Unrestrained Freedom

Clamour is up for the entry of free markets and the restriction of governmental interference in India. We proclaim and not without some justification that the government should not tax us and decide as to how our hard earned money should be spent. The same rhetoric was used by George W Bush and now it is the turn of Mitt Romney and Paul Ryan. This seems to be the one stick that the Americans use and rather decisively as they browbeat all their opponents into submission- socialist. It’s almost the equivalent of an outcaste. Now it comes to be something even more interesting- with all the protests against the entry of FDI in retail in India, let us look beyond the political rhetorical and judge the real situation. It’s my attempt and its my attempt to make it as objective as possible.

First off is the argument that government should not interfere. The basic premise is that government should not tax us is self defeating. Simply as we maintain (at least in theory) roads, railways, and of course the army and the administrative apparatus. Society has changed from an Acephalous (Headless) state to one that is ruled by some form of government. No government may exist in utopia, and curiously the Marxist system, the very system that is being denounced by free market thinkers is actually one that sought, in the long run an end to the state apparatus. (Marx’s wishful thinking as reality had a different set of stage instructions- government came to dominate much more the communist societies.).

One attempt at doing away with all government was the hippie movement. It yielded mixed results to say the least. The breakdown in the social order was alarming. Such movements to minimise governmental interference invariably yields patchy results to say the least. We have had in India the earliest attempt at a social contract theory was in the Digha Nikaya. And Thomas Hobbes in his celebrated treatise Leviathan states explicitly that “The life of man is poor solitary nasty brutish and short while the condition of man is a condition of war against everyone because everywhere men are guided by their greatest motivation namely lust for power. The state was created as a great artificial man or monster, the leviathan to restrain such impulses .So far so good. So the state was created to restrain mankind’s greedy and self serving impulses.

Now we come to non interference. The Bush era saw a dramatic decline in the taxes paid by the richest percentage of America’s social spectrum. The argument sounds tenable and attractive- ah let the money be spent by the people themselves as they have earned. Their right shall not be encroached. The idea sounds very lucrative. But then again it is fraught with difficulties.    .

Sounds attractive in principle? Practice is a tad more tricky though I’m afraid. Remember that the very basic premise of free markets presupposes a human temperament that is selfish and self seeking. This much is in common with all social contractual theorists. Juxtapose this on to a free market thought and initially attractive free competition starts to fall apart. It seems less feasible in reality. Just like its cousin state sponsored control and absolutist state control, unfettered free markets have their problems.

Situation 1- the argument in favour of free markets states that free markets show free competition and in such a competitive environment the very demand for products will enable the price to come down. Economist Dominic Salvatore demonstrates this in a series of beautiful graphs and it seems to work well at micro level. But at a higher level, all sorts of problems crop up. If the producers collude or if one alone starts to dominate, then the system seems to have no answer. This explains the ability of cartels to dictate terms to consumers and deny them a fair price. Thus what happens is that the customer gets bullied. The very nature of the market is not homogenous. Thus some will possess an edge. And if the state doesn’t interfere in some capacity, the dominance of any one industry may go unchallenged.

Another is the argument that minimum wages for workers should be fixed by the law of demand and supply. This makes it sound that minimum wage legislation has no meaning. Also in favour of this argument that since one fixes a minimum wage for all the workers one fixes a minimum price for products for the producers of raw materials of this process then one denies the producers of raw materials the same fair price. The argument is that a free market will be able to dictate that the producers get the best price for their produce .So all will be happy in such a situation.

The same argument can be used when markets are regulated. Now if the law dictates a minimum wage for say workers in a watch assembly unit, then the suppliers of the components will also be covered by the same minimum wage. Now the free market thinkers opine it sounds attractive in principle but doesn’t work in practice. It’s probably the selfish nature of humanity that prohibits them from working such a grand design out. But then how is it that this selfish and self seeking nature of man disappears in a competitive free market is obscured by the impressive if at times hollow rhetoric. Reality is a touch more complex.

Assume for a minute two watch producers. Now if the decide to collude in the form of an anti poaching agreement, the first thing that will happen is the workers are deprived of their freedom of choice. It deliberately keeps the wages down and strangles their chances of fair pay. The same by extension can happen to their suppliers. And also the customers can be kept happy. Or wait they can be used too as minus options they will take what they get. So now the pitfalls of unmitigated capitalism are obvious.

More recent examples will also highlight the need for governmental involvement in the economy. The case of the abolition of the Glass Steagal Act, under pressure from the free market lobby in the USA comes to mind readily. Here the act removed the distinctions between investment and ordinary banks. This was one of the causes of the global financial crisis as without any regulation, the criteria for availing loans became easy. Thus the market started to expand at a rate far in excess of what would normally take place. Free markets were supposed to dictate. But in the absence of regulation there would be no proper dictation. People would do as they pleased.

If free markets sans regulations were the way to go then another step could be to do away with the entire law and order apparatus. Free markets could dictate the nature of the law and order machinery and private militias could control and protect their various patrons. Sounds uncomfortably familiar? The European penetration into Asian Markets was through such companies. It could lead to demands for rollback of various aspects of social security and liberty just because free markets may well demand it. But I may be going overboard here.

The jobs Obama created in the USA as a consequence of his stimulus plan were niggardly. This was because of the inadequate nature of his stimulus plan. The fear of inflation, being branded a socialist and also desire to get everyone on board led to this state. But then again, at least he has made a start. It was governmental interference that led to a revival of the economy. And it was the same government that big businesses ran to to bail them out during the crisis. The story of the east India was similar in many respects. The need for government is only felt by many corporations when they need security or law and order. At other times it is regarded an interference. It seems a onvenient and easily used argument.

Adam Smith once said that unfettered free markets were the way for most economies to go. But he also sounded a word of caution. He did mention the pitfalls of the unregulated companies as being a nuisance to those countries where they are established and disastrous to those countries which happen to fall under their misrule. He was speaking of the East India Company. More recent events have shown that companies have attempted to dictate political events in third world countries. It makes one wonder if unfettered free markets are really a case of real freedom and democracy or is it just a different form of colonialism.

The fact remains that government control has moved from raison de atre era- the will of the prince no longer dictates the outcome of events. Since the time of Edward the third in England, the nature of the kingdom, nation state has started to redefine itself- no more the rule of the prince but the community of the realm. Also the fact remains that the communist societies are as totalitarian as any regime in the past and such tendencies should be resisted. That will be a sure fire way to debauch the freedom enjoyed by the people and return them to a new form of indust-real slavery to use a term employed by the futurologist Alvin Toffler. But to leave markets unfettered is to invite the opposite and equally disastrous consequence- one devoid of any regulation and control. This attempt should be resisted with all our might. For unfettered free markets carry with them the same pitfalls of absolutely regulated markets- the truth of man exploiting man. And to assume that man as an economically rational being- Homo economicus- will take the best possible decisions needed  a bit naive to say the least. Historian Niall Fergusson has disputed the very concept of Homo economicus. A balance between the free market and the intereference of the government is needed. Perhaps the best method would be to aloow the present tussle to continue. For as long as dissent survives, democracy and free economics will survive. The absence of dissent will spell doom for free economics and thought no matter which path is selected- free market or communist totalitarian.