Capitalism and food

Is the free market a good market?

Capitalism and globalization have improved the quality of life for many people. We have access to an abundant and varied food supply with products from all over the world. In contrast, economic development is often stagnant in countries that do not embrace capitalism. Doesn't this show that capitalism is a superior system?

The free market

Capitalism is a system for organizing economic activities in a society. Private capital can be deployed freely in economic exchange, investment, and the production of goods and services. This requires a free market, the recognition of private property, and a legal system to enforce rights and contracts.

In a free market, economic exchanges are often based on self-interest and not coordinated. Yet many people think this provides a more efficient mechanism to allocate capital and resources. The idea of a free market can be traced back to the Scottish philosopher Adam Smith (1723-1790), who is often regarded as the father of modern economics:

However, important questions remain. How free is the free market really? Is a free market necessarily a fair market? What are the dangers of a free market?

Ideal vs. reality

First of all, it is impossible to have a free market with no restriction on freedom. A market cannot exist if people simply do what they want and resort to violence as they see fit.

Some people think of an ideal free market as one with just a minimal government in charge of law and order. The government enforces but does not interfere with contracts, leaving people with as much economic freedom as possible.

It is not clear that this form of free market is realistic or desirable. Governments around the world in fact interfere in the market all the time. Most governments for example either prohibit or impose restrictions on voluntary slavery, organ trade, drugs, prostitution. Singapore and Hong Kong are often regarded as exemplars of free market, and yet these governments actively participate in the housing market through the provision of public or subsidised housing.

Many governments also provide education and health services, and impose limits on minimum wage and borrowing rates. There might also be legal monopolies when it comes to gambling, stock trading, transportation, water and electricity supply, etc. Many governments often enter into public-private partnerships and invest in local companies. When it comes to food, there might also be import and export restrictions, and some farmers might even receive government subsidies. Many governments have also put in a lot of money to develop specific industries, or to save certain companies from bankruptcies during financial crises. So in a way, there is no such thing as the free market. Governments differ in the extent of their involvement in the economy, and we need to consider when intervention is justified.

Free market = good market?

A free market with lax regulations can coexist with monopolies or oligopolies, hindering competition. Abuse of market power can lead to unfair trade practices such as price fixing. An unregulated market that is free might not protect consumers.

In a free market, inequality is an inevitable outcome since voluntary economic exchanges will naturally make some people richer than others. Inequality is not a bad thing in itself. The motivation to acquire profit can lead to innovations that make life better for everyone. However, economic inequality can become a serious problem when the wealth gap keeps on growing:

• Poverty can affect psychological and physical health.
• Wealth disparity reinforces unequal bargaining power in the job market.
• Without equality of opportunity, there is less social mobility. Children of rich people are more likely to succeed because of their family connections and inheritance.
• Rich people will gain more political influence. This undermines democracy and social stability.

Capitalism and the environment

In economics, the negative externalities of an economic transaction are the bad consequences that affect third parties who were not involved in the transaction. An example is the additional pollution and traffic congestion that comes from buying a car. These costs are typically not reflected in market prices.

Negative externalities are often difficult to deal with without government intervention. Intensive agriculture uses pesticides and herbicides that pollute ground water and degrade soil quality. Modern livestock farming lowers the cost of meat, but there are hidden costs due to pollution, production of greenhouse gases, deforestation, antibiotic resistance, etc. Commercial fishing has also devastated marine ecosystems.

In other words, we need to be aware of the dark side of capitalism. We need to think beyond GDP and consumerism, and consider how to enact policies that would help save our planet.

(“Man” by Steve Cutts)