it?

The fact that so many people DO come from the poorest backgrounds and go on to be hugely successful, proves you wrong. Ask any of them how they did it, and they'll tell you. They took responsibility for their own lives.

I meant origin as in who produced it and under what conditions, what pay and with what quality of life. Within the free marlet system the origin, lets say provenance or humanitarian quality, of the goods is irrelevant or at least second in line to profit and turnover.



Of course people can be forced to take a low paid job! When there are no other choices, when there are none of the "better paid jobs" you referred to, all they have to do is take the worst paid jobs and be strong-armed by the employer.

Not everyone can learn about business and be self-employed because the entire economic system would break down, surely you understand that. Not everyone is as intelligent as some people, and situations may work against them, so why should that instantly allow them to be pushed to the bottom of the ladder and walked all over because the free market has created a juggernaut.


This only occurs because our society is not entirely a conservative free market, try looking at the laissez faire system and compare it to ours now. You are also looking at people as thought they are clones, some people are very talented either with the gift of the gab or talented at a certain trade. Of course these people will do well, but lets not forget those who arent geniuses or wunderkind. Why should they be forced into a lower and lower state of living?

Of course everyone isn't born with equal abilities, but the vast majority are born with more than enough ability to become successful. You don't need to be academic to be a skilled plumber, or builder for example or any other sort of craftsman. It doesn't take an MBA to run a successful small business... It does take hard work and self belief and the willingness to learn.



that makes no sense whatsoever! You saying if too many people learned about business the system would break down? how so? You're saying it's better NOT to learn? Ignorance is better?!?

think about that for a moment.



Who's pushed? who's pushing? And other than marxist rhetoric, what, in practice, is stopping people from advancing themselves?

Not only is economics the dismal science, it is of universal application.

I’m surprised you did not invoke the ever popular Andrew Carnegie story of dividing his money amongst the population then claim he’d have it all back in a year. If left to their own devices, capitalist run such institutions as the Triangle Shirt Waist Factory, in NYC, when 146 employees out of 500 died in a 1911 fire.

The story of how many do make it big is like the NBA stats. Sure, young guys, shoot your hoops, ignore school, and maybe you can join the 900 players who are millionaires. Whoopee. I’m not talking about those who make it big - Michael Milken made it big - but I’m talking about 99% of us who don’t. Who have to work every day until we are 67 and then retire. And hope we don’t have to choose between food and medicine. Not to be hoodwinked by the story of this or that guy who struck it rich!

www.ilr.cornell.edu...

that makes no sense whatsoever! You saying if too many people learned about business the system would break down? how so? You're saying it's better NOT to learn? Ignorance is better?!?

think about that for a moment.

Sorry double post

[edit on 28/8/06 by gfad]

Sorry, I don't know that story..

my point is not that everyone can become super rich. If that's what you want, then fair enough.. be prepared to put in the effort and take the risk. If you're not, than sorry but you'll have to put up with aiming at "secure" and hopefully "comfortable" like the rest of us. And it really doesn't take some superhuman genetics or "luck" to achieve that. It seems there is a problem with some people's expectations.

and of course, what's the alternative? A controlled economy? Communism?

The young? The unskilled? Those who are just passing through? And of course those who chose not to pay attention at school, and those who were brainwashed by "class warriors" such as yourself into giving up and believing they had no chance to improve their lives.



Equal rights?.. of course.
Equal benefits? Surely that should depend on their input. If everyone got paid the same, who would bother to do the hard jobs or take on the big responsibilities? How could that work in practice?
Equal opportunities? That would have to depend on the person. If I'm looking for a business manager, I'll go with MBA grad. If I'm looking for a plant foreman, I'll go with the guy with experience and leadership skills. Don't you think that's fair?

You got vote, Donwhite.

This entire arguement is based on the premise that we are not on a level playing field, correct? Some of us ARE victims. Hard work and determination do pay off for some, but this figure is akin to a needle in a haystack. Is it an evolutionary trait? Does it really boil down to pure will? I don't think so. Some are just given a better chance than others. The ever-growing divide between rich and poor is proof of this. Or am I wrong and it is only proof of the growing laziness and inability of the population?

I may be hugging my Marxist teddybear a little tightly, so I give chance to sway my opinion. Fire away.

Hi Dafunk

I'm all for finding ways to level the playing field, but marxism isn't it. It's been tried many times, and never worked, since it doesn't take human nature into account. It gives power to those who toe the government line, and oppresses those who don't. Hardly something that is going to benefit the common person in the long run.

Actually, I’m not aware of anywhere that has tried Marxism. The nearest would be communities in New Hope, PA, New Harmony, IN and Shakertown, KY, but they pre-dated Marx by a half century (Das Kapital published in 1867.) The USSR and the PRC of Mao Zedong do not qualify as experiments in Marxism. In totalitarianism, yes. Marxism, no.

But none of that has anything to do with today. Whether by intent or by design, the blue collar labor union middle class in America that thrived from the 1940s until the 1980s is over. Whether Nixon and Reagan killed unions or they died of their own inertia is open to argument, but that too, will not produce any answers helpful in the world of 2006.

I heard on CNN today that the Labor Department reports real wages fell by 2% since 2003. This is the first drop since the late 1960s. At the same time, production was up 6% over the 3 years. Where Charlie Wilson was criticized for making 60 X the wages of a GM assemblyline worker, today’s average pay for the top 5 officers of Fortune 1000 companies is 351 times the input wage. On that basis, a beginning school teacher in Florida makes $31,000, the school superintendent would be paid $10,881,000. You figure. We have know of this discrepancy for several years. The president says nothing. The Congress does nothing. This is why I don't like a volunteer Army. Somebody will have to keep those people in power. What better force than a paid for armed forces? Mercenaries we used to call them.

The financial disparity between the upper 5% and the lower 25% is alarming in any country that claims to be a democracy or wants to continue to be a democracy. I refer you to the French Revolution, 1789 to 1794. France was a lot more egalitarian after that lesson in the value of lace on your sleeves. To a considerable extent this is due to a long-ago neutered Boards of Directors. We will likely see that fixed the same time we see Congress fixed.


[edit on 8/28/2006 by donwhite]

re : marxism, communism, or whatever you want to call it, it HAS been tried, but always morphs into something else because it is inherently unstable. Human activity cannot be planned and directed on that scale. Societies need freedom to arrive at a stable, albeit moving, equilibrium.

Labour unions, which peaked in the 20th century, while benefiting many people in various ways, also contributed in part to the current economic problems. They helped create an environment where people's lives and financial futures were too tied to the success of a particular industry or company.. This manifests itself in the situation the US finds itself in now.. a workforce geared for manufacturing, in a country where manufacturing is in decline. Of course, broader society, the education system, and governments have played a part in that unfortunate judgement call.

As for pay differential, the high rates for top execs just goes to illustrate how rare good business skills at that level are. If more people were capable of doing the job, wages for these jobs would be bid down as the owners/shareholders look for savings. After all, why pay someone 10 million a year if there's 100 equally skilled people able and willing to do the jobs just as well for a tenth of that?

My point is that in all the societies that have claimed Marx to be its patron guru, none have in fact been organized according to Marx. It was Marx’s rebuke of capitalism that those revolutionary groups have found useful and took for their own purposes largely to gain approval before the world’s intelligentsia but not to be used as a guide for the restructuring of the country.

Nazi Germany dates from 1933-1945. I am not sure when Hitler finally consolidated his power over the German people. I believe there were refugees leaving Germany up to early 1939. I also believe Germans carried “work papers” which served also as an identity form (whether or not that was its intent) and they needed travel authority to ride a train or a bus. There was a rationale for each of those requirements.

I am under the impression those or similar circumstances were present in the USSR after 1924. Post Lenin's death. I have no knowledge about China post 1949. I have read (in anti-Communist books) that all persons owning more than 1 hectare (2.5 acres) in China were summarily executed. Land reform with a vengeance. Aside: My memory of old Agatha Christie “Orient Express genre” movies indicate Europeans have carried “id papers” long before Hitler and Stalin. Americans resist a national id card for mostly illogical fears and ideological reasons.



Or how good their press agents (say propagandists) have been at promoting such a silly notion. I prefer my explanation to the one offered.

The abuse - which I so regard the outrageous exec pay - E/M paid its CEO $400 million to quit - is made possible by our system of corporate governance. Once upon a time, a director-ship was a position of honor reserved for the older members of the corporate society. Men who had been there and done that, so to speak.

Directors were chosen from successful men who were in their twilight years, men who were not driven by unrestrained personal ambition that has somehow become the gold standard for others to emulate. The epitome of conceit and self-aggrandizement run amuck. No thanks, Mr N/T/L/H. There must be a better way.

The director’s motives were certainly mixed, that is, they not only wanted to see “their” company do well, but also were possessed with a distinct sense of civic responsibility. Not Fabian socialists, to be sure, but nevertheless men who had a sense of proportionality. Obligation. And, I think, they generally felt their ultimate loyalty was to the shareholders.

And then came the proxy. Clever managers realized that 99% of shareholders knew next to nothing about the company, and as long as it paid the expected dividends, cared even less about its operation.

Today, with the company financed, management furnished proxy, you will be given a list of management chosen and management approved directors to “vote” for. What understandings exist between managers and potential directors are accessible only in their consciences or in our imaginations.

Where in the “old days” many directors were paid a pittance, today’s directors are paid huge sums. Some reach 6 figures. The end result is a conspiracy to loot the corporate treasury which in theory belongs to the shareholders, but in practice, the shareholders are the “last to know” what is happening inside the company they have invested in.

I could go on, how today the majority of shares are held by insurance companies and mutual fund manipulators, and how many directors hold similar posts in several companies - interlocking directors - and how many a good corporate directorship is a reward for some of our elected officials and a lot of our senior governing bureaucrats - say former regulators - who retire to the good life. But that is for another thread.


[edit on 8/29/2006 by donwhite]

Can I vote for this guy again? Someone with the ability to write like I think...I am impressed. Very well put.

Anyhoo, nothing constructive to add here. I just wanted to "thumbs-up" a great discussion.

Whats the problem here? So the workers get paid less, so what? If they don't like it, they can work for someone else. They're the ones that get to dictate what wage their labour is worth.




A monopoly is anti-free-market, it represents non-market forces dictating the prices of products and wages.