We are used to thinking about the free as the most efficient economic system.
We are told so all the time by all kinds of people.
But is it really true?
Is it really all that efficient?
After looking at the evidence I don’t think so anymore.
And maybe by the end of the video you will come to the same conclusion.
Let’s start with the reason Neoliberals, that’s people who support the free market
no matter what, think that it’s the most efficient system in:
You’ve probably heard this already so I’ll try to make this as short as possible while
keeping as much complexity as I can fit.
The purpose of the free market is to distribute resources.
The market doesn’t produce anything on it’s own it just transports stuff from the person
who has it to the person who needs it.
It does that with financial incentive.
If resources are scarce in a region then their price will rise and there will be an incentive
to produce the resources or to transport them to the people who need them.
In the end the person making and distributing the products makes a profit and the people
who need the products get them.
This was a rather technical explanation so let’s look at an example.
We have 2 towns.
We name them Berlin and London.
London has a lot of food and Berlin was just hit by a drought and doesn’t have any food.
Because of the scarcity the little food that’s left in Berlin will become really expensive.
So expensive in fact that the rich people in London get an idea.
They will buy a lot of food in London and sell in in Berlin for profit.
If possible, they will even increase the food production to provide exactly as much as everyone
needs.
Sounds great doesn’t it?
And so natural as well.
No boss no management just people acting in the best way possible.
And it would be great if it worked like that in praxis.
But I am afraid it doesn’t.
And I am afraid there are many cases in which the free market wastes a lot of resources.
Cases incidentally which never seem to be discussed in liberal academic literature.
Let’s look at how it really works in: The free market has been in place for roughly
200 years in most European countries by now.
Even longer in the USA.
Right now the market is global and the entire world, ignoring north Korea, trades with each
other.
You can buy anything in any country and sell it in any other country to anyone who will
buy it.
It’s a global system.
So let’s look at our example again.
We have Berlin and London and Berlin is starving.
Does London still deliver aid to Berlin in real life?
The answer is Yes… under one condition.
Only if the people of berlin are rich enough to justify the transport costs.
Remember the investors from London only help Berlin if they can make a profit off it.
This may not seem too complicated, but it leads to a lot of problems and ridiculous
situations in real life.
Globally earth produces enough food to sustain roughly 10 Billion people.
There are only 7.5 billion people on earth.
This fact combined with the hyper efficient free market should mean that every single
person on earth is overweight.
Right?
You already know that that’s not true.
There are millions of people starving each year and according to the UN 800 Million people
lack the food to live a healthy life.
Remember this isn’t a problem with the amount that’s produced.
This is a problem of distribution.
And the global network of distribution is the free market.
So how does it fail?
It seemed like such a great system in theory.
And the problem wasn’t something many people considered.
Overproduction.
The free market doesn’t produce as much as it needs to.
It produces way more.
The reason is simple.
If you produce groceries and sell them to a supermarket then you have to compete with
different producers as well.
Let’s say your apples are displayed just as much as your rival’s apples.
What do you do if you can’t sell all of them?
Do you produce less?
Of course not.
You invest in advertisement and hope that people will buy your apples next time.
This problem is made worse by a praxis done by supermarkets.
Overstocking.
If a supermarket displays 10 apples people will buy 9 and nobody wants to buy the last
one.
Why exactly that is isn’t quite clear but it’s been tested enough times for supermarkets
to take it into consideration.
That’s why they overstock.
They will display 30 apples in order to sell 20.
What happens to the other 10 apples?
They are usually thrown away after a few days of lying around.
They could be donated but that would reduce the price of the other apples so there is
as financial incentive to throw them away Because supermarkets also compete with each
other they have to keep up the highest possible standards and throw out any products that
show faults or near their sell by date.
So we have factories producing more than people need and supermarkets buying more than they
sell and all of that ends up wasted.
This is inefficient.
The free market uses a whole lot of work to produce products that will never be needed.
And of course, there are ecological problems with this.
Producing food and then throwing it away is terrible for the environment.
So the market is wasting energy and resources to produce stuff we don’t need.
And there is one more reason to be critical of the market.
Even though it overproduces so much there are still millions starving on the planet.
Roughly 9 million people starve each year.
This is because of what I mentioned before.
There is no profit in feeding the poor.
“How can that be” you may ask “In our theoretical example the market quickly distributed
the resources for the benefit of most people”.
And the reason this doesn’t work in reality is inequality.
To get back to our example the investors in London will only send food to Berlin if the
people of berlin are rich enough to make it worth wile.
If the cost of transport from London to berlin is higher than the profit, they could make
they won’t help them even if London has an abundance of food.
And of course that’s what we see in real life.
There are millions of tons of food being thrown away in Europe and America while the people
in Africa and Asia are starving.
To me this isn’t efficient.
To me an efficient system would a least be able to distribute food to everyone who needs
it.
If someone says that the free market is efficient they should have to be able to explain how,
in a world of 7.5 Billion people that produces food for 10 billion has almost a billion living
with hunger.
I believe at this point I’ve made clear why I think that the free market doesn’t
deserve to be called an efficient system.
Of course there are many counter arguments to be made against my case and I’ll spend
the rest of the video countering those in: Critique 1 “What about Tariffs and import
dues?”
A frequent argument for the free market is that the governments are obstructing it.
Tariffs and import dues do in fact make selling things in other countries more expensive and
thus discourage it.
The neoliberal solution would be to abolish import dues so that, for example European
food waste could be more easily sent to Africa.
On the surface this seems like a great idea.
The hungry people would be fed, and that problem would be solved.
Unfortunately, it’s not that easy.
Removing tariffs and import dues doesn’t just do that.
It allows huge foreign corporations to devastate the entire economy.
Let’s say we have a small African economy.
There are many independent chicken farmers that produce food.
One year there is a climate change induced drought and the farms produce less which results
in less food for the chickens which results in less food for everyone.
Now if you where the president of that country you’d have to make a very hard choice.
Do you rely on international aid to help your starving people or do you allow private profit
oriented companies to take over your economy?
The problem is that if you let in a big foreign company they will outcompete and destroy all
local competition because they need lower profit margins meaning that they can produce
one product for cheaper because they mass produce them.
This would leave our small economy in the hands of a powerful monopoly which won’t
allow competition and could threaten the politicians if they enact a law that could endanger the
profits of that company.
There would also be massive unemployment as all of those chicken farmers are put out of
business.
As you can see now there are MANY negative effects you could get from removing tariffs.
It’s just not as simple as allowing huge western companies to give food to hungry people.
Critique 2 “Who cares if the market wastes resources as long as everyone still has food?”
My first point is that not everyone has food which automatically makes this argument wrong.
However even if we pretend that everyone was fed I’d still disagree with the idea that
a system which wastes 1/3rd of what it produces is a good system.
Overproduction is a waste of resources and as long as we overproduce that much this is
not the most efficient system there can be.
Critique 3 Those who suffer deserve it.
It’s not usually formulated like that but it’s a common argument.
It goes “If poor people don’t want to be poor anymore they should work harder and
then they wouldn’t have to starve”.
This is an argument which could arguably theoretically be correct for some people in some situations
but someone born a chicken farmer in a poor African country won’t have the ability to
become rich like Elon musk who got millions from his parents.
And even if poverty was 100% the fault of the person in poverty, I still don’t agree
with the notion that anyone can deserve to starve.
We can easily provide for everyone even if they are unemployed and I think doing so would
be our duty as humans.
We can feed everyone even if they made financial mistakes in their past.
Critique 4 It’s not the job of the market to serve everyone.
This is a rather common one for some reason.
The free market is the system of distribution we use around the world.
The job of the market is quite definitely to distribute resources to everyone who needs
them.
In our theoretical example that was it’s purpose and that’s what it did.
It’s the purpose of the market to supply everyone and if it’s not capable of doing
that then we should begin to look for another system.
Critique 5 What about the innovation the market brought to us?
There is a common believe among a lot of people that the free market causes innovation.
This is because in another theoretical example companies need to innovate in order to win
against the competition.
For a variety of reasons that doesn’t happen and most innovation is done by universities.
I made a whole video about this topic.
Link in the top right corner.
Critique 6 The market lifted millions of people out of poverty.
I could reply to this in many ways.
I could flat out deny that this was the achievement of the market and point out that it was workers
who produced the things that lifted those people out of poverty but let’s not.
Let’s assume the market did actually do that.
That doesn’t change the fact that it’s inefficient.
And it doesn’t change the fact that it could be improved.
Just because it brought us good things in the past doesn’t mean that we have to keep
it.
I mean Hitler build most of the Autobahnen but that doesn’t mean that we need to keep
fascism to keep on profiting off them.
There are other ways to build roads than to use fascism and there are other ways to lift
people out of poverty than the free market.
Critique 7 The market is the best system we have.
Don’t be a commie This is perhaps the most common critique of
critiques of capitalism.
I’d like to clarify that critiquing capitalism does not make someone a Stalinist, a Marxist,
a Leninist, a Communist or even a Socialist.
It just means that they are talking about the problems of the market.
I think we should be free to talk about the problems of the market without being accused
of Stalinism.
This way we can figure out how to change it to make it better or how to replace it with
a better system.
Critique 8 Why don’t you make a better system?
This question is a very common attempt to shut down a debate on the failures of the
market.
It’s a logical fallacy to assume that I need to be able to come up with a better global
distribution system just because I am pointing out the flaws in the current one.
When I go to watch a bad movie, I can point out what was bad about it without being forced
to make a better one to prove that my critique was right.
The same is true for the market.
I shouldn’t be forced to come up with a better system to be able to critique this
one.
And even if I was, I would still have to look at the faults of this system on order to know
what to keep an eye on when creating another one.
So in conclusion we can say that the market is a lot less efficient than other systems
would be.
There is enough food for 10 billion people and only 6.7 get enough food.
That’s a waste of 33% or one third.
While it’s true that the market has many theoretical advantages over other systems
we have to admit that reality doesn’t work like theory and that in reality it’s often
times more wasteful than we’d like to admit.
So, in my opinion we have to acknowledge the problems of this system to find ways of fixing
them or if necessary, to replace it with a better system.
Thanks for watching.
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