In one of the first articles contributed to this site, small business council CEO Peter Strong argued that we should “put laissez-faire economics…in with the dirty laundry and be a community of action, support, reward, understanding and common sense”.
His argument was based on the idea that laissez-faire economics has led to “government inaction and policy domination by powerful vested interests” which get away with it under the banner of ‘letting the market decide’.
Many readers have disagreed with Peter’s article, so I’d like to open it up to debate below.
But first some context.
The concept of laissez-faire has been used in a number of different ways since it was first popularised in the 18th century. It means “allow to do” – essentially, if you don’t interfere in markets they will find their own way based on the aggregate of each individual’s personal decisions. As a simple example, the price of a coffee is a combination of what the cafe is willing and able to sell it for and what buyers are willing to pay for it. If it’s not worth the cafe’s while to buy equipment, set up shop and pay a barista, there will be no cup of coffee to buy; if the coffee is too expensive, there won’t be enough buyers to make the café’s existence viable, as consumers choose another way to get caffeinated.
Adam Smith described these supply and demand forces as the work of an “invisible hand”. The concept underlies the idea of a moral market, in which the social good is promoted by each attending to his or her own interests. The principle has become fundamental to the way we understand the workings of a decentralised economy.
But Adam Smith also recognised that, at least in his time, most nations (and especially colonies) were mercantilist, that is, made up of monopolies controlled by the monarchy. Where these monopolies were not actually owned by the government, the government had considerable interest in maintaining them for a range of reasons, including to preserve employment and ensure provision of a service that might otherwise not be available. He was also very concerned with anticompetitive behaviour, especially price collusion, arguing that “people of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
Now it is open to debate whether the Australian economy, born of colonialism, has evolved far enough from the nationalised or quasi-nationalised institution to genuinely have the conditions for a functional laissez-faire approach. Certainly, the existence of Australian Consumer Law and the Australian Competition and Consumer Commission (ACCC) is an acknowledgement that we do have problems that require ongoing monitoring.
Peter’s argument is that big businesses represent a significant enough portion of the economy that many believe are “too big to fail” and that together with big unions they have developed a powerful alliance, often through secret deals, which has put small business at a disadvantage.
And so I would invite our readers to discuss a few questions here over the weekend:
- Do you agree with Peter? Why, or why not?
- Does Australia have a free market?
- If not, where are the distortions?
- Should we be seeking to correct distortions?
- If so, how can these be corrected as gently as possible, that is, without causing undue misery due by way of unemployment?
- What are the most important industrial relations reforms to pursue today?
Leave your comments below or here on our Facebook page.
I would also emphasise that this shouldn’t be a discussion as to what we should ideally be – utopias rely on the idea of human perfectibility. We’ve never achieved this kind of divinity in history and it seems foolhardy to hope we’ll suddenly develop it. I believe we should accept that humanity will always be a mix of good, bad and indifferent moral characters and that the “ideal” outcome is one which achieves a satisfactory equilibrium among these that results in civilised behaviour, tolerance and the ongoing goal of individual and social improvement.
But I’d like to hear what you think.
I look forward to a lively and intelligent debate!