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Won’t Big Businesses Abuse Their Power in a Free Market?

in Liberator Online Archives, Libertarian Answers on Issues by Mary Ruwart Comments are off

(From the Ask Dr. Ruwart section in Volume 20, No. 5 of the Liberator Online. Subscribe here!)

QUESTION: Won’t big businesses abuse their power in a free market? What if the only choices you have are bad businesses? For example, what if such companies grew so big that they could control the entire market?

MY SHORT ANSWER: In today’s society, you could indeed have a sector where all businesses are “bad,” because government lets some companies have a monopoly (e.g., local utilities, AT&T before deregulation, etc.) or a cartel (e.g., banks).

In a libertarian society, however, this would be much less likely. A sector with only “bad” businesses would soon be invaded by competitors who recognized that they could earn and retain customer loyalty (and profits) by being “good.”

In today’s society, many businesses are bigger than they would be in a libertarian one, because the high cost of regulation drives small firms out of business. For some examples, check out the cases of the small businesses that the libertarian Institute for Justice has tried to protect from over-regulation.

We are told, usually by government entities, that the free market creates monopolies, but actually it is the government that does so. For more on this subject, check out Chapter 7 in my book, Healing Our World (the 1992 edition is a free read on my website, www.ruwart.com).

LEARN MORE: Suggestions for further reading on this topic from Liberator Online editor James W. Harris:

Antitrust: The Case for Repeal by Dominick Armentano. This outstanding 100-page book — available as a FREE ebook from the Mises Institute — shows that anti-trust and anti-monopoly regulation, far from serving and protecting the public, is merely a tool used by powerful businesses against their competitors.

* “Federal Regulations Have Made You 75 Percent Poorer“ by Ronald Bailey, Reason magazine. This short and very readable 2013 article summarizes research by economists John Dawson and John Seater. The two compared U.S. economic growth with the growth in federal regulation since 1949, and calculated that federal regulations cost the average American household more than a quarter-million dollars in lost income — annually.



Short Answers to Tough Questions
Got questions?  Dr. Ruwart has answers! If you’d like answers to YOUR tough questions on libertarian issues, email Dr. Ruwart

Due to volume, Dr. Ruwart can’t personally acknowledge all emails. But we’ll run the best questions and answers in upcoming issues.

Dr. Ruwart’s previous Liberator Online answers are archived in searchable form.

Dr. Ruwart’s latest book Short Answers to the Tough Questions, Expanded Edition is available from the Advocates, as is her acclaimed classic Healing Our World.

There’s No Such Thing as an “Unregulated Market”

in Communicating Liberty, Liberator Online Archives by Sharon Harris Comments are off

(From the One-Minute Liberty Tip section in Volume 20, No. 4 of the Liberator Online. Subscribe here!)

Unregulated MarketMany people fear that, without government regulation, there would be no way to insure the safety and reliability of the goods and services they rely upon every day.

They fear that a free market would be an “unregulated market” where consumers would be blind and helpless before deceptive, dangerous marketers out to take advantage of them.

This is a major deal-killer that keeps many people from fully embracing free markets and libertarianism.

Happily, there’s a great answer to this concern. The truth is, there’s no such thing as an “unregulated market.” Instead, there are two kinds of regulation: regulation by government command, and far more efficient regulation by markets and consumers.

A recent article in The Freeman by economist Howard Baetjer Jr. does a great job of explaining this — and of telling why this distinction is so crucial for libertarians to make.

The article is entitled “There’s No Such Thing as an Unregulated Market: It’s a choice between regulation by legislators or by consumers.”

Says Baetjer:

“A big economic problem the world faces is semantic. That is, ‘regulation’ has come to mean ‘government regulation.’ We don’t seem to be aware of the alternative: regulation by market forces. That’s a problem because it leads us to accept so much government meddling that we would be better off without.

“We want the aims of regulation — regularity and predictability in markets, decent quality and reasonable prices for the goods and services we buy — and thinking that government regulation is the only way to get those, we accept a vast array of unnecessary, wrongheaded, and usually counterproductive mandates and restrictions.

“But government regulation is not the only kind of regulation.

“To regulate is to make regular and orderly, to hold to a standard, to control according to rule, as a thermostat regulates the temperature in a building. Market forces do this continually as competing businesses offer what they hope will be a good value, then customers choose among the various offerings, then the competing businesses react to customers’ choices. That process is the market’s regulator.”

Baetjer explains how markets and consumer feedback regulate the quality of the goods and services we buy and how market and consumer feedback forces regulate prices, thus protecting consumers from higher-than-necessary prices.

Baetjer also explains the flip side of this: how government regulations that consumers think protect them actually hamper this crucial market and consumer regulation. How market/consumer regulation is weakened as markets become less free.

Finally, Baetjer sums up the problem — and opportunity — this realization offers free market advocates:

“We never face a choice between regulation and no regulation. We face a choice between kinds of regulation: regulation by legislatures and bureaucracies, or regulation by market forces — regulation by restriction of choice, or regulation by the exercise of choice.

“Government regulation is not the only kind of regulation; market forces also regulate. Recognizing this, communicating it to others, and getting the awareness into public discourse are key steps toward greater economic liberty.

“The benefit of this semantic change — opening up the meaning of ‘regulation’ to include regulation by market forces — is to raise the question, which works better? Regulation by market forces works better, but that’s another argument. The first step is to recognize that market forces regulate, too.”

These are vital insights for those interested in spreading the ideas of liberty. Avoid the phrase “unregulated market” and others like it. Not only are such phrases scary to many people, it doesn’t at all accurately convey what we mean. Libertarians favor market and consumer regulation over inefficient, misleading, coercive and costly government regulation.

Learning to convince others that consumers and markets regulate — and do it marvelously well, and far better than government — will help you win people to libertarianism.

I highly recommend Baetjer’s article. Read it — and start sharing the good news about market and consumer regulation.

Forbes Features Fascinating New Use of World’s Smallest Political Quiz

in Liberator Online Archives by Sharon Harris Comments are off

(From the President’s Corner section in Volume 19, No. 18 of the Liberator Online. Subscribe here!)

“Have You Significantly Changed Your Political Views Since Age 18? If So, How?”World's Smallest Political Quiz

That the title of a fascinating article at Forbes.com featuring the World’s Smallest Political Quiz.

In it, economist Michael F. Cannon describes his intellectual journey from Big Government “socially conservative social democrat” in high school to socially conservative/free market-oriented university student… and finally, a few years later, to where he is today: a full-fledged libertarian, solidly in favor of civil liberties, free markets, and a non-interventionist foreign policy.

Indeed, Cannon not only became a libertarian — he has become a remarkably influential one. He is director of health policy studies at the libertarian Cato Institute. Though not a Republican, he served as a domestic policy analyst for the U.S. Senate Republican Policy Committee, advising the Senate leadership on health, education, labor, welfare, and the Second Amendment. His work has been featured in many of America’s most influential newspapers and magazines, and he has appeared ABC, CBS, CNN, CNBC, C-SPAN, Fox News Channel and NPR.

To illustrate his personal ideological journey, Cannon uses… the World’s Smallest Political Quiz. He draws different Quiz scores on the Quiz to indicate how he would have scored at different times in his life, thus creating the striking visual map of his political awakening that I’ve reprinted in this column.

I’ve never seen this done before. But the Quiz is a perfect — and crystal-clear — way to document and illustrate this. Kudos to Cannon for thinking of this!

I know over the past few decades, as libertarian ideas have spread, many millions of people have made intellectual journeys very similar to Cannon’s. (And for millions of them, the Quiz itself has been an important part of their intellectual awakening.) Whether starting from the left or the right, more and more Americans are finding themselves drawn to the logic, consistency and compassion of libertarianism.

Check Cannon’s article out — and consider using the Quiz to document and share the story of your own journey.

Free Market or… Freed Market?

in Business and Economy, Communicating Liberty, Economic Liberty, Liberator Online Archives by Sharon Harris Comments are off

(From the One Minute Liberty Tip section in Volume 19, No. 10 of the Liberator Online. Subscribe here!)

Free MarketHere’s a neat little phrase that can be very handy when talking about economics: “freed market.”

No, not “free market.”

Freed market.

Here’s why.

As we’ve discussed in the past, “capitalism” is often not a very useful word for libertarians to use to describe the economic system we advocate. Sheldon Richman of the Future of Freedom Foundation gives some good reasons for not always using the word “capitalism” here.

A more accurate and more popular (according to a Gallup poll) alternative I’ve discussed is “free enterprise.”  Also good is “free market.”

But even these useful words are often hijacked by big-government conservatives and others who don’t really mean what libertarians mean by genuine free enterprise.

Today’s economic system is nothing like a free market. Yet it is often described as one. So, when people see massive economic problems and scandals all around them — subsidies and bailouts of rich businesses, unemployment, high taxes, dangerous products, corporate favoritism, monopolies — all of which are due to anti-market actions — it’s natural that they would oppose the “free market” system that we supposedly have. After all, the terms “capitalism” and “free market” are frequently used by those who defend this very system.

Ugh! What confusion!

Which makes “freed market” a great phrase to toss into a discussion.

For example, asked about your economic views, you might say: “I believe in the free market. Or, to be more precise, a freed market.”

Your listener: “What do you mean, ‘freed’ market?”

And that gives you the chance to explain what libertarians actually believe. Something along these lines:

“I want to see our current economic system freed up, for consumers and for competitors. A free market — which we don’t have today — would do that, and we’d all benefit.”

You then persuasively share the many ways everyone would benefit from this.

The use of “freed market” lets you point out how government meddling and crony capitalism, not the market, are responsible for today’s economic woes. It frees you from defending the present system, while still letting you use successful examples from that system as examples of what libertarians are striving for.

Importantly, “freed market” also makes it clear that we don’t have a free market today. It makes it clearer that you are talking about a goal, a better future, something different and better than the status quo.

In short, it lets you present the free market as the solution — not the cause — of today’s problems. It lets you offer a vision of a better future — not a defense of current abuses.

It’s a neat little twist.

The word “freed market” and the idea behind it have been discussed a lot at the Center for a Stateless Society. Here’s an excerpt from “Embracing Markets, Opposing ‘Capitalism’” by Gary Chartier that nicely points out the difference between the economic system we have today — and the free market libertarians want to see:

“To a very significant degree, the economic system we have now is one from which peaceful, voluntary exchange is absent. An interlocking web of legal and regulatory privileges benefit the wealthy and well connected at the expense of everyone else (think patents and copyrights, tariffs, restrictions on banking, occupational licensing rules, land-use restrictions, etc.). The military-industrial complex funnels unbelievable amounts of money — at gunpoint — from ordinary people’s pockets and into the bank accounts of government contractors and their cronies.

“Subsidies of all kinds feed a network of privileged businesses and non-profits. And the state protects titles to land taken at gunpoint or engrossed by arbitrary fiat before distribution to favored individuals and groups. No, the economies of the US, Canada, Western Europe, Japan, and Australia, at least, aren’t centrally planned. The state doesn’t assert formal ownership of (most of) the means of production. But the state’s involvement at multiple levels in guaranteeing and bolstering economic privilege makes it hard to describe the economic system we have now as free.”

With the right listeners, the term “freed markets” can help you open minds to a new understanding of genuine economic freedom and the blessings it can bring.

Word Choices: Pro-Market, Not Pro-Business

in Communicating Liberty, Liberator Online Archives, Libertarian Stances on Issues, Libertarianism by Sharon Harris Comments are off

(From the One-Minute Liberty Tip section in Volume 19, No. 9 of the Liberator Online. Subscribe here!)

Libertarians enormously appreciate the positive contributions so many businesses have made to our

world.

Because of this, libertarians are sometimes labeled “pro-business.”

But this is incorrect — and misleading.

Libertarians are not “pro-business.” We are “pro-market” — a very different thing.

The distinction is a vital one.

Libertarians support a free market where businesses are free to enter a field and offer their goods and services, in competition with any and all others who wish to do the same.

The resulting competition brings ever-better goods and services. Lower prices. Innovation. More convenience and more choice.

The companies that succeed in this free market competition do so by doing the best job of pleasing customers. Those that fail to sufficiently please consumers go out of business. The consumer is king.

This is the market process that libertarians strongly support.

But being “pro-business” is an entirely different thing. Politicians, lobbyists, economists, pundits and others who are pro-business — or who favor a particular business entity — may lobby for special favors for a particular business or area of commerce.

This may be pro-business. But it is anti-market.

Many who are pro-business want government to help particular businesses or industries that are unable to compete effectively. Sometimes they want government to use political power and tax dollars to entice a business to locate in a particular area.

Pro-business forces may want to prop up a favored business with bailouts of tax dollars or with other tax grants. They often call for punitive taxes on competition that challenges the favored business (especially if that competition is foreign). They may offer special zoning privileges to favored businesses. They may call on the government to seize private property through eminent domain and give it to a favored business.

Pro-business forces may endorse licensing, education requirements, regulations and other obstacles that protect favored businesses from competition. It often surprises people to learn that many large businesses love government regulation because it limits their competition. But as Nobel Prize winning economist George Stigler wrote: “…as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefit.”

Governments may declare a business is “too big to fail” and thus deserves a huge taxpayer bailout. Or that a field is crucial to the “public interest,” and thus deserving of subsidies and special treatment; agriculture is a prime example.

You get the picture. All of this is done by pro-business people. And all of it is deeply, profoundly, anti-market.

In an excellent article on this topic, “‘Free Market’ Doesn’t Mean ‘Pro-Business“ economist Art Carden quotes a great passage from the book The Rational Optimist by Matt Ridley:

“I hold no brief for large corporations, whose inefficiencies, complacencies, and anti-competitive tendencies often drive me as crazy as the next man. Like Milton Friedman, I notice that ‘business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger.’ They are addicted to corporate welfare, they love regulations that erect barriers to entry to their small competitors, they yearn for monopoly and they grow flabby and inefficient with age.”

The fruits of the pro-business mindset — taxes, unfairness, lack of competition and choice, over-priced goods and services, unemployment — are often the things that people hate most about our economic system. People naturally blame this on free enterprise, on the market system. Yet it is the pro-business mindset — not the market — that is responsible for these ills.

Let me give Art Carden the (almost) final word:

“In a free market, you are welcome, and indeed encouraged, to enter the mousetrap industry if you think you can build a better mousetrap or find a way to make similar mousetraps more efficiently. The other side of that coin is that you will be encouraged to leave the mousetrap industry if it turns out that your mousetraps are not better, but inferior.

“A ‘free market’ agenda is not the same thing as a ‘pro business’ agenda. Businesses should not be protected from competition, losses, and bankruptcy when they fail to deliver for the customer. All three are essential to truly free markets and free enterprise.”

Don’t use the label “pro-business.” And politely but firmly reject it if someone attempts to label you that way. Respond that you are pro-market, not pro-business. And explain the difference.

FREE Libertarian E-Book: The Morality of Capitalism

in Economic Liberty, Liberator Online Archives by James W. Harris Comments are off

(From the Intellectual Ammunition section in Volume 19, No. 4 of the Liberator Online. Subscribe here!)

In recent issues we’ve reviewed and recommended two outstanding free e-books available through Students For Liberty (SFL): After the Welfare State and Why Liberty.

Now we’re pleased to suggest one more great SFL title to add to your ebook library.

The Morality of Capitalism: What Your Professors Won’t Tell You combines the writings of renowned economists, philosophers, historians, policy experts, and entrepreneurs from around the world to make the case that not only do free markets “deliver the goods,” but that true free market capitalism is a just and moral system.

It is clear and highly readable, suitable for students and non-students alike, for newcomers to free enterprise and libertarianism as well as longtime libertarians.

As SFL notes:

“As students for liberty, we are well-versed in defending the free market. Our opponents on campus constantly claim that markets are unfair, that capitalism is exploitative, that competition is inhumane, and that government control and redistribution are the solution to society’s problems. Every day we struggle to explain that a free society that embraces free exchange is the only way to create wealth, peace, and prosperity for all.

“Most people acknowledge, if only begrudgingly, that capitalism does produce considerable wealth and material well-being. But many feel torn between material prosperity on the one hand and living a moral life on the other. The self-interested pursuit of profit that is characteristic of a capitalistic system just doesn’t feel right to them.

“The task before us, then — if we wish to actualize the truly free social system that is laissez-faire capitalism — is to provide and defend its moral justification. We must convince fellow students that capitalism is not just the most efficient system, but a virtuous one as well.”

The Morality of Capitalism: What Your Professors Won’t Tell You makes that case, powerfully and convincingly.

Students For Liberty has distributed over 100,000 copies to students around the world since it was first made available.

You can learn more about The Morality of Capitalism: What Your Professors Won’t Tell here.

Download it as a FREE PDF ebook here.

Here’s the table of contents: 

Introduction: The Morality of Capitalism by Tom G. Palmer
The History of a Word
Free-Market Capitalism vs. Crony Capitalism

Section I: The Virtues of Entrepreneurial Capitalism

  • Interview with an Entrepreneur featuring John Mackey (Whole Foods CEO)
  • Liberty and Dignity Explain the Modern World by Deirdre N. McCloskey
  • Competition and Cooperation by David Boaz
  • For-Profit Medicine and the Compassion Motive by Tom G. Palmer

Section II: Voluntary Interaction and Self-Interest

  • The Paradox of Morality by Mao Yushi (Translated by Jude Blanchette)
  • The Moral Logic of Equality and Inequality in Market Society by Leonid V. Nikonov
  • Adam Smith and the Myth of Greed by Tom G. Palmer
  • Ayn Rand and Capitalism: The Moral Revolution by David Kelley

Section III: The Production and Distribution of Wealth

  • The Market Economy and the Distribution of Wealth by Ludwig Lachmann
  • Political and Economic Freedoms Together Spawn Humanity’s Miracles by Temba A. Nolutshungu

Section IV: Globalizing Capitalism

  • Global Capitalism and Justice by June Arunga
  • Human Betterment through Globalization by Vernon Smith
  • The Culture of Liberty by Mario Vargas Llosa
  • A Little Further Reading for Fun and Profit (and Better School Papers) by Tom G. Palmer

The Morality of Capitalism: What Your Professors Won’t Tell You is published by SFL and the Atlas Network. We highly recommend it.

Student groups note: SFL offers a limited number of hard copies at no cost to student groups. You can learn more about that here.