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  • Dec 26, 2014
  • Updated: 9:47am
CommentInsight & Opinion

Best days of the free market are over

Graeme Maxton says after being sidelined in a modern era dominated by marauding free marketeers, good governance must now make a comeback and save society from ruin

PUBLISHED : Tuesday, 12 February, 2013, 12:00am
UPDATED : Tuesday, 12 February, 2013, 2:45am

Free marketeers, please take a bow. It is time for you to let those with other ideas 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; 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 goods and services are delivered to those who 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 each dollar 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, but 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 focused 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 also fails in many other ways. 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. It has not stopped the property business in Hong Kong from being controlled by a few overly close tycoons. Most troubling of all, it is a major cause of many of the biggest and most 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, mainland China and Hong Kong. It has brushed the cost of nature aside, allowing forests to be chopped down, seas to be emptied of fish and species to be 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 can see 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 - "good" and "governance" - ever being together again.

But they do work well together. They work in Germany and they worked in Singapore for many years. They have also worked extremely well in mainland China and Hong Kong for most of the past 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 Club of Rome


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This article is now closed to comments

This is rubbish and "Club Of Rome" is just asking for more power. Why not use Iceland as an example of successful transition from crisis to growth instead, well, that is because they did not bail out the banks.
There is no free markets in money, interest rates are set by central planners printing money. The answer to this is more free markets. The reason why interest rates in HK are 0% and not 10% as the actual price inflation, is because central planners are printing money like madmen. This is not what a free market is supposed to be.
And the new model likely will involve you and your friends telling us what to do? No thanks.
Hong Kong despite of its ‘can do’ spirit in the early eighties has never subscribed really to a free market that mistaken as the freest economy in the world by the Heritage Foundation. If free market system has run its course in the US due to diminishing governance, Hong Kong’s ‘prosperity’ has been just the opposite with disguised maximum governance. Hong Kong’s governance has for years been distained by the locals for collusion with rich business owners creating a monopolistic market in property and food. As income disparity and affordable housing become too uncomfortable and rare to bear respectively, Hong Kong too is running out of steam with calcified overbearing governance that lied about being a small government. Neither US or Hong Kong’s way could support free market and I agree only a good governance can in short or long run. Hong Kong is desperately in need of a change in governance like the rest of the world. I hope CY Leung and his administration will deliver.
Graeme is utterly correct, the EU model of the social market (which is now valuing nature with initiatives like the Carbon Tax and the Ending Ecocide campaign), is the future. Along with hacking the price mechanism to ensure ecological harm is properly costed for in our economies. Europe is leading in many of these initiatives, thankfully.
It has much to improve on the responsive government side of the equation though, but there are proposals in train in that regard too, so as to ensure stakeholders (especially corporations and governments), are much more responsive to the broader requirements of society, the will of the democratic majority and of the sustainability needs of the currently imperiled biosphere on which we all depend.
In short, we urgently need to assimilate some of nature's new laws of optimisation into our own societal laws.
"You never change things by fighting the existing reality.
To change something, build a new model that makes the existing model obsolete."
Buckminster Fuller
Was in Thailand recently and noticed most household and souvenior items are locally made of better quality at prices higher than most goods made in China. Thailand has import duties to discourage widespread imports while encouraging local production as labour costs there may be higher than that of China. It seems to serve as an example that unchecked "free trade" is not all good - to both developed (e.g. US/EU) and developing (e.g. Thailand) countrieswhile making a mess of China - socially and environmentally.
No, to the contrary, the market prices products correctly. China subsidizes its exports with environmental destruction and they are borrowing this from the future generation. Effectively China is using the environment as a bank and keep withdrawing. So, the price to the end buyer falls, but total production costs not as much. If China would stop the degradation production costs would have to be charged up front. This is an issue of the short term mentality in society and the ability of govt and companies to externalize costs. Taxing/tolls will not necessarily alter this.
Concrete suggestions Anyone??????
Read "The Creature from Jekyll Island" by G Edward Griffin


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