Not All “Free” Markets are Good Markets

We hear a lot of talk about “free” markets. Some people tout the virtues of free markets; others lament our reliance on free markets in areas where government intervention might work better. But of course very few (if any) markets are truly “free”, in the sense of being utterly unregulated by any outside authority. Most economies are what economists refer to as “mixed” economies, characterized by a mixture of private and public ownership of the means of producing various kinds of goods. In Canada and the U.S., for example, most consumer goods are produced by private companies, but mail delivery, national defense, and some kinds of insurance are provided by government.

Here’s an interesting article (from the NY Times) about just why it is that you don’t want markets to be too free.
For Afghans, a Price for Everything, and Anything for a Price

KABUL — When it comes to governing this violent, fractious land, everything, it seems, has its price.

Want to be a provincial police chief? It will cost you $100,000.

Want to drive a convoy of trucks loaded with fuel across the country? Be prepared to pay $6,000 per truck, so the police will not tip off the Taliban.

Need to settle a lawsuit over the ownership of your house? About $25,000, depending on the judge.

“It is very shameful, but probably I will pay the bribe,” Mohammed Naim, a young English teacher, said as he stood in front of the Secondary Courthouse in Kabul. His brother had been arrested a week before, and the police were demanding $4,000 for his release. “Everything is possible in this country now. Everything.”

The result?

The corruption, publicly acknowledged by President Karzai, is contributing to the collapse of public confidence in his government and to the dramatic resurgence of the Taliban…

Not only that, but it means that Afghanistan is the kind of place where it’s likely terribly difficult to set up and maintain a profitable business — the kind that’s beneficial, in the long run, to a wide range of stakeholders. And it’s positively not the kind of place that’s likely to attract crucial foreign investment. Not only does bad money drive out good; it seems bad markets are likely to drive out good ones, too.

3 comments so far

  1. Ted Diesel on

    I think it is not right to characterize markets in Afghanistan as “<>too<> free.” If you need to pay protection money in order to transport goods, or if government thugs can kidnap you for ransom, individuals’ rights to freedom of action are simply not being secured. This is just another case of some people holding unlimited coercive power (i.e., the power of physical force) over others.I also think it would be misleading to frame the alternatives as some kind of widespread corruption or anarchy against today’s “mixed economy.” This would omit the possibility of laissez-faire capitalism, in which individuals’ rights to freedom are secured <>and<> the government stays out of the economy (except in the sense required to deter and punish instances of physical force and fraud).

  2. Chris MacDonald on

    Ted:Thanks for the comment.By “free” I simply meant that, in Afghanistan, people are “free” to exchange too many things. There are some things that ought not be up for sale, yet in Afghanistan, there is a free (i.e., unregulated) market in some of those things.And I didn’t intend to present the “mixed market economy” as the only (or even an) alternative to widespread corruption. Lots of models are possible. I only mentioned mixed markets to point out that what we mean by “free” isn’t always clear, and that even the freest markets (in the best sense of free) are typically not utterly without limits or constraints. Even a utopian laissez-faire economy is not free in <>every<> sense of the word.Cheers,Chris.

  3. Anonymous on

    I agree that a totally free market is conducive to many bad things such as monopolies, rampant speculation, oligopolies, corruption, risks to consumers, investor insecurity — to name just a few. “The government that governs least governs best” (?) Governments that do not hinder competition and allow for fair playing fields are the best. I would include the U.S., Canada, Australia, Britain and a few other economies in this sadly rarified group. We still live on a planet of statism, dictators, and one party states. Freedom is the answer. So much of the third world’s problems could be solved by increased trade and lowering tariff barriers in the developed world. We send them aid and development money but we could unleash their entrepreneurial spirit and let them compete with us as equals. The best charity you can give a man is a job. Kevin McDonald

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