The free market has
served the world well. But its best time is over.
Guest post by Graeme Maxton
Free
marketeers, please take a bow. It is time for those with other
ideas to take centre stage.
Let's
hear it for the free marketeers!
The
free market has been a wonder of our age. Its ideas have been like
some remarkable scientific breakthrough that transformed the
world. The free market propelled America and the West to global
economic dominance, and allowed hundreds of millions of people in
China and elsewhere to prosper. It won the 20th century.
But
the free market's best time is now behind it. It has made all the
easy gains and, after so many years of glorious progress, it is
running out of steam. With its principles fully established, it
has little new to say. The free market is getting old, and in the
face of new challenges, its magic is fading.
The
free market is still the best way we know to allocate many
resources. It ensures that goods and services are delivered to
those that need them in the most efficient way, for the lowest
possible price. Moreover, it strives to improve this process
continuously, making the system ever leaner and driving prices
ever lower. By making every penny go further, this makes us better
off and so improves our standard of living. The free market is
also exceptional in that it not only pushes down prices, it raises
profits too. It serves everyone by stimulating growth, supporting
investment and aiding human development. It is also astonishingly
flexible, with the ability to respond to the changing needs of the
market without falling apart. The system is fair too, or at least
mostly fair. It rewards those who are efficient and competitive
while stragglers are swiftly killed off.
The
free market has its limits however. It works best when focussed on
the short term, and where returns can be monetised easily. It is
great at meeting the needs of end-consumers, like you and me. But
it tends to work less well when it is expected to provide basic
infrastructure, like roads, railways or airports. It is also less
than perfect when it is asked to provide universal services, like
schooling or defence. And it fails completely when there are
disasters like Fukushima, where there is a 40 year clean up, life
threatening risks and little sense in allowing people to profit.
The
free market fails in many other ways, however. Because it depends
on little or no regulation, it has allowed the finance sector and
others to manipulate markets. It has also allowed whole industrial
sectors to become dominated by a handful of firms. Most troubling
of all, it is a major cause of many of the biggest and more
intractable problems we now face.
Because
it
focuses on the short term and on price, the free market has
ignored many of its own nasty consequences. It has had nothing to
say as the gap between rich and poor has grown, in the US, China
and much of the rest of the world. It has brushed the cost of
nature aside, allowing forests to be chopped down, seas to be
emptied of fish and species to be entirely wiped out, because the
free market gave them no meaningful value. It also has little to
contribute when there is persistently high unemployment, as there
is in much of the world today. Most bothersome, the free market is
useless when it comes to something as big as climate change, a
problem which needs global action today, to allow those living 30
years in the future to prosper.
To
address these challenges needs an understanding, not from the
ground up but from the top down, from those who see can the bigger
picture and take the long term interests of society and the planet
into account.
It
needs rules and leadership and vision. It needs good governance
and the biggest trouble the free market has brought us is that
most people cannot now imagine these two words ever being together
again. But 'good' and 'governance' do work well together. They
work in Germany and they worked in Singapore for many years. They
have also worked extremely well in China for most of the last 30
years. But now they need to work harder. We need more and better
governance again. It is time for the credits to roll and for the
free marketeers to gallop off into the sunset. They were heroes.
But they cannot help us as they once did.
Graeme
Maxton is the author of The End of Progress and a Fellow of the
International Centre of the Club of Rome
