This week I’ve been reading Ha-Joon Chang’s book 23 Things they don’t tell you about Capitalism. I’ll review it when I’m done, but I thought I’d share his insight from chapter one: “There is no such thing as a free market”.
Popular economic wisdom suggests that markets should be free and interfered with as little as possible. Chang argues that the whole premise of this principle is misguided. “How free a market is cannot be objectively defined” he writes, “It is a political definition.”
All markets have limits and boundaries, inevitably so. There are things that cannot be sold, such as slaves, or votes. There are limits on who can participate in the market – you can’t employ children in your factories any more. Perhaps most importantly, governments set immigration policy, which is a huge control mechanism in the labour market. One of the main reasons why wages are high in wealthy countries is that the competition is kept out.
A completely free market would include the slave trade, child labour, and open borders. None of these are discussed by free market advocates of course, because those boundaries to the market are accepted. Interestingly, that wasn’t always the case. Opponents to abolition and to child labour reform used free market arguments in trying to stop them.
Chang suggests that once a limit to the market is accepted, it becomes invisible. We only see things as hindrances to the market if we disagree with them: “We see a regulation when we don’t endorse the moral values behind it.”
That’s an important principle to keep in mind. When business interests argue against raising the minimum wage, it is because they value profits more than they value the right to a living wage. There is nothing intrinsically wrong with the idea of a minimum wage, it’s just a matter of negotiating where the boundaries of the market should fall –and that, ultimately, is a matter of opinion.
“When free market economists say that a certain regulation should not be introduced because it would restrict the ‘freedom’ of a certain market, they are merely expressing a political opinion that they reject the rights that are to be defended by the proposed law. Their ideological cloak is to pretend that their politics is not really political, but rather is an objective economic truth, while other people’s politics is political.”
An interesting idea, I’m sure you’ll agree. And it sheds a rather different light on projects like the government’s current Red Tape Challenge.