The free market, so its detractors say, has had its moment. It came in vogue with synth but became outmoded with Britpop. It rose with Ronald Reagan but fell with Fannie Mae and Freddie Mac. It boomed but is now bust. We may no longer be Keynesians but, when it comes to free markets, we are now also none too keen.
The era of big government, apparently, is back from hiatus. Covid only confirmed this. Staring down the barrel of the pandemic, the response of Western peoples to ‘I’m from the Government and I’m here to help’ has been ‘please, sir, may I have some more?’ In the UK, a Conservative Chancellor promised to do ‘whatever it takes’. In the US, a Republican President vowed in his State of the Union address to ‘take all necessary steps’. According to the Index of Economic Freedom, our two countries which once led the charge for free markets have now fallen behind, dropping by 10% since 2008 and now ranking below former Soviet states like Estonia.
Despite all this, reports of the free market’s demise are greatly exaggerated. Just because something is no longer fashionable does not mean it is no longer functioning. In truth, we have not changed the system, only some of the settings. Britain’s coronavirus loan scheme is facilitated by its private financial sector. So too, to the extent they are debt-financed, are the US’ several stimulus packages. We are not, by any stretch, in a command economy. On Economic Freedom indices we still are rated ‘mostly free’.
We have not abandoned free markets because we cannot escape market forces. No one can. Even at the height of Communism, the reds were riddled with black markets.
Regardless of whether we have or whether we could, it is also true that we should not reject free markets. They ought to be cultivated, I will now argue, as an economic, social, and even a moral imperative. We should therefore be careful not to indulge too far the state’s recent largesse, and ensure the recent growth of government is the exception and not the rule.
The economic imperative
Free markets create economic prosperity. To paraphrase George Orwell, this statement falls within the category of ‘ideas so obvious that only an intellectual would disbelieve them’.
Free market competition rewards efficiency, reducing costs and boosting incomes. Property and profit, equal parts premise and promise, entice innovation and encourage investment. Creative destruction, specialisation, scale – whatever the engine of growth you read about in an economics textbook, the market is the motor.
Accordingly, in the last 70 years alone, free markets and improved livelihoods have spread in tandem. In 1950, 1.8 billion people – more than 70% of the global population – lived in extreme poverty. By 2015, despite exponential increase in the world’s population, the number of those in extreme poverty fell in absolute terms to 0.7 billion.
Countries in the top quartile of economic freedom indices had an average per-capita GDP of $40,376 in 2016 compared to $5,649 for bottom quartile countries. The average income of the poorest 10% in the most economically-free countries is almost twice the average per-capita income in the least-free countries. Life expectancy is 79.5 years in the top quartile compared to 64.4 years in the bottom quartile.
The social imperative
Free markets cultivate peace. After all, cooperation is intrinsic to the way markets work. Daniel Hannan put it well: ‘In an open market based on property rights and free contract, you become wealthy by offering an honest service to others’.
At the heart of free markets, then, are marriages of self-interest. This may not sound very romantic, but it is remarkable. In the context of the market, the very same tendencies which the likes of Hobbes and Rousseau saw as pulling societies apart, bind us together. Free markets do not mean a wild west war of all against all, but rather have been proven to correlate with high levels of happiness.
Free markets also promote peace at an international level. Global investors make decisions by calculating risk, which is determined in large part by the reliability of institutions, the level of crime, and the likelihood of conflict in a given country. In other words, markets endorse good governance and peace. Credit follows credibility.
Moreover, in the Foreign Direct Investment Confidence Index, the United States ranks highest and free market economies utterly dominate. This suggests that, once both are established, free markets and good governance are mutually reinforcing.
The moral imperative
Free markets respect human dignity. For it is freedom which makes us distinctly human, which is part of what we mean when we call slavery ‘inhumane’. We are neither animals nor automatons; neither incarcerated by instinct nor conditioned by code.
The criticism of free market thought for caricaturing human beings as purely rationally self-interested is itself a caricature. It is actually in command economies, where bureaucrats are quickly overwhelmed by complexity, that over-simplification and reductive thinking become necessary. You only need to look at the growth of ESG (environmental, social, and governance) in our economies to see that markets account for both head and heart; body and spirit. The bottom line is that firms in a free market care about more than just their bottom line.
Free market systems are democratic in the sense that they empower people. They give expression to the myriad of complex and multifaceted human needs and wants, which inform the choices we all make each day. In this, what command economics regard as a nuisance to be suppressed, free markets see as an opportunity to provide a service.
Are free markets conservative?
Upholding free markets is conservative. One way to see this is by returning to and expanding on the earlier point that ‘we cannot escape market forces’; that there are fundamental and irrepressible economic laws. Or, to put it another way, there are very real limits on human intervention. In the words of Thomas Sowell, ‘there are no solutions, only trade-offs’. Obstructing market-driven outcomes does not stop market forces altogether, it only diverts them, often with unintended and disastrous consequences. For every action there is a reaction.
Starting from this perspective, there is an argument to be made for free markets which conforms with core conservative principles; answering those on the right who disown free markets as a feature of liberalism.
After all, it was Edmund Burke himself who said in exasperation: ‘I cannot conceive how any man can have brought himself to that pitch of presumption, to consider his country as nothing but carte blanche upon which he may scribble whatever he pleases’. We might paraphrase his disdain to describe the central planner as one who sees ‘their economy as nothing but a blank cheque’.
For Burke, it was an act of extreme arrogance for the revolutionaries of his age to upend political institutions in defiance of natural law and received wisdom. Those in revolt against the free market, past and present, similarly deny economic law and historical experience.
This by no means endorses being lackadaisical about laissez-faire. It means proceeding with due diligence and seeking to work with the grain wherever possible. Such deference to free markets is not radicalism but realism; not hubris but humility.
In other words, it bears all the hallmarks of true conservatism.
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