Free markets allow for everyone to have access to all factors of production equally, for prices to be determined fairly and for anyone to have the ability to enter and exit any business.
Free markets have a very bad press in the liberal left media. Paraphrasing Winston Churchill’s famous quote on democracy “free markets is the worst form of economic system except the rest”… They are associated with the wild west , robber barons, monopolistic oligarchs and high level of inequality, among other evils. Nothing could be further from the truth. These are all situations of jungle raj (might is right) and not rule of law. Let’s take each one of them and prove that they were not free markets. If readers are to take away one thing for. This article , it should be that.
The west west was not a free market because coercion and violence was used by the settlers to acquire land (which in an agrarian society was the main factor of production). So a critical determinant of free markets (prices to be determined fairly) was never met.
In our previous article , we have discussed why the Russian Oligarch system and the Chinese guanxi systems are not free market systems but system where the markets have been skewed in favour of a few who have captured the rule making / rule enforcing systems.
The robber barons era in the US, when the industrial revolution was at its peak, was akin to the current monopolistic power that some tech companies such as Facebook and google are enjoying. Monopolies are coercive with customers and also the barrier to entry becomes very high. The robber baron era led to strong anti monopolistic regulations, which unfortunately large companies continue to try and skirt.
Eternal vigilance to ensure that monopolies do not get created is the price to be paid to ensure that the principles of free markets (easy entry/exit and no coercion) are protected. Letting Free markets without any coercion are the polar opposite of jungle raj where power determines outcomes.
powerful monopolies like Facebook buy WhatsApp and Instagram is a failure of these higher level principles.
While admittedly, there is a fudge involved in government interventions to prevent monopolies, and extremist free market theorists are against it, I believe it supports the higher principles but again eternal vigilance is required to ensure that the monopoly busters are not misusing their power (which is highly likely in the Indian bureaucracy). Like all practical things, balance is required.
The Indian bureaucracy has a deep rooted suspicion of free markets and a deep seated socialist mindset. As a bureaucrat friend reminded me – the Indian politician is the body but the bureaucracy is the soul and the soul is indestructible !!
India is going through a cyclical slowdown. However, the creeping bureaucracy and command and control license raj creeping back in over the last few years (including the much discredited but strangely back in fashion price controls) and deep rooted suspicion of entrepreneurs is creating a structural slowdown as well. We should not waste this crisis and really exorcise this socialist “soul”out of the body of this country.
This vicious cycle can be broken by simple and stable rules with little leeway for discretion or exceptions. India has to learn from the success of India’s biggest global success stories – IT and Pharma, where companies grew and were left alone to face market forces without government intervention.
To be continued….Next article: how to leverage Indian entrepreneurial culture in nation building link to next article