Excellent series of articles on market economies

Whether you lean to the right or left, John Kay’s articles on the market and rent seeking by large corporations are well worth a read. In them he attacks misconceptions held on the right that lead to market distortions, and in response, often lead to hostility to markets from the left – for instance –

A popular caricature of the market economy sees greed as the dominant human motivation. Economic progress is best achieved by acknowledging that reality and imposing as few restrictions as possible. This is the economy of Nigeria and Haiti, and it does not work. It is also the commercial environment of the Ik mountain people described by anthropologist Colin Turnbull, and Lehman Brothers as written up by former vice-president Lawrence McDonald. It did not work in these cases either.

and ..

Because innovation is dependent on new entry it is essential to resist concentration of economic power. A stance which is pro-business must be distinguished from a stance which is pro-market. In the two decades since the fall of the Berlin Wall, that distinction has not been appreciated well enough.

Chaotic evolution defines the market economy

Powerful interests are trying to control the market

Hat tip Liberty in Ireland

Continued beneath the fold .
He highlights the advantages markets provide –

A more thoughtful account of the success of markets has three elements. Prices act as signals – the price mechanism is a guide to resource allocation rather than central planning. Markets are a process of discovery – an economy adapts to change through a chaotic process of experimentation. The third element is the capacity of the market to bring about diffusion of political and economic power. This is the most effective way to protect society from rent-seeking – a culture in which the principal route to wealth is not creating wealth, but attaching oneself to wealth created by others.

Markets acting as a process of discovery and experimentation contrasts with innovation deficiencies in centrally planned economies –

Disruptive innovations most often come to market through new entrants. The health of the market economy depends on constant replenishment of ideas, often from unpredicted sources. If you had been planning the future of the computer industry in the 1970s, would you have asked Bill Gates and Paul Allen? If you had been planning the future of European aviation in the 1980s, would you have asked Michael O’Leary or Stelios Haji-Ioannou? If you had been planning the future of retailing in the 1990s would you have asked Jeff Bezos? Of course not: members of the politburo, cabinet or large company board would have consulted grey men in suits like themselves.

But perhaps we are in danger of forgetting the most crucial part, as we slide towards corporatism –

The essence of a free market economy is not that the government does not control it. It is that nobody does.

  • Greenflag

    mack ,

    Excellent articles by John Kay .

    However the conclusion

    ‘The essence of a free market economy is not that the government does not control it. It is that nobody does.’

    prompts my observation that over the past two decades the essence of free market economies has been notable by it’s absence particularly in the financial services and insurance sectors. Competition on the surface was masked by the actual reality of undiluted oligopoly and monopoly underneath the corporate facade .