Free Markets and Increased Inequalities - Yay or Nay?

“There are no limits to what free men, free women, and free markets can accomplish.” –Jack Kemp.

A free market is one where voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, without government intervention. The free market is like the Borg in its attempt to bring more and more people into its circle of influence. But, unlike the Borg, the free market does not eliminate individuality. On the contrary, it fosters individuality. It encourages people to assess their talents and opportunities. This way, individuals can locate other individuals who are happy to pay them for their services.

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Free Market - The Good Boy

“Free market capitalism is the best path to prosperity” -Lawrence Kudlow

There have been numerous advantages brought about by free-market capitalism i.e. rise in the standard of living, income, technological advancement, the flow of information, capital, free markets have hit all the nations of the globe. The USA is a glaring example of a country that is economically prosperous with a GDP (PPP) of $21.44 trillion.

The free market is a principle of freedom in itself. It promoted the idea of individuals making choices for themselves. It has been championed by prominent economists such as Milton Friedman and others who ardently support the pillars of capitalism. The world we are a part of is a capitalistic and globalized world, supposedly doing its best to promote free trade. Free markets are inherently linked to the concept of freedom of individuals itself. As Friedman states “Underlying most arguments against free markets, is the lack of belief in freedom itself.” A prime example, North Korea ranks 180 with regards to free markets.

Competition among competing businesses keeps prices low. Inflation is mostly a problem in the industries with the most government involvement (e.g., healthcare, education) while industries that have more free market competition find businesses reluctant to raise prices and always looking for cost efficiencies to gain an advantage over those competitors. Just think about prices for computers, food, and clothes to realize the gains consumers capture from robust competition in a free market.

Free Market - The Bad Boy

“The trouble with the free market economy is that it requires so many policeman to make it work” -Dean Acheson

The rewards in the free market system are based on the efforts of enterprises that are unique, differently talented and capable. This implies that a free market is a system that is based mainly on competition.However, the very definition of competition states that there will be ‘winners’ and ‘losers’. The losers in this system are only the poor and unskilled, which inadvertently increases inequalities. Thus, the free market does not necessarily promote equal economic opportunity, especially to those people who are unable to compete with others due to their lack of resources and skill. The gap between poor and rich has grown in the last thirty years. According to a recent report by Oxfam Novib and Development Finance International the eight richest people have as much wealth as the poorest 3.5 billion people in the world. Inequality, though, is not a natural phenomenon. There can be steps taken by the Governments to, if not completely eradicate ...then at least reduce this social discriminator.

Free markets are also synonymous to very little trade restrictions,i.e, there are lesser tariff barriers and quota restrictions. This implies that our markets are open and the local businesses will face stiff competition from imports. Now for a country like India, where we are not yet advanced in the field of technology and are not yet well-versed with using resources efficiently, we are one of the some with a greater threat of losing our market share to foreign trades. Even till now, the majority of our market includes small and medium sized enterprises which are not that efficient nor have enough capital to compete with MNCs.

Another instance, in OECD countries free trade encourages exports of high-quality goods and services, thereby promoting employment among highly skilled people. The increased imports of goods made possible by free trade however, concern products that require more low-skilled labour. As a result, free trade causes upward pressure on the wages of highly educated people and downward pressure on those of low-skilled people, which also increases income inequality.

Every human, phenomenon and even evil has both good and bad to it and the free market is no exception, it’s entirely about what factor do you prioritize the most.

Where does the balance stop according to you? Give it a thought!