Free Markets

Some time ago I participated in a Conference on Business and the Environment at Big Sky Montana. The Conference, sponsored by the Foundation for Economics and the Environment (FREE), was attended by a wide range of people—from college professors, to Federal and state bureaucrats, to executives from timber and energy companies. Much of the talk at the conference was of free markets. The comments seemed to indicate that when things were going well it was due to the influence of free markets, and when they were going badly, free market principles were abandoned. As an ecologist I could see some sense to the systems aspects of markets, and although one has to be suspect of the word "free" as in free lunch, nevertheless ecological principles should function in markets and it would be useful to understand what ecological relationships, if any might be at work.

The Subject Was Japan

At an informal gathering at the conference I had the opportunity to chat with an economist from the Brookings Institute--the subject was Japan. I have in the past written that Japan was a centrally planned economy with extensive relationships among the major industries in the nation and the government, and that, in fact, MITI the Japanese government trade organization that evolved from Japan's equivalent to the War Production Board--the finance ministry, and the banks were a nationwide cartel. I had written at an earlier time that the only reason the Japanese could boast that they could become dominant in any economic sector was that, "by targeting an economic sector," they meant that they would pool whatever national economic resources, public and private, it took to accomplish the goal of market domination.

I was amazed to hear the Brookings economist tell me with great authority and sincerity that Japan was a free market economy. He went on to say that the Japanese government interfered very little in the Japanese economy and that it was primarily due to Japanese industrial efficiency that Japan was in the preeminent position she was in today. She produced the best commodities at the cheapest price.

47th Street Photo

Since then a number of books and numerous magazine and newspaper articles have specifically charged that Japan is a cartelist, monopolist economy. One critic alleges that the 47th Street Photo, a discount electronics outlet in New York, could make a killing if it could open an outlet in Tokyo and sell to the Japanese the products they import and sell in New York. Airline tickets purchased in Hong Kong for flights from Hong Kong to Tokyo to New York are cheaper than tickets purchased in Japan for flights from Tokyo to New York. A thriving market existed for those tickets, with the purchaser discarding the Hong Kong to Tokyo portion of the ticket, until the Japanese government prohibited their use.

It is widely reported that the reason the Japanese have a positive cash flow in their economy and we have a negative one is that the Japanese save their money, which results in a plentiful supply of capital for industrial expansion. Real estate in Japan has a higher book value than all the real estate in the United States even though they are only one-fifth the size and have much less usable land than does the United States.

HDTV Gets Scotched

The Nipponophiles in the White House scotched a proposal to establish U.S. government and industry cooperation to re-establish the U.S. domestic electronics industry around the concept of HDTV (High Definition TV) as the HDTV technology will dominate most of the computer and consumer electronics industries. The same people bent the rules to allow the merger of GE and RCA to provide competition to Japan, but permitted sale of the David Sarnoff Laboratories of RCA to the French government corporation, Bull, and with it an HDTV concept compatible with U.S. television (whereas the Japanese is not),

The movement of the U.S. government away from industry at a time when U.S. industry is under the greatest attacks it has suffered in its entire existense is paradoxical and flies in the face of the history of the development of the nation. Maybe the Whitehouse position is to favor the prediction that the U.S. is in a post-industrial stage of development moving to a service economy.

Unalienable Rights

Idt recognizes participation in free enterprise as the unalienable right of all citizens sovereign. Free enterprise gives rise to free markets and they have characteristics in common. Neither should contain the pitfalls of the "free lunch." but should be as free of restraint as is prudent in a democratic society. We have to recognize that democracy is a form of government and not an economic system. It is possible to have socialism and democracy, as in Sweden and many other countries, and as will be true in Eastern Europe if the present transformation continues.

Free markets will be sustained by the usual infrastructure characteristics of private property, and other guarantees associated with free enterprise. What characterizes them the most, however, is their competitiveness, and what provides for competitiveness in markets is information. There must be willing buyers and willing sellers, but whether or not competitiveness is possible will be determined by the information all participants in the market possess.

Free Markets, Free Information

The free market depends upon a free flow of information and a level playing field, with regulation and interference needed only to keep Lex Talionis out of the system. Can a market be free with a total absence of regulation? Probably not. Unregulated markets tend to monopoly. This is what happened in the airline industry in the United States when, in the early days of deregulation, new companies sprang into action only to succumb to the pressures of the big players in buyouts and savage price competition. The name of the game became "market share at any price," with main trunk lines having cutthroat prices and feeder lines having exorbitant prices. Both service and safety deteriorated, and now the Congress is thinking of reregulating. I can not imagine a free market in a civilized nation with no regulation at all. Without regulation the market would be regulated by Lex Talionis, the law of the talon, and animal amorality. A number of such markets do exist in the world and their commodities traded are drugs. I have no trouble envisioning the markets in heroin, cocaine, and marijuana as free markets: Anyone can play just by getting some automatic weapons and some money and saying they're in the business.

Dissipative Structures

Do markets have ecological properties? Markets are technological structures. In the concepts of Prigogine's open system thermodynamics (Illya Prigogine, 19xx, Long Term Trends and the Evolution of Complexity. I apologize for not having the journal reference and date but my xerox copy simply does not have them.), markets are dissipative structures—that is to say, if they are not maintained by material and energy flows they dissipate and disintegrate. The inputs into the market are not necessarily just the goods and services but the infrastructure necessary to make it work—the banks and financial institutions, transportation, warehousing and storage and, of course, the communications systems. Since markets are dissipative structures they cannot work with 100% efficiency. Market equilibria shift as the conditions of the market shift.

Free market principles state that nations or producers will produce to sell what they do best and buy the things they cannot do as well. If all producers and consumers did the same, the market, theoretically, would satisfy all parties. Our problems with Japan stem from the fact that Japan is not interested in free market economies as much as it is in international trade to accomplish goals of economic and political hegemony. It is not un common for American criticism of Japanese trade practices to be attributed to racism. This is a step removed from attributing America's trade balance to shoddy goods that the Japanese don't want.

Predators are also Competitors

The Japanese have erected structural barriers to American trade. They take the form of formal and informal agreements among Japanese industry and government, and they take the form of cartelist and monopolist tactics in the market place. To describe these practices as free market practices, as the Brookings economist did, is to ignore the ecological realities of free markets. The Japanese compete, they compete like predators.

...Ted Sudia...

© Copyright 1991
Institute for domestic Tranquility