The free market

The Free Market:
How “Free” is it?
Can we Free it?
How?
Professor Prabhu Guptara
prabhusguptara@gmail.com
State of Europe Forum, Amsterdam, 9 May 2016 1

Initial considerations
The dominance of doublespeak and buzzwords today
should lead us to suspicion of *all* words that are undefined
There needs to be at least some joint understanding of key words before
plunging into any discussion

A potted history of markets:
• In ancient times, markets were not so important, but were, in principle,
in the control of the merchant class: “merchant markets”
• Following the industrial revolution, we had “capitalist markets” (capital
plus technology)
• From the Victorian era, the worst excesses of “capitalist markets” led to
the rise of “regulated markets”
• Some countries went in the direction of “state-controlled markets”
(Russia, China … North Korea)
• From the 1980s, “regulated markets” started being “de-regulated”, giving
rise to “global markets”
• Since 2007 or so, as nationalisms return, we have entered the era of
“deglobalising markets”.

Don’t markets need to be seen in their
context?
• How important is the market to a society?
• What role does technology play?
• How do we deal with market manipulation, oligopolies
and monopolies?
• What do we do to ensure stable and fair markets?
• How do we deal with the consequences of market
processes (environmental, economic, social, political)?
Can the market ever be “completely free”?
Even the jungle isn’t “completely free”!

So, what do I mean by a “free market”
• Enables the rise of talent from any background:
• Infrastructure
• Public education
• Has free competition within minimum necessary rules:
• Environment
• Health
• Safety
• Currency stability
• Equal application of the law to all
• Care for the physically, emotionally or mentally disadvantaged
• Differential expectations and punishments.

Three key ways the Market isn’t free
•Perverse Subsidies
•Cronyism
•Debasing the currency

“Perverse Subsidies”:
Demonstrably & significantly damaging
- economically
- environmentally
- socially

Subsidies: perverse?
• Divert resources from higher priorities (education, environment,
health, infrastructure)
• Encourage or enable environmental degradation due to over-
exploitation of natural resources, loss of landscape, pollution…
• Benefit the few at the expense of the many
• Leave consumer behaviour increasingly out of touch with reality
• Lower global demand (& therefore market prices) for certain kinds of
products
• Reduce pressure on businesses to become more efficient
• Undermine investment decisions.

Why are cuts in perverse subsidies opposed?
• Disadvantages those who will lose the subsidies
• increases unemployment
• Lessens domestic competitiveness
• Reduces trading opportunities as costs rise for customers
and
• threatens voter support for the party in power.

But are those only excuses?
Subsidies go to groups that support a party that gets into power
- as a “reward” for having put the party in power
This vicious cycle subverts leaders’ responsibility for the rest of society

Perverse Subsidies
• $5.3 Trillion a year ($10m every minute) for fossil fuels alone
• The six most “perversely subsidised” sectors : agriculture, fossil fuels,
road transportation, water, fisheries and forestry
• The USA accounts for “only” 21 percent of perverse subsidies globally
• OECD countries account for two thirds of all subsidies!
• https://theintercept.com/2016/04/29/banks-assert-constitutional-
right-to-billions-in-subsidies

The good news is…
• Current economic conditions and political fashions are inclining
governments to reduce expenditure
• Unilateral commitments have been made by several countries
(Bangladesh, New Zealand, Russia…)
• Multilateral commitments are now being made more often and more
comprehensively – e.g. the MDGs, the Sustainable Development
Goals…

•Cronyism

Cronyism: what is it?
• Unfair practice by a powerful person (such as a politician or company
CEO) of giving jobs and other favours to friends: contrary in practice
and principle to meritocracy
• Fewer opportunities for the majority of the population
• Impeded motivation
• Inefficiencies in investment
• Lowers the value that you get for the price you pay in the market
• Poorer qualifications, on the part of anyone responsible, lead to
poorer quality of public projects
• Reduced choice and competition in the marketplace.

Facts?
• “Cronyism is a way of life for many business and political leaders,
including plenty on the conservative side, despite (their) claims of valuing
economic liberty” - Samuel Gregg, 24 May 2016
HTTP://WWW.CRISISMAGAZINE.COM/2016/CRONY-CAPITALISM-INEFFICIENT-
UNJUST-AND-CORRUPTING
• In one of the most transparent and efficient countries in the world, the USA, the
2016 annual report of its Government Accountability Office (GAO), released on
April 13, pointed out that, in its first five annual reports (2011-2015), it presented
over 200 areas and 544 actions for Congress or executive branch agencies to
reduce, eliminate, or better manage fragmentation, which could result in savings
of “tens of billions of dollars”.
• For the Pentagon alone, the GAO made 152 major proposals for policy changes
and improvements to avoid waste from duplication: “The Defense Department
has so far implemented only 37.5 percent of these”, said the GAO.
• http://www.gao.gov/duplication/action_tracker/all_areas

•Cronyism

Debasement = lowering the value
• Well studied historically in connection with e.g. gold or silver coins: a
coin was “debased” if the quantity of gold, silver, copper or nickel was
reduced from what it was supposed to have, resulting in a mismatch
between its stated value and its real value
• Reduction of the silver or gold content of a coin meant that a
government could make more coins out of the same amount of gold/
silver
• The resulting over-supply of coin, while the amount of actual goods
and services in a country remains relatively static, results in inflation
• The purchasing power of the inhabitants’ currency is reduced, while
the government pay off its debts in the debased currency.

Why debase a currency?
An easy way to profit at the expense of inhabitants!
Nowadays, since at best mere paper is involved (increasingly often,
only digits on a computer screen), infinite debasement is possible,
provided businesses and citizenry don’t revolt
And the inhabitants are “pacified” by double-speak such as “rise in the
value of your house” (when in fact it means a drop in the purchasing
power of the currency).

Moral, ethical, psychological and spiritual connections?
Michael Hout & Claude S. Fischer, “Explaining Why More Americans Have No Religious Preference:
Political Backlash and Generational Succession, 1987-2012” Sociological Science, October 13, 2014

•Cronyism

For The Free Market to survive Q-BRAIN:
• Eliminate perverse subsidies, cronyism & currency debasement
• Establish a “global level playing field”:
• Abolish tax havens
• Close tax loopholes
• Set corporate tax at a realistic level
• Restore taxes for the richest part of the population
• Embed “workfare” rather than “welfare”
• (I have proposed a more comprehensive set of reforms– let
me know if you’d like to see them)

More GOOD NEWS:
• More and more people see that all this is realistic
• So public pressure is building up for each of these things

The Free Market:
How “Free” is it?
Can we Free it?
How?
Professor Prabhu Guptara
prabhusguptara@gmail.com

The free market

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