Thursday, 17 September 2009

How free is free-market?

Ever since the gray clouds of economic recession started to gather over America, we have been treated to an unending cloud-burst of political rhetoric on the beauty and virtue of the free market. These virtues are, to say the least, debatable.

A large portion of India’s modern media houses are thriving in an environment of zero accountability. Their sales guys (who sell ad-space and columns) have a stake in what goes in as news, opinion and editorial content. Newspapers have commoditised every last inch of their paper including the masthead. You can replace the Times of India masthead with an advertisement if you have enough money in the bank. One can manufacture any amount of news if you are willing to pay for it.  The reader is not a customer to the newspaper anymore. The reader is a part of the market that the news-paper is bringing to the advertiser. This is an excellent example of the way the free-market works. The media, thus, is a key player in building opinion about the free-market

800 million Indians are living on less than a dollar a day, we have a serious agrarian crisis on our hands, we are a pseudo republic and becoming a politician is based more on genetic pre-disposition than intent (unless of-course the intent is to create personal wealth). Indian democracy is failing and the gap between the people who “have” (education, water, food and shelter) and the “have-nots” is growing exponentially.

In such a backdrop, if you stop and ask the media to read about and listen to what is happening in Bolivia, Venezuela, Argentina and Iraq you will be called a “socialist type”. The privatization model of the IMF, World Bank and WTO failed miserably in Latin America. In every country that adopted the model, it made a handful of people extremely wealthy and drove the rest of the nation into poverty and/or war. When countries refused to accept the model you got an Iraq like situation. You create a disaster and rebuild the economy with American corporate ownership. (For more on the Latin American story, I strongly recommend Shock Doctrine by Naomi Klein as a “must-read”).

We are at the cross-roads in India. If we chose to ignore the reality in which 60% of our country lives, we will be looking down the barrel of a gun very soon. Why are 200 districts affected by “naxal” violence? Why does it require a Lalgarh like siege to bring basic facilities such as roads and healthcare to the poorest parts of this country? The media is not going to expend profitable column space reporting on these particular issues because they throw up a clear and present danger for their advertisers. Solutions presented by the media focus on private participation. The media, towing the line of their advertisers, wants electricity, water, sanitation, education, public transport and everything else in private hands.

Explain this to me like I am a six-year old. If the government cuts of all sources of revenue how can it invest in areas that are in desperate need of development and basic utilities? If you kill all sources of revenue for the government how can they catalyze development without getting into a debt-trap? Would you ask a drug company to stop selling drugs and only focus on R&D? Where will the money for the development come from? It’s about improving efficiency in government but the mainstream media has us believe that it is about transferring ownership.

The focus has been to sweep the discussion on reforms in the public sector under the carpet and replace that discussion with a discussion on privatization. The interests of the 800 million forgotten Indians will not be served by expecting the profit oriented private sector to deliver services to a population that can not afford one meal a day.

With such realities staring us in the face, I wonder how we can continue to support a free-market economy that benefits a few urban elites. We should allow and be open to private participation in areas where they can deliver services more efficiently than the government. Do not allow the private sector to replace the government as a service provider if the underprivileged sections are going to be ignored. For example privatizing electricity and public transport may work for urban India. Small farmers however, can-not afford to pay market prices for power. Similarly, private bus operators should not be expected to subsidize bus-rides to remote villages. The government does have a responsibility to the people and they can not pass the buck to the private sector.

The term free-market is a misnomer. The market is never free. The market is always open to manipulation by people who have the most control over resources. The cycle is vicious. If you do not have resources at your disposal you can never benefit or reap profit from a free-market. The market will always benefit from your participation, but you need not benefit by participating.

If you want a genuine market which controls itself, which is something that might help India, you need to get rid of the Oligarchs and companies that are too big to fail. Companies that can manipulate prices, manufacture public opinion, buy politicians and dictate policy need to play by the rules. This is not possible because playing by the rules would be counter-productive to their interests. The mining lobby in Karnataka is a great example of how proponents of “free-market” can make politicians play musical chairs, rape the environment and escape the tax system.

Less than 2% of this country invests in the stock market. Why should the destiny of all it’s citizens be linked to the Sensex? What is most unfair about the system is that it is able to hide the truth. The truth is that the free-market marginalizes those that are already underprivileged and benefits those that already have an unfair access to wealth. Unfortunately the number of journalists interested in this side of the story is shrinking.


  1. I totally second your opinion. When you have the financial clout, you can buy whatever you want at your convenience.

    Like the US of A, we too will have strong lobbies of industrialists, influencing the lawmakers and the laws.

    Privatization has its benefits but only in some sectors. We can increase productivity by privatising. But what about citizens' basic rights.

    Basic services sectors like Education, Water, Power and Health should never be privatized. We need to have a strong security system in India and it will have to be owned by the govt with a robust autiting system with the help of citizen. A mixture of European and Indian economy needs to be adopted here.

  2. Very much agreed!
    The problem with the free market is that most free market theories in economics assume perfect competition (and rational consumers) which, in many cases, is far far from the case. Much as Paritosh said, we need to ensure that these services are delivered to the people that need them.

    I really like your blog by the way, I don't mean to judge from the position of an outsider, but it's refreshing to see someone from India not obsessed with the usual things like how amazing the market is, entrepreneurship, social media, etc. Basically there are too many Thomas Friedman fans around, which is a damn shame because the man is an idiot.

    Thanks for dropping by to Zeitgeist Politics, do stay in touch :)

  3. Less than 2% of this country invests in the stock market.
    The low interest regime in US forces people to divert funds to Wall Street either directly or indirectly. People have no other option in this Land Of The Free. I am glad we are still at 2% and I hope we don't follow the US model.

    Speculation poisons capitalism. It is in the interest of Capitalism to curb speculation. If Obama ever picks my brains on how to improve American economy, I would suggest imposing Securities Transaction Tax like we have in India (I hope we still do!).