The Peril of Free Market
Bharat Jhunjhunwala

Modern political think ing holds that individual free dom may be restricted to secure public good. The freedom of the businessman to indiscriminately promote the consumption of cigarettes, for example, has been restricted. Manufacturers are required to display a warning stating that smoking is injurious to health. The use of harmful chemicals in eatables, manufacture of polluting vehicles, and reservations for Small Industries have been imposed in order to promote public good even though freedom of the individual is restricted.

This principle of 'earning profit while promoting public good' stands opposed to the principle of free market. Famous economist Adam Smith had propounded this principle about 200 years ago. He said that competition in a free market spontaneously establishes public good as if an invisible hand was guiding the businessmen. There was no need to separately worry about public good or to impose restrictions on businesses. His logic was like this. Competition in the market pushes the businesses to produce goods at lowest cost. This leads to cheap goods being made available to the people. The slum dwellers today have the pleasure of watching the TV and drinking cold water from the refrigerator because of the steep reduction in the price of these goods. Thus Adam Smith suggested that the government must not interfere in the market. Public good will be secured automatically by leaving the businessmen to compete with each other.

Now there are wo mutually contradictory principles for securing public good. Political theory says that the government must intervene in the market and give it a proper direction. Economic theory of Adam Smith, on the other hand, says that government must keep its hands off the market and let the businesses determine the type- and price of goods that are manufactured.

The government of India is basically following Adam Smith's principle. Big companies are being given freedom all around. They are free to sell pan masala and bhujia in plastic pouches while the homemaker is prohibited from bringing vegetables home in a plastic bag. The provision of forcible appropriation of land that was made for emergency situations such as that of war is being routinely invoked by state governments to acquire land of helpless farmers for the making of hydropower dams. Protection hitherto provided to small and medium industries is being dismantled in favour of big companies. The all pervading direction of government policies is to provide unrestrained freedom to the businessmen to operate as it pleases them.

According to Smith's vision, this would spontaneously lead to the establishment of public good. But such is not seen to happen. Increasing Naxalite activities are indicative of the deep unrest among the people. The selling of junk foods, synthetic clothes and air-conditioners is leading to deterioration in the health of the people. That said it must be admitted that the material well being of the common man has improved. The poorest have available to them ample food grains provided under BPL schemes and minimum employment under the Employment Guarantee Scheme. But this definition of public good is lopsided. Increased consumption is coming along with unrest due to increasing inequality and deterioration of health of ordinary people. Adam Smith's formula is not delivering on a holistic consideration.

For one thing the government has wrongly understood Adam Smith's formula. The debate in the nineteenth century at the time of Adam Smith was between feudal and capitalist modes of production. Most of Europe was ruled by feudal lords. Production was undertaken under protected barriers of the feudal estates. This led to much inefficiency. A feudal lord could have grains ground at three times the cost than the market because his economy was protected from competition. Adam Smith rightly said that such method of production was inefficient. This did not mean, however, that there should be no control of the government on the market. Adam Smith advocated free markets only for such items that were deemed to be 'good' by the government. Mainstream economists have perverted Smith's principle. They have declared that the government has no role in determining what goods are produced and how. In the result big companies are undertaking production with automatic machines and rendering millions of weavers and farmers jobless. Just as a seemingly clever patient misuses the freedom to walk in the evening to see a movie and suffers in the end; similarly this seemingly clever government is giving the businesses the freedom to produce cigarettes and liquor and hapless people are suffering.

Vol. 45, No. 18, Nov 11-17, 2012

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