A functioning market does not require large corporations,
only efficient mechanisms of exchange. Economies of scale matter and the word
‘large’ requires definition, but just as governments can stymie efficiency in a
market, so too can these concentrated economic interests. The question I keep
coming back to, even though my own sail tacks to a free market wind is this:
can a purely free market stay that way, or does it inadvertently incentivize
conditions that lead to its own collapse?
As founder of a team-sports apparel company with operations
in the Philippines,
I have seen basic market mechanisms in play up close over the past decade. One
argument that seems to have traction goes something like this: by importing
sports apparel from the Philippines,
I increase the demand for labor, which theoretically puts upward pressure on
wages and the standard of living – ultimately in theory toward parity with
developed countries like the US.
But at the macro level, it still seems slower that one might expect. And governments
are not the only entities to blame.
I know of instances for example in which corporations large
and small suppress wages at artificially low levels by threatening to move
their business elsewhere intra- or extra-country if wages are raised as market ‘appropriate’
levels. This wage “stickiness” is promulgated by the enormity or cunning of
some key corporate players who are able to exercise monopsonistic power. This
example of imperfect competition can lead to systemic failure. And while
governments are certainly complicit in creating some mind-boggling
inefficiencies, this incentive to undermine the “freeness” of the market exists
within the market itself when companies become large or influential enough to
exercise this sort of price-setting power,
This one example appears a good proxy to consider other
intra-market pressures and ”natural” efficiency killers: monopolies,
informational asymmetries, externalities, irrationality, and hoarding to name a
few. These cancers may make a truly free market – a great idea in the abstract –
somewhat chimerical in practice. And if they do, then this question is one
worth considering: would you opt for the proverbial devil – centralizing
economic decision making into the hands of the few rather than the many – or
the deep-blue sea, a collapsing “free” market?
They may not provide specific answers to this question, but
the now famous YouTube rap battles between Keynes and Hayek did lend 21st
century mainstream swagger to this genre of economic debate. And though not as
popular as the clip of David Hasselhof drunkenly choking down a cheeseburger,
these mustaches arguing dueling economic philosophies did nab the attention of
10 million eyes. To intervene or not to intervene: that may no longer be the
question. Instead, we may need to ask this: if purely free markets are prone to
implosion – in part because of financial incentives to undermine the market itself
– and hence a less reliable long-term resource allocator than usually thought, is
the problem perhaps more intrinsic than it is structural?
