My previous post on hypocrisy about free markets may given the impression that I am opposed to free markets. My problem is not with free markets per se, but with inconsistency and hypocrisy in advocating them, and with regarding free markets as a panacea.

The last post dealt with earlier with the hypocrisy of an economist who was quite happy to allow factory workers to lose their jobs in the adjustment to globalisation, but thinks things are going too far as change comes uncomfortably close to home.

Another problem is that free markets simply do not apply to all industries. For example, private sector water companies do not receive their incentives through a market mechanism, but through thorough and careful regulation. Central planning to an extent that makes it less free market capitalism than contracted out socialism.

A similar, and even more important issue, is that there is no really satisfactory market mechanism for funding R & D. The same is true for creative arts. Certainly patents and copyrights play a part, but can anyone demonstrate that they are optimal? In fact, I think that they are very poor, and, often, perverse incentives. Attempts to enforce the payments necessary for these incentives to work cause more problems.

Another problem is that people (especially politicians) appear to think that the way to promote free market economics is to be “pro-business”. The problem is that free markets often require doing the opposite of what businesses want: most importantly, enforcing anti-compeitition law.

If a government promises to be more “business friendly” or to “listen to business”, it may well signal harder times for small companies, and good times for large companies, especially monoplists. It is those with the best lobbyists who get heard.

Government intervention and regulation does favour big business, over small. An example is the consolidation of Britain’s pubs into a few large chains. This was partly driven by regulation was too heavy for small businesses to cope with. This is not my opinion — it is that of the CEO of one of the largest chains.

Finally, there comes the problem of measuring social costs. Free markets often mean less stability, and often losses for many people now. How does one weigh the cost against the benefit? It is usually true that the economy will be bigger in the long run given free markets, but what about the interim? What about those individuals who end up worse off? This is not just applicable to off-shoring (I am rather in favour of free trade in services and would let off-shoring happen), but in the liberalisation of any market.

This brings us back to the hypocrisy I attacked in my original post. Many people think that its worth the cost, provided that they and theirs are not paying it. Others have paid the cost, now its your turn, and that is that. If you want things to be done differently, give us a coherent argument for the exceptions, that we can fairly apply to all situations, not just yours.