Why There’s Nothing Free About The Free Market

Recently, I endeavoured to read the UKIP manifesto. I’m not usually into fantasy fiction, but I’m doing a little investigation into UKIP and I thought it would make an interesting read. I found that they said, with regards to foreign aid, that they supported “Trade, not aid”, which to me makes the whole concept rather void.

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But they were very keen to say that they believed in free market enterprise. At one point, they say that they believe in “low taxation, enterprise, and fairness.” Leaving aside the fact that taxation drives fairness in our society (You think a society without an NHS would be fairer?) it still leaves the issue that free market enterprise, as we understand it, is almost invariably not free.

To start with, the balance of the world today was not brought about by any fair means. Many people who are wealthy today inherited their wealth, as opposed to earning it for themselves.

But lots of people just make it for themselves, and even so, their family probably made that money, even if they didn’t! I hear you say.

Well, a majority of rich people are rich due to circumstance, rather than their own merits. And yes, maybe the families of these rich people made that money…running workhouses…or owning slaves, for which they were reimbursed when slavery was abolished…
If you are opposed to slavery, then it seems to me that you have to be sceptical about the concept of inherited wealth. It has a barbaric history in many cases.

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We are often told by conservatives that capitalism is a gift for which we should be grateful.

And like most gifts you get, it was in a book.

The book was “The wealth of Nations” by Adam Smith, and was held up as “The Bible of Capitalism.” It is the theory upon which all our relations, internationally and nationally, are based.

What is much less known about Adam Smith is that he wrote another book which he valued more highly, based on ethics. This one was called “The theory of moral sentiments.

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If more people knew that the founder of capitalism valued ethics more highly than capitalism, we might be living in a very different world now.

The theory of capitalism goes (briefly) like this:

If I own a company that makes chocolate bars (for example) then I can “compete” in the “race” with other companies that make chocolate bars. The idea is that, if I produce the best chocolate bars (the cheapest and the best tasting), then customers will buy my product, and it will become more popular.

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On the other hand, if I do not, then a rival company will get those customers, so I would have to charge less for my chocolate, or make it a better quality, in order to win those customers back. This is (supposedly) good for the consumer, because it means that standards are driven up by competition.

However, this is not how it works in practice.

The problem is that the theory makes the rather large assumption that we are all equal.

I wish that we were equal, but we are not. If you can look at the homeless man on the street and say that he is equal to Rupert Murdoch, then you have no idea what equality really is. Equality must be strived for, but it cannot be assumed.

But we stand a fighting chance! You might say in response.

Well, at this point, you’ve already lost the premise of the capitalist argument:  consumer choice cannot drive up standards unless all the competitors are equal, which they are simply not.

Let’s go back to the example with the chocolate- I want to compete on the market, and I use fair trade chocolate that tastes better than a Kit Kat (the Nestle owned chocolate bar) but does anyone seriously believe that my chocolate (even if it is a better standard, price, and fair trade) could compete with Nestle?

Of course not! Many companies own a share in their industries which make up an umbrella monopoly. The big names in chocolate, like Cadbury and Nestle, for example, own enough of the market that competition only really happens between those businesses. It is not a “free” market system, and does not drive up standards.

This is partly to do with brands and advertising- I could make a brand name for my hypothetical chocolate, and provide the best service to all of my customers. But, since Kit Kats are seen by billions of people every day, and Nestle has an audience for their advertising that is far beyond anything I can produce, they will dominate the market. What you end up with, is companies that are very very good at advertising, but not necessarily at driving up the standards of their products.

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Well, let’s ignore that, and say I push forward anyway. Let’s say that my company (by some miracle) starts to do well. I begin to earn £40,000 per year (very unrealistic for a small company) and things seem to be going well.

Well Nestle, rather than risk losing their monopoly, might want to buy me out. So, let’s say they wander up to me and (as has often happened) offer me £3 million to let them take over my company to make more Kit Kats. In financial logic, most people would take the offer of the £3 million: it is a stable £3 million, whereas the future of a company is risky.

Now, Nestle may own (along with other big chocolate companies) large swathes of the market without any interference from me. And they could compete with cadburys and other brands.

Well, it’s not so bad, you might say, at least the competition between those companies may drive standards up a little bit…

Or, they could choose another option. The companies could choose to get together and agree what price to set their products at. Sort of like agreeing to all cross the finish line at the same time in a running race, having disqualified all the other competitors.

In our example, Nestle may work with other companies to charge £10 for a chocolate bar that should only cost £2. So long as they all keep their word, they all make more money than they would if they were in competition with each other.

Luckily, the chocolate industry is actually spread between many different companies, whom, although big, can’t agree on much.

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The same can’t be said for the energy market- the famous “Big Six” energy companies dominate the market completely. They can agree on a price between them and charge what they like.

Another example would be the media- the big names of The Sun, The Express, The Mail, and The Times, are all owned by less than ten people. If they choose to, they can work together to destroy someone’s reputation. Since they dominate the market, no alternative voice or “competition” can be heard. The internet is gradually destroying this monopoly, but it’s taking a long time.

It is still an established fact that whoever Rupert Murdoch supports in the election in the UK, will win. The pattern is there.

And you want to tell me that this is a free market? What is free about it?!

The way to create a free market is to bring in a certain degree of regulation. A free market economy, as we understand it, can never be free.

Being critical of it can only drive it forward to a better system.

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