Saturday, April 10, 2010

Redefining what makes a market free

So it seems that many people, in different countries - economies, developing, developed, etc, are not that "in love" with the either the concept or the reality/experience of the "free market".

But what is a "free market"? I have had many discussions and debates with various people on this issue in the last few years, be it in online or "real life" situations/discussions/forums.

Here is my definition.

IMO a free market is a market that has the following characteristics:

a) Freedom to enter - access
b) Freedom to exit
c) Freedom of each single seller to sell or not to sell, ie withhold his/her sale (ie non-desperate sellers).
d) Freedom of each single buyer to buy or not to buy, ie withhold his/her purchase (ie non-desperate buyers).
e) No concentration of power in either the sellers', buyers' or intermediaries side (ie no oligopoly, no oligopsony, etc).

Plus, of course,
f) effective competition legislation and authority observing the adherence to the rules that the competition legislation entails.

In my opinion and in my experience, a large majority of markets do not meet the above criteria.

Firstly, especially in inter-national trade/activity, be it goods or services or even work, market access may exist in theory but in practice it is not that feasible, especially for the "average citizen" and the "average company" (ie the small or micro company).

Secondly, and even more importantly, in my experience and perception, there are many "desperate" buyers and sellers (and intermediaries) in many markets. For a variety of reasons or causes.

If you wish, take this model of free market I have proposed that try to apply it to the various markets for goods, services, work, etc, that you are in (as a buyer, seller or even intermediary), as a person, household or organisation (company, etc). Especially the "non desperate" factor.

Eg how many people in how many types of jobs or sectors do not "need" or are "desperate" for the (salary or social security of the) job they are interviewing for?
And why (what other parameters make them "desperate", is it eg the need to provide for their family via their monthly salary).

Eg think why Germany got out of the recession relatively fast? Why were so many Germans not in debt but, the opposite, had savings in the bank could thus "afford"
to stay jobless for a while or not fear so much losing their job (in addition to the German legislation and customs re dismissals in the private sector)?

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