Here's an article I wrote, published by The Times this week.
The anti-capitalists, now more than 50 days outside St Paul's,
have a point:
capitalism is proving unfair. But I would like to try to
persuade them that the reason is because it is not free-market
enough. (Good luck, I hear you cry.) The market, when allowed to
flourish, tears apart monopoly and generates freedom and fairness
better than any other human institution. Today's private sector, by
contrast, is increasingly dominated by companies that are
privileged by government through cosy contract, soft subsidy,
convenient regulation and crony conversation. That is why it is
producing such unfair outcomes.
Item: the finance industry, protected from upstart competition by
high regulatory barriers to entry, handles the supply and demand of
a good - money - that is priced by government fiat. For doing so,
it trousers big bonuses even when arranging the issuance of bonds
to pay for the bailing out of itself. That's capitalism, but it's
not a free market.
Item: the private finance initiative suits government by
postponing cost, suits business by giving it handsome returns - and
roughly doubles the cost of infrastructure to taxpayers, the
Treasury Select Committee says.
Item: The planning reforms were drafted in close consultation not
with real people who want to build conservatories, but big
developers.
Item: the defence, transport, energy and healthcare industries
live almost entirely at the whim of government procurement, subsidy
or regulation.
We must distinguish two meanings of the word "market": one is
"commerce", a forum where people exchange goods and services, for
consumption, in freely competitive ways. The consequence is
innovation, efficiency and general improvements in quality and
price for which regulation is barely necessary, except to deter
monopoly and enforce contract. The reason that your toothpaste is
cheap, available when you need it and not substandard is that
people are competing to supply your needs, rather than because
armies of trading standards officers make it so.
The other meaning of the word "market" is a casino where you buy
goods for resale (like stocks and shares) and speculate on them.
Such markets are necessary to allocate capital but they are prone
to booms and busts and need regulation. They also produce unequal
outcomes and tend towards monopoly. The housing market should
provide a service (accommodation) but it keeps being turned into a
casino. Instead of deregulating finance and over-regulating
commerce, we should have done the opposite.
That commentators confuse these different kinds of market is bad
enough. (Until recently, I used to.) The real problem is that those
who spend other people's money - public servants - do so too. And
by repeatedly supporting crony capitalism rather than commerce,
they repeatedly screw up markets. No wonder our political servants
(I nearly wrote masters) forget whose side they are supposed to be
on.
The political divide between the champions of the public sector
and the private sector misses the point; the key divide is between
those who support the monopolistic tendencies of both capitalism
and government, and those who support the competitive effects of
markets. Big oil companies, airlines, national health services and
education authorities divert their energies into political defence
of their partial monopolies, while smaller start-ups invent things
that customers want, such as cheap gas, cheap flights or
personalised genetic medicine.
It was ever thus. In 1349, London glovemakers petitioned the mayor
to cap wages and restrain freedom of movement of employees. High
demand for gloves because of the approaching plague had put their
workers in a strong bargaining position. The mayor naturally
granted the request. Remember this when you see the BBC lobbying
for its licence fee.
As Adam Smith, who championed the market but not capitalism, put
it: "People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a conspiracy
against the public, or in some contrivance to raise prices." The
market is where these conspiracies get exposed. To win in it, you
don't lobby, you innovate.
Lobbied by big companies, politicians do bonkers things like
rewarding innovations that increase the cost of fulfilling a need -
such as putting up the price of electricity to subsidise wind farms
and claiming it "creates jobs". Any hairdresser, unable to make a
new hire because of his electricity bill, could tell them that it
does the opposite.
Wherever free markets have been even tentatively tried, from
Ancient Greece to modern Hong Kong, they have produced not just
rising living standards, but net moves towards peace, tolerance,
freedom and equality.
Today, global inequality has probably never been lower than since
the Stone Age: according to the economist Xavier Sala-i-Martin, the
Gini coefficient of world incomes, which measures inequality, has
been dropping like a stone for 20 years.
Free trade did that. Yet inequality has gone up within Britain
and America, where markets in goods and services have been getting
less free and barriers to social advancement have been built by
government monopolies on education.
Capitalism represents the interests of the rich, whereas the
market represents the interests of the poor. Let's hear it for the
market as the antidote to capitalism.
