Free Markets Controlled by the Unaccountables
How does a basic item of clothing, say a shirt, come into existence? Where does the cloth come from? And the colours or dyes, the buttons and thread, the machines that cut the fabric and the machines that stitch the bits together? And who dreamed up the designs and how did they get printed on the fabric? And what brought all these things together to produce the finished article? And how did it get distributed to people wanting such a shirt? The answer to all those questions is, of course, ‘the market’. No other form of economic organisation gets anywhere near as effective as the market, or provides a comparable degree of choice. All the tools of central planning and control of the former communist states, proved incapable of organising the production and distribution of shirts that people actually wanted to buy. That is the beauty and power of the market for something as simple as a shirt. For more complex products, and most products are, the competitive advantage of the market over any alternative, is far greater even than that.
The thing that makes the market so effective is competition: the existence of alternative suppliers of cloth, dyes, thread, machines and the rest. Without competition, the market would be no different from the central planning and control system. That failed not only because of its inherent inefficiency and proneness to bad decisions, but because the empowered bureaucracy was vulnerable to self-interested, even corrupt and illicit decision making. Monopolists are in exactly the same position: inefficient and vulnerable, and likely to take corrupt and predatory decisions to further their avowed aim of maximising shareholder wealth.
Free markets do not naturally remain free for long. Successful competitors achieve dominant positions, and in due course become unaccountable monopolists. Prior to 1980s deregulation, it was regarded as vital to prevent competitive markets falling under monopolistic control. Competition was protected by law. The UK Office of Fair Trading could refer takeovers to the Monopolies and Mergers Commission if it appeared that a monopolistic position might be created. Once referred the proposed takeover would be postponed till the Commission’s decision had been reached. Similarly, the OFT could investigate industries where it appeared monopolistic positions might exist.
But free market theory has become so universally accepted that any regulation imposed by government, even though democratically elected, is rejected on principle. The legal machinery for prohibiting these unaccountable monopolists has been dismantled. The OFT can only engage on the grounds that a monopolistic position is actually being abused or that a price fixing cartel is in operation, both of which may be expensive, as well as time consuming, to prove.
So there is today no legal mechanism for preventing a firm becoming totally dominant in its industry. Thus Glencore’s acquisition of Xstrata will give it monopolistic control of markets in global wheat and corn, plus strategic minerals such as nickel, zinc, platinum, chrome and copper. In all these markets they will be able to fix prices and make massive profits by what in competitive markets would be referred to as speculation, but in controlled markets is price fixing and rampant abuse. Today, there is no longer any legal means of preventing that set of monopoly positions being established.
So we are ruled by the unaccountables: the Glencores and Goldmans of this world, and their protective minions such as the ratings agencies and the Big Four auditors. It really is time for a change.