In a Twitter discussion my interlocutor suggested that mobile phone companies were behaving like a cartel when it came to data roaming charges. I am not sure about that but in any case such arrangements are less stable in a free market than otherwise, because barriers to new entrants would be lower.
Yes, said my interlocutor, look how well a free market works for Barclays, Enron and privatised rail companies.
If that is what people think free markets look like then no wonder we are having a hard time winning arguments. It is not just a semantic problem where capitalism has been incorrectly defined, though that is part of it. People really believe that rail companies are free to do what they please, and so are banks. There is some doublethink going on because the same people will talk about the failure of regulators.
It might be useful to point to examples of truly free markets. This is quite difficult as almost everything is subject to some regulatory interference. I like to think that we are not starving mainly because of free markets in food production and distribution, but there are all sorts of EU food subsidies and it can be argued that large supermarket companies have an advantage when it comes to planning permission.
I can think of examples from industries that I am familiar with. Consumer electronics are, as far as I can tell, almost completely free from regulation except for some safety and, lately, power consumption requirements. The rapid advances that have resulted are plain to see. The same is true of the semiconductor industry. Intel, AMD, Qualcomm and Nvidia are achieving ever more performance and making ever smaller transistors, and governments have very little to say about it, thankfully.
I can also think of services like web hosting and cloud computing which have very low barriers to entry and the result is a vast choice of very low cost products for consumers. All this is very nice because we can point to the freedom and the competition and the lack of monopolies, cartels and other unpleasantness, and all the wondrous things that have resulted and would not result if bureaucrats were present to make sure everyone behaved themselves.
There has to more that is free than the tech industry, though. What am I missing?
Very nice. Maybe I’ll get one to keep in a corner of the trunk (boot) of my Crown Victoria which will run forever.
Conflating free markets and capitalism is something which I find adds to the confusion. Free markets are a system of exchange. Capitalism is a system of ownership. The two don’t inherently go hand in hand.
For well established goods, where improvements come in basic performance or price, it can be the case, but with goods like smartphones, the industry is essentially mercantilist, with competition over patent privileges between large manufacturers in court being at least as important as anything that goes on in the marketplace.
As free as the tech industry? What about fashion?
I think tech benefits from the fact that it is usually changing too fast for the politicians to catch up.
The only places where we can even begin to glimpse the kind of powerhouse economy a true free market would bring are the places where there are gaps in the regulatory net that drags the whole economy down.
Look at consumer electronics, particularly smart-phones and tablets. Little government regulation and incomplete patent protections = explosive new growth sector.
Which is why it is so interesting that Apple are so desperate to return to the loving regulatory arms of the mother-state by repeatedly throwing their patent-law tantrums. If they expended half the effort they put into litigation into R&D we’d see the sector REALLY take off.
Next thing you know they’ll be claiming they own a patent on touch-screen devices where you swipe your finger to unlock…… oh, wait….
But of course, if the courts had sided with Apple then it would be in Apple’s interest. They could just stop trying, corner the market for the next few years and throw us any old tat they felt like making and we’d have to like it.
Which is why regulation is almost always bad. It usually represents established interests while keeping newcomers out of the market. All that crap about consumer protection is to mask the fact that regulation is usually a synonym for aggressive cartelisation.
If anyone can provide an example of market regulation that hasn’t resulted in the death of innovation and a complete stagnation of market growth (particularly in the area of start-ups entering the market), I’d be very interested.
fracking for gas and oil?
There’s no free market in rail because you cannot choose a different railway. It’s a monopoly. That’s why it is so over-expensive and utterly crap.
The obscene ticket prices, the shoddy service, the “oops the train’s late, tough tits to you” attitude, the third-world stations, the ticket gateways that often don’t work.
And the amazing thing about this steaming turd of a service is you have to pay for it twice, and much of that money goes to fund German public transport.
The only way it would be a free-market is if there were multiple railway tracks., otherwise its just a cartel to enrich politicians, CEOs, and shareholders.
Meanwhile, pensioners get free rides at everyone else’s expense while single tickets cost the same as return tickets (who was the moron who decided that?), and bare no relation to the distance travelled. A massive rip-off.
Then there’s the banking sector which benefits hugely from the government forcing everyone to have a bank account via the scam that is BACS, thus the retail banking sector is a “market” a 4-year old could succeed in, given the bullying of people by the government.
If taxpayer’s money goes into a private company, then that company is a state entity, it is not part of the free market. Doesn’t it make you feel warm and fuzzy that your energy bills go to the French government?
Thus the Englishman finds himself in the wonderful position of paying tax to the British, French, and German governments! Oh what sweet joy this “free-market” is.
I thought of a great t-shirt slogan, which almost fits in here. ‘Liberty- it should be compulsory!’
Off the top of my head, newspapers/magazines are an obvious example. Both on the upside and the downside – there’s no shortage of both that have gone bankrupt without getting bailed out, after all. Most other forms of entertainment are pretty good too – network TV is pretty regulated, but once you get into HBO, movies, board games, music, and the like you’re basically free to do whatever you want.
Furniture and other such interior-design stuff seems like a decent example as well(any market that has Ikea, La-Z-Boy, and lovingly handcrafted hardwood all available in huge quantity looks good to me). All of the above has the usual building permits and sales taxes to deal with, but there’s not much restriction against doing whatever you want and seeing if it sells, which is good enough to make the point.
Patrick: It’d be a good example, except it’s a very subcultural thing. A lot of people dislike it, and don’t much care for it even if the market responsiveness is kind of bewildering.
newrouter: Hah!
If anything, it’s worse than that. One direct result of corporatism is the prevalence of corn and soy in most processed food. In effect, we pay for this garbage three times: first, when our taxes are given as subsidies to the growers, second, when we buy it at the supermarket and third when we pay the medical bills for treatment of the ill health that comes from subsisting on swine feed.
I’m currently reading Daniel Suarez’s book Freedom TM and have got as far as the part where the bureaucracy raises a domestic terrorism alert on account of the fact that increasing numbers of farmers are failing to apply for government crop subsidies…
We’d have to work hard to extrapolate policy suggestions from the free-market successes in the smartphone industry to, say, the railways. You mention the issue of barriers to entry: the most persuasive anti-free-market argument I’ve heard is that of the natural monopoly. Surely the barriers to entry there are very hard to surmount here for reasons beyond regulation.
Of course, I am not saying that the current organisation is at all effective or that an imposed monopoly would be either, but nor can I imagine a smartphone like pace of innovation in a fully privatised railway network.
From your previous posts, you are undoubtably aware that what is “missing” is reference to the basic concept of “markets” (in everything per Tyler Cowen) as the essential mechanisms for exchanges which make the “specialization of labor” generate beneficial effects for “Society.”
There are always constraints in “markets.” Some are caused by the objectives (not always simply economic) of the participants; some by the nature of the goods or services involved (and the prior market actions in their development); some by absolute externalities – such as weather, politics, war and the wear and tear of time.
The designation of “Free,” for particular forms of markets is perhaps more amorphous than Isaiah Berlin’s categories of “Liberty.” But, it is likely that most would say a market is most free when it is least impacted by externalities, particularly politics.
In other words they’re pushing hard to be the next IBM – or even DEC.
@NukeGray Why not submit a design to Threadless? http://www.threadless.com/submit
Regarding rail, is it enough that there are competing methods of transport? Rail has to compete with roads and telephones.
A tougher question I am interested in is: what would a free market in water look like? Water pipelines seem a lot like the “natural monopolies” people talk about, though I am suspicious of the concept.
RRS: I appreciate your point. I mean free from politics, I think.
As I remember, Bastiat used the example of water as a “resource” to demonstrate the derived “market” as the services exchanged to make water available for consumption. Of course he used an “open” source, which is not always (perhaps seldom) the case for a resource.
So, back to externalities, the enquiry becomes how and why (as well as when) does politics become a factor in a particular market; and what determines the degree to which politics becomes a factor.
Part of the how turns on the nature of access to a particular market (open, limited, pressures for seeking participation to acquire, offer or intermediate). Pressures to limit or attain access are most of the why (in almost every social order).
Each of those areas would sustain a Ph D thesis and they all leave for assumptions the “ownership” of resources.
Nuke Gray: On the back you could have H. L. Mencken’s quote: “I believe In only one thing: liberty; but I do not believe in liberty enough to want to force it upon anyone.”
The entertainment industry seems to be largely free of government regulation. I mean, except for broadcast radio and TV. But (and I’m speaking from the US here) non-broadcast TV and radio, movies, music – that’s a fairly huge chunk of the economy right there. And it isn’t really part of the tech sector that you spoke of, being rather the content than the medium.
Rob, the water issue would be a non-issue if all land was truly private – because then various water suppliers would have a choice of locations to drill for underground water (it is everywhere – only a question of how deep), and to lay the pipes.
Wholesaling, as a sector, is very much a free market, and wildly competitive. Retailing generally is as well, although there are locales where that is less true. In the US, freight transportation is very much a market service for trucking, and because of that rail freight effectively as well (rail companies don’t compete much with each other, but they do have to compete with truckers – passenger rail competed with buses and lost a long time ago, and exists only on government life support).
My sense is that the closer you get to the actual customer, the freer the market. Contrast automotive sales with new car manufacturing. Or at another scale altogether, air lines with airplane manufacturers (all 2 of them).
For most of the economy, government market distortions enter either through regulation/ management of commons/real property (environment, radiation septrum, natural resources) or via the two markets that the government really mucks around with – labor and finance.
Even some of the industries named above, where they employ people, are subject to regulation.
The only people truly free of the regulation mania are those self-employed in areas like watercolour painting, poetry-writing, prostitution, window-cleaning.
I often wonder whether, subliminally, kids want to become rock stars, in part at least (apart from getting the girls etc.), because they know that they’ll be free. Until they start hiring roadies, that is.
There seems to be some confusion between a free market and a competitive market. They are not the same thing. A free market simply means that state violence is absent or (in the real world) at a low level. It makes no comment about monopolies or barriers to entry.
As it happens, free markets are usually competitive markets and if they are uncompetitive they don’t stay that way for long. In the 1970s IBM seemed to have a monopoly. Gone. Likewise Microsoft in the 1990s. In the 1890s it would have seemed that there was very little competition for the local railway but then buses and cars came along and the industry went into decline.
I may be spoiled living out here in South West London but I have to pinch myself to remind myself how much things have improved train-wise. Trains are much cleaner, nicer and more punctual than they were ten years ago. Stations are nicer and information infinitely better. I am not going to claim that all of this is down to the free market because trains do not exist in a free market. But there are areas where private enterprises are free and where are free to change things the results tend to be good.
P.C. – The scholarship of Douglas North, et al. seems to me to refute the limted meaning you ascribe.
The functions of the markets to facilitate exchanges in social orders wherein there is not state control of violence, are not necessarily free, usually are not.
The history of the Guilds in England and Northwestern Europe was not one of free markets, but did not turn on “state” actions.
The enquiry into the “why” of political intrusions, and even into the why of the reduction of those intrusions should not be limited to actions through the mechanisms of governments.
To be pedantic, you’re saying “mobile phone companies” where what you mean is “Network Operators”.
None of the roaming reaming is anything to do with Nokia, Motorola, Samsung, etc.