The definition of a free market is one where there are a very large number of both suppliers and consumers, such that no single party is large enough to be able to unilaterally effect the over all market. Can anyone think of a sector of the US economy where this is true? I'm sure there has to be some, but every time I try to think of one, I always come up against some large national or multinational corporation or another. Most industries are dominated by a few large corporations that effectively operate as an oligopoly. Oligopolies, by their nature, tend to produce fewer goods at a higher cost then free markets. They also allow individuals in positions of power to abuse those positions for personal gain. A good example is how in many corporations, the executive officers' pay is set by the board, while the board is generally made up of other executive officers of various corporations. All of this creates severe market distortions and undermines the effectiveness of the free enterprise system. Historically, we see a nearly universal tendency for the concentration of economic power in the hands of fewer and fewer people. Businesses seem to have an evolutionary drive to get bigger. I suspect this is simply a consequence of the same aspects of human nature to act in one's one self interest that powers free markets. If true, that would make this tendency a universal and unavoidable aspect of market economies. It requires the action of an outside agency to counteract this drive toward oligopoly and monopoly. And to my knowledge, governments are the only such agency that has been effective in doing this. Well, aside from hordes of barbarians overwhelming civilization, which I think we can all agree is a bad thing. Which leads me to the ironic conclusion that the only way to maintain anything approaching a free market is with robust government regulation.
Two things are at work here. First is that competition and consolidation are natural parts of the business cycle. So, as more efficient competitors overwhelm less efficient competitors, consolidation occurs and the number of competitors dwindles. Herodotus noted this dynamic in ancient Athens and it has persisted ever since. But the cycle should repeat as consolidated competitors become sclerotic after a while (viz: GM). In a truly free market, new competitors would spring up and nip at the heels of the doddering giants and ultimately replace them. The problem is America is that government distorts the market with regulations, and differential tax rates that favor the entrenched and discriminate against new competitors. A classic example is the EPA's New Source Review program (40 CFR 52.21) which requires new competitors to get government permits before they turn the first shovel. Problem is these permit take years if not decades to acquire. This militates against the new competitors and serves as a form of subsidy for sclerotic but politically strong competitors. A uniquely America twist to distortion of the market is the US litigation system. Competitors can be extinguished overnight by "lottery" litigation award. Every now and then an entrenched competitor gets blown away by a "lottery" award but usually just the threat of litigation keeps small competitors out of the market. Unless you are ready to drastically attenuate government interference, you will not see any approximation of a free market.
Concentrated power in the market place also leads to trusts, oligopolies and price-fixing. Without some government regulation businesses can conspire to strangle new competitors in their cradle and keep prices artificially high in order to maintain profits (the oil companies, for example). The United States had a a period from 1875 until Theodore Roosevelt became President where such behavior ran unchecked, and even then it took until 1933 for full reforms to the system to be put into place. The lack of government regulation didn't ensure the free market in that case.
Only way have free markets is to destroy the goverment. If do that could kill two birds with one stone. The libertarians be happy. As now have no goverment to moan at. And the capitalists can tear your country apart as no more regulation. Of course the people suffer but who cares about them.
Kessy, I already have a thread on this: http://www.politicalforum.com/polit...8918-united-states-not-capitalist-system.html
Fabrication. Where did you get such a silly idea? Not all libertarians are anarchists. There isn't a single case in recorded history of that happening. Regulations are what allow capitalists to ravage an economy. The free market forces them to abide by the rules of competition. Nonsense. The only systems which have the kind of suffering you're referring to are systems which have not embraced the free market. You can't cite a single example that proves me wrong.
Depends on your definations of 'free markets' To me personally, i don't see how it will ever work. As competition by human nature will never be 'fair' Ie corruption, cheating, all the nasty things of humanity. So it needs massive amounts of regulation to police it, thus killing the ideal of 'free' in the market. Which goes back to my original point. Only way to have a free market is to destroy the goverment.
One that is consistent with the US Constitution. I don't believe that anarcho capitalism is a true free market. Don't you agree that competition is far better than government issuing priviledges to massive corporations to help them eliminate their competition from smaller businesses and the individual? A true free market can't function without the government enforcing contracts, property rights, sound money, and the rest of the Constitution. So I agree that it takes regulation to ensure a free market.
Hmm, i have no comment on the US constitution version of a free market, since i am not american. With this subject, it does seem very fantasied. Although i never quite understand with the use of the word free or freedom. As if take it as its true meaning. Nothing in life is.
I agree that competition and consolidation is a natural part of the business cycle, and that it is not in itself a bad thing. I disagree that a market left to its own devices will tend to spawn new competitors to "nip at the heels of the doddering giants." There are several reasons for this. Firstly, a pure free market model assumes that there are little or no barriers to entry into the market. This is obviously not generally true; almost all businesses today have pretty significant start up capital requirements. A business like auto manufacturing obviously has very large capital requirements. This situation greatly inhibits the entry of new competitors, and this is a feature of the market, and has nothing to do with the government. Also, doddering or not, being a giant gives a corporation very large advantages over any potential new competitors, and this is again not about the government. I'd have to say that generally government intervention has served to ameliorate this effect, rather then worsen it. For example, in the absence of government regulation, there are a wide variety of anti-competitive behaviors corporations can and have used to secure their position. Dumping is a classic example, where a large corporation sells a product at a loss to drive a smaller competitor out of business. There are also things like using a corporation's market share to pressure other business not to deal with a competitor. The list goes on for quite some time. Also keep in mind that without government intervention, corporations could use non market means to drive out competitors, such as blackmail, intimidation, vandalism, or even outright violence. And I really have to take issue with your characterization of the EPA's New Source Review process. NSR applies to the construction of any new facilities by anyone, and to significant modifications to existing facilities - it makes no distinctions between large established corporations and new start ups. In fact, it's been large established corporations, such as Duke Energy, who have been the primary ones fighting the regulations. While NSR may well contribute to the barriers to entry to the market, I have a really hard time believing that it's all that big a barrier compared to the cost of building the actual facility itself. Calling this a subsidy for existing corporations seems pretty ridiculous to me, to be honest. While there certainly can be, and have been, poorly conceived regulations that place excessive burdens on businesses, regulation in general tends to level the playing field between established giants and new competitors. It's government regulation that prevents anti-competitive practices that create monopolies. It's government intervention that prevents big corporations from hiring thugs to firebomb their competitors. Without the government and regulation, a real free market would be a fleeting thing at best. While I happen to agree that the US needs tort reform, I don't think the litigation system is really government intervention in the market. It's certainly not in the same sense as regulation. It is the actions of private individuals, both as litigators and as jurors, that has caused the current mess. While the government is certainly not blameless, since it created the system in the first place, it's people abusing the system that has caused problems. And I would point out that the solution to the problem would have to be some sort of government regulation, since it would be placing restrictions on what private individuals can do. So, in short, drastically attenuating government interference would result in the complete extinction of free markets and give us nothing but monopolies. It's government interference that's the only thing keeping any semblance of a free market alive.
Umm, the Gilded Age, corporate trusts, robber barons, Standard Oil, US Steel, ringing any bells for you?
mega corporations were the beginning of the end of a free market, mega corporations are mini government among themselves
I think you misjudge markets then. If you look at the history of Europe over the last 500 years, even nation-states tend to go through the same types of consolidation and replacements, especially in times where no institution existed to enforce the status quo. If you look at the nations competing for dominance in the New World, the leader changed several times (Portugal to Spain, Spain to Great Britain, Great Britain to America, perhaps in the future America to Asia) -- so even in the political stage, with a true competition, leaders change all the time. I could also point to the same type of things in manufacturing or sales. In sales, there was a time when places like Macy's and Penny's ruled the way we shopped for clothes and housewares. Now it's Kohl's and Target and Walmart. What happened was that technology allowed for cheaper manufacturing and storage of goods, so the new stores could undercut prices. In computers, you'll find that same thing. In the 1980's Atari was a big home computing giant, now, Atari doesn't even make computers. You are correct that there are some barriers to entry, however, there are also disadvantages to being huge. A huge business is like a huge ship -- you can't turn it on a dime. It could take years to change a marketing strategy over a world wide corporation. A mom-and-pop could change direction in a week. A big corporation usually has a lot of dead weight as well -- beareucracy and legacy jobs that really serve no purpose other than fill in forms. It happens anyway. Nice try though. The biggest way to keep competition out of a new market is to make sure that the cost of regulations prevent a new guy from coming in. It's actually quite common. Most big guys built when regualtions were low, and thus had a chance to build up a marketshare before they have to comply with rules that quite often came into being years after they'd already gotten people to buy their stuff. For example, in any restaurant or grocery, you'll find a ton of regulations, some having very little to do with keeping you safe, more often they have a lot to do with giving inspectors job security. The same thing is true of CO2 regs. When most manuafcturers came online, there were no regulations of CO2. Most of their factories are grandfathered in (unless they remodel). If I try to build a factory today, I have thousands of dollars in costs more than my competition does -- and all paid upfront, before I make my product. I've never seen evidence that this has every happend. prove it. Well, it depends on the market, but the cost of new reg-friendly equipment is usually much much higher than the cheaper stuff that was available before the regs go into effect. Large corporations are exempt by a principal of grandfathering are exempt from the law until the grandfather period is up or they upgrade a plant. That means that while Polluter and Sons who build in 1997 don't need to buy a scrubber for a few years, any new competition would have to buy the new scrubbers immediately. That raises a large barrier to entry which cannot be spread out or deferred. It either raises the cost of the competitions product, thus making it uncompetitive, or it prevents the competition from making it at all. The reason that the litigation system is such a problem is because they allow for huge paydays for very little actual injury. What happens is that government creates a right or a bill of rights allowing people to sue for some type of injury. Then they don't cap the damages, so one or more of such lawsuits would essentially bankrupt a small to midsize company. This creates two barriers. First, a business must be able to pay for the lawsuits or the settlements, while retaining lawyers to negotiate. Second, a company must keep records of all kinds of stupid things that really don't need to be recorded -- except that if the company cannot prove that they were not negligent, they lose millions of dollars. They have to PROVE that they put up signs so that kids know (mind you 16-17 year olds) that playing in a baler can cause injury or death. They have to PROVE that they have "do not drink" signage around all kinds of chemicals that even a 3 year old knows are not kool-aid. If not, and someone gets hurt doing something stupid, the company faces a huge lawsuit that can shut them down. now for a large company, not so much of a problem -- they have a comfortable margin and can stand a bit of inefficiency. OTOH, mom-and-pops have no such leeway -- they can't afford to lose, but they can barely afford the effort to comply.
What about it? Corporate trusts don't occur without some form of government priviledge enabling them to. What about them? I don't believe that either of these two were technically monopolies, but government priviledges like high tariffs on imports certainly helped them to artificially have a greater share of the domestic market. Which is what you would expect from subversion of the free market by a meddling government.
If you cannot get a NSR permit you simply cannot build a plant. This is not as big a problem for established competitors. they often have older plant that can be converted without waiting years and years for an NSR permit. By time the new competitor gets his/her permit, market conditions may have changed.
diplomat makes a good point, market utopianism is just as silly as communism. That capitalism is reliant on government to continue to reproduce capitalist profits is just stating the obvious.
The concept of a free market is also a rather politically charged term. Most economists will refer to an economy with a significant private control over the factors of production simply as a market economy. In addition, they will refer to an economy that is highly centrally planned simply as a command economy. The fact that a free market has never been a reality is the reason why it is not an appropriate term.
