In Praise of Free Market

(From Aidan Directors Blog, 1 February 2009)

Hello all,

I am Bal and I will update this thing on Fridays (sometimes on the weekends).

I am a firm believer in free market. What is a free market? Stripped of all technicalities, it means that anyone can buy and sell any legal products or services, and enter into transaction that both sides (seller and buyer) agree, with minimal oversight from the government.

Malaysians are vaguely socialist. We expect the government to do everything. Recall “central planning”. You don’t have to look very far, take a look at the letter to the editor section in the daily newspapers. Government, pave my road. Government, lower prices. Government, curb unemployment. Government, solve crimes. Government, we need a traffic light. Government, regulate this and that industry. Government, enforce these laws. Government, have more people on the street.

And when pointed out that government can’t solve the problems, they say that “this government is bad. Let’s change the government”. It will still be the same. You can change governments many times over and expects the government to solve your problems and still be disappointed.

So, it is up to us, society and the market. Society to deal with the social issues, and the market to deal with the economic issues. Each one of us is part of society, and each of us is part of the market. Not all of us is part of the government. The less the government intrudes on society and market issues, and the more the government do what they are supposed to do (i.e., govern), the better a country will be. Along with increasing citizen participation, and putting people out of economic crutches, not depending on the government saves you from a lot of disappointments.

Coming back to the main point. Free market is not perfect, and there are glaring weaknesses in the system. I am the first to admit it. We shall not go into what those are as everybody knows them. In school, we are taught that laissez-faire and capitalism are bad. They are not. The author of our History textbook should revise this, and expound the positive side of capitalism.

What are the main principles of free market?

First, regulations should only be in place when they ensure the common good. It makes sense to regulate, say, the pharmaceutical and food industries. Regulations should NEVER be in place to protect anything less than common good. Less than common good means partial good, and partial good means bad for the rest. Car, energy, telco industries should not be regulated more than necessary, i.e. to ensure common good. Regulations should never be in place to stop competition. The effects of overregulation we can feel everyday: expensive foreign cars, slow broadband, terrible customer “service”.

Second, taxes should be lower. Taxes is a means of distributing wealth, and government, by virtue of its size and complexity, is not the best entity to perform that task. The best means for distributing wealth is by cutting taxes, and let individuals and companies make the decision on where to spend the extra money. The money will go into circulation better as we make better decision when it is our money. Whether as investments or spending, we are putting the money back in the marketplace, and taking out the middlemen altogether. The middlemen (the government tax agency) is unlikely to allot the resources better than the individuals or companies who made the money. That’s how millions of our hard-earned money go into failed projects and useless trinkets on city plazas. For us, it’s hard-won bread. For them, it’s just another dollar to allocate. Why not ask us to spend the money in the first place? It will “stimulate” the economy, and we will be spared of all the bureaucratic nightmares and leakage in the tax system. Less work for the taxmen, more cash for individuals and companies. Everybody will be happy.

Third, entrepreneurship should be supported. What is the best way to support entrepreneurs? The answer is counter-intuitive. The best way to support entrepreneurs is for the government to leave them alone. Yes, short of giving them free cash, the best way to help out is to stay out of the way. Let them sell whatever they want, at any price they deem fair, without encumbered by web of regulations. Let people trade freely. When a company fails to do well, whether by inferior products, high prices, or bad business decisions, let them fail and start over at the drawing board. Promote competition, and let the fittest survive. Failing companies is part of a robust market. The government should not bail out companies.

Capitalistic talks are not in vogue now. People point out that unabashed capitalism is what brought down Wall Street and the world economy down with them. Capitalism, they say, is what brought us Lehman and Bear Stearns.

We can have a capitalistic model without being run by greed. I am not advocating Greed is Good. I am advocating Moneymaking is Healthy. Until people realise that making money is and can be a noble pursuit, and rich people is not to be envied but to be emulated, and 99% of people talking against the rich are doing it out of jealousy rather than piety, then we will go right on the highway to socialism.

How will the economy be fixed? I have no idea, that’s for the economists to figure out. But whatever the solutions might be, it is not more government, and it is not more socialism. It must be based on free market, free movement of goods, freedom to enter transactions, lower taxes and deregulation whenever regulation is detrimental to the common good.

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