In the US we place great stock in market solutions and are suspicious in our DNA of anything that smacks of Communism, like government interference with the free market. Mind you, this attitude has recently taken a beating as banks line up for government handouts, but it is part of who we are. If Jay Leno were to ask the average person on the street if the US has a free market I think most people would say yes – or, at least the few who actually understood the question.
Now, as it happens our country also has a rich tradition of government interference in the free market in the form of domestic subsidies and targeted tax breaks but I don’t want to dwell on these because that would require research. Instead, I want to focus your attention for just a moment on another form of free market interference: coallitions.
But first, let me make it clear right now that I am not an economist. I have degrees in international politics and management so there has been some economic study and I wrote my senior dissertation on IMF policy in Mexico, which was very well-received (my professor wrote: ‘Laura – hilarious work! Thanks for making my day!!!’ on it). In graduate school I even studied for a semester with a professor who was so well-known for advanced international economics that he had difficulty remembering mundane things like which way the supply curve goes. But there my claim to economic glory ends and I have to resort to common sense like everyone else.
There is an underlying assumption that if there is a demand, someone will find a way to produce a supply. This is the underlying principal of free market theory. Remember Adam Smith’s invisible hand? Even if you majored in English or Drama you probably encountered Adam in high school but here’s a refresher: Everyone will try to maximize their own economic advantage and it is good for society as a whole for them to do this. Some of you may also remember Michael Douglas’ ‘greed is good’ speech from the movie Wall Street where he dresses down all those corporate fat cats.
So anyway, you get the idea. In a truly free market an idea or product that has a real potential to be in demand, which means people will pay money for it, will inevitably be pursued by business people who, quite properly, want to maximize their economic advantage.
Yes. . . well.
To be fair, Adam Smith has largely proven to be correct. Demand does tend to generate supply and all of us in the first world can go to the supermarket on any day in any season and buy a cheap pomegranate, which (if we disregard the ethical question of whether that’s really a good thing for society as a whole) is highly convenient when you want to make one of those fancy salads with pomegranate seeds.
Unfortunately, bringing a product to market represents the long way to satisfy greed. I mean, it’s work, right? And it may require hefty investment and some personal risk as well. So, if there’s a short cut to satisfying that same greed, Adam Smith’s same law may actually work against the good of society.
How so? Well, what if someone had a working prototype of something people really wanted, like an electric car that doesn’t cost more than a regular car and needs little or no gas to run? Adam Smith would predict that someone would make this car and sell it and if it was successful more people would make it in order to jump on the profit bandwagon. But what if someone with a lot of money really didn’t like this idea at all? What could someone with truckloads of money could do to kill a good idea even if the ‘free market’ liked it?
They could apply economic pressure on key decision makers at companies that wanted to sell this car in order to change their minds. And these decision makers might see a quicker route to the same rewards for them personally...
And there’s the rub: greed only lets you care about yourself, not the thousands of workers that work for you and depend on you to make good decisions, and not the millions of people threatened by global warming.
Adam Smith assumed that people are willing to work for their money. He failed to take into account what happens when greed meets laziness or ethical laxness or incompetence.
The results? A brilliant idea, highly in demand, killed by a few decision makers working together to maximize their own profit. A problem that could have been solved, pushed under the carpet. A huge American company, that could be standing tall and strong today, failing.
Of course, Adam Smith wasn't totally wrong : we all bought Hummers just as happily.
Who killed the electric car? Check this out and draw your own conclusions, which may be different than mine: