Understanding markets for what they are

-Dhruba Bhandari

This article was originally published in The Himalayan Times on 31 Jan 2016.

Market is not a place but a process. It is the process in which individuals through their actions, contribute to the well-being of the whole society. In a market based economy where individuals have property rights that are protected with sound policies and institutional structure, people have freedom to choose the activity that they want to engage in. This gives them free range to explore the best possible actions and sum of those best actions give higher living standards to society as a whole.

Equal opportunity

The market gives us all equal economic rights, but since all individuals are different in their preferences and talents, the outcome is not going to be equal prosperity for all. It is simply equal opportunity for all. The idea of equality, though it may sound good and virtuous, brings forward the big question: What is the basic standard to which everyone else’s quality of life, assets and income and consumption is to be measured and to which everyone agrees? Grounding the market exchange and its outcome on the basis of equality defeats the very purpose of the beauty of the market. The fact that economic activities in the market economy are based on self interest and voluntary exchange implies that both parties must have something to offer to the other. It is important to note the difference between self-interest and selfishness: self-interest implies people must be aware and act in accordance with self-interest of others whereas selfishness is where the major concern is one-self without any regard for interest of others.

Market and political freedom

Is economic freedom different from political freedom? Political freedom is freedom of speech, freedom of expression, freedom to protest the actions of government et cetera. In a similar sense, economic freedom means an individual is free to choose the economic activity that best serves his or her self interest. The danger of not having economic freedom can lead to losing even political freedom. In a system of economy where the government directs everything, freedom can become illusory even if it is written into the laws. Let us look at the example of freedom of the press. If government owns all the printing presses, it can dictate what is printed and what is not. The possibility of writing and publishing articles that do not agree with the actions of government do not exist. As a result, the freedom of press disappears. Imagine what can happen when government is the sole owner of businesses like telecommunication, food distribution and education. In Nepal’s context, I think by now all of us can see the consequence of government monopoly on energy. The government does not exist apart from the politicians and citizens. Even if the centrally planned government aspires to the ideal of equality in all aspect of economic activity, it will never be true equality that they are claiming to achieve. For evidence, just look at living standard of leaders that support the idea of equality for all: are they living on average income of the country or on an income level of top one per cent of the country?

Market and charity

A philanthropist or saint who wants to use his/her wealth available to feed the hungry and provide medicine to the sick can also work best in a market based economy rather than centrally planned economy. Markets allow him/her to find the lowest price for clothes, medicines and food to take care for those who are in need of his/her assistance in greater numbers. There is a famous saying “You can’t be poor enough to make someone else wealthy and sick enough to make someone else healthy”. Self interest is ingrained in us for our survival. There is no-point confusing self-interest with selfishness to bash a market-based economy and propagate centrally planned economy with the dream of equality for all. For individuals with ideas and the will to work hard, a market-based economy will provide opportunities to work and earn and eventually help others if they choose to.

Competition and co-operation

It is true that market based economy is based on competition. Sometimes this “competition” is compared to survival of the fittest in the animal kingdom. It is true that competition is the key to survival and functioning of the business enterprise in the market. But co-operation is also an important factor which is missed most of the time when characterising the market economy. In order for business to succeed there needs to be co-operation among entrepreneurs, workers, consumers et cetera. This co-operation with each other is guided by self interest and incentives to partake in those activities.

Aspire and achieve

We are all different and unique individuals with unique gifts, talents and unique aspirations. The market based economy, with its freedom to choose, provides the best space to try and achieve what we aspire to. No one likes to be told you can only do that and not this. If the market system is so in sync with what we want to achieve then why not let it guide our economy so that we all can become prosperous instead of just equally poor.