Whenever I utter the phrase ‘free trade’ within those Liberal Democrat circles in which I am permitted to mix, the reaction is akin to that which I might get if I suggested making it compulsory for all party members to worship statues of me.
And that’s a pity (the reaction to the free trade, not the statues) because most people when they meet an advocate of free trade, mutter darkly about the effects of ‘light touch regulation’. But free trade and light touch regulation are not the same, indeed in many ways they are inimical to each other.
The debate should not be narrowly about how much regulation is the right amount, but rather about making regulation effective in those sectors in which it is deployed, and tailoring the types and degrees of regulation for each individual sector of the economy and mode of production.
When Vince Cable in his conference speech spoke about shining a light into the murkier corners of capitalism he was referring to those sectors of the economy where monopoly and oligopoly still exist, industries which set themselves up as paragons of free trade and yet exist and thrive in restricted markets at the expense of the public good. Vince was probably referring to banks and the law, but the scope goes way beyond that, to the creation and preservation of private sector monopolies across the transport industries and through disastrous commitments such as the Private Finance Initiative.
It is ironic that many critics of rail privatisation cite it as an example of the market failing, while in fact its an example of the failure which is inevitable when competition doesn’t exist, in exactly the way Smith was highlighting over two centuries ago.
Free trade does not mean allowing the market to regulate itself, it means the government ensuring that markets operate without any participants within the market erecting barriers to entry, within any of the modes of production, or indeed of the market acting against the public good.
Another phrase which has entered the political lexicon and been misunderstood is the Adam Smith phrase ‘invisible hand, which has been interpreted as meaning the great Liberal believed that their should be no regulation. But that’s inaccurate. The Invisible hand was a metaphor for government being disinterested in, but also involved in the processes of commerce.
Its very rare for a free trader such as myself to enjoy any comments a Tory leader makes regarding markets, but an exception was David Cameron’s recent admission that the Tories have not traditionally been a party of free trade, but rather have focused on creating and protecting private companies which are “national champions”.
This has been the traditional dividing line between Liberals and Tories, protectionists and Free Traders, and it’s a battle which Adam Smith started on behalf of the free traders in the 18th century, its one which Lib Dems should look to continue today by ensuring that while in government we seek to free markets which are in the death grip of monopolists and oligarchs.
So to whatever wing of the party one belongs, its important that sight is not lost of the benefits of free trade even as the Lib Dems coalesce with a party which has been the traditional enemy of the system.
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17 Comments
I don’t wish to go all Inigo Montoya on you, but:
in·im·i·cal Adjective /iˈnimikəl/
Synonyms:
adjective: hostile, adverse, unfriendly, antagonistic, enemy, harmful
Tending to obstruct or harm
actions inimical to our interests
Unfriendly; hostile
an inimical alien power
Oops, I misread your use. Ignore the above, sorry.
Here here. Support for free trade is something that has united British Liberals throughout the ages and it should continue to do so, whether you are a classical or social liberal.
I also think free traders should be opposed to tuition fees. These craete a barrier to entry to eductaion, restirciting people from partaking in and consuming ideas, and this is as nbad in eductaion as it is in all other sectors where barriers to entry restrict the public good.
Universities should exist in a non monetised market, with the universities competing to get the brightest students, and foing this by constantly striving to improve the quality of their facilities and tecahing, while students strive to enter the best universities, doing this by attaining better grades.
The current system, and the browbe proposals, both prevent this from happening, and the consequences in the long term will be just as disastrous for the public good as barriers to entry in montised markets are
Indeed. You may though have under-rated the large middle-ground between laissez-faire and state control. The phrase “Free trade does not mean allowing the market to regulate itself” is surely wrong?
Where self-regulation works to correct market failure, and isn’t a cover for protectionism, or this is no significant market failure, the liberal position is to leave it alone.
The converse would be for the state to barge into every market demanding legislation replace common practice and rules regardless as to whether such intervention were needed.
Does ebay for example require new UN or nation-state regulation of internet auctions, or has existing law, consumer pressure and the company acting to protect their own reputation been better at setting rules appropriate to that rapidly changing and relatively new industry?
andy I would argue that ‘free markets’ are systems which allow markets regualte themselves, not free trade.
Its like we all want to live in a free society, but all want policeman and laws to ensure that happens, having a police force does not end free society, abolishing the criminal justice system does not mean a free society
There is an oft-repeated myth that large companies want free trade.
They are generally hugely against it, lots of regulation helps large businesses as smaller competitors cannot hope to comply. Large companies can comply with or ignore regulations – small companies cannot.
Let’s face it almost all our large banks are bust by any fair valuation of their balance sheets, yet the barriers to entry have prevented a single new entrant to the market coming in to sweep up all the savers deposits. In any free trade system the deposits would have moved and the failed banks would have collapsed, taking with them the investors. This is what capitalism is, what we currently have in the world is corporatism.
andy
ebay are sunject to many laws, and they have been clever in their methods by anticipating problems before they happen and require new laws
A good very good article, and one that all liberals need to think deeply about. It is not free trade if there’s bias towards big companies or protection of them.
I would also say that whilst we need to increase competition by bring down barriers to entry etc, we also need to make businesses more open, and also ensure that they don’t mislead customers. One of the main points of free trade is that the competition is supposed to drive up quality, but that can’t happen unless customers know exactly what they’re buying so that they can choose what they believe to be the best product.
A great article -support for free trade is something which should unite all Liberals.
I agree with the sentiment of the article, but would argue that there is more than one definition of free trade, and what the poster is arguing for, is a form of free trade that free market liberals and libertarians would resist. The distinction might rest in the definition of free. The social liberal would include ‘freedom from’ whereas the free market liberal/libertarian might deny such freedoms exist or that they are at least unenforceable, and would therefore only acknowledge ‘freedom to’.
Hope this makes sense.
mpg.
Great post.
I agree broadly with your definitions, and think freedom from is key to the concept of free trade.
Also big companies dont want free trade, thats the difference between us and the tories
@ timak and re banks
metro have recently enteredt the uk banking market, and arguably santandar are a new entry,but yes banks practiv ce oligopolistic practices
lib dems have noticed since the election that tories voters appear to be coming over to us.
this could be a way of differentiating between them and us
I think this is where market liberals are different to libertarians. In a way it is remarkable that there is not much of a debate between them. A legal framework is essential for markets to work, because often left to their own devices they don’t work. Light touch regulation of the City was a dismal failure as we now know, and the concern today is that the City banks will lobby as hard as they can to get back to that and stop the government from restructuring banks into smaller institutions so that the taxpayer no longer has to be the lender of last resort. In addition regulation is needed to prevent perverse incentives, which in the case of the City means clamping down on huge bonuses that reward short term profit at the expense of long term sustainability.
In fact this is the problem with capitalism today; there is too much short termism, and plenty of market failures. The biggest source of global warming pollution comes from the US, a well known free market economy. So this represents a market failure, where companies are lobbying Congress via libertarian think tanks like the Cato Institute not to do anything about it.
It is interesting to consider what is free here. Freedom might mean more competition or it might mean freedom for banks to do what they like; that is become bigger and eliminate the competition. The author is saying the former, so what that means is that the government plays a critical role here to make it work.
The concern as far as the coalition is concerned is that the Tories see the failure of light touch regulation simply to do with the wrong people doing the regulation, and that the Bank of England should do it instead. I would argued that to remedy light touch regulation you need heavy touch regulation and a significant investment from government to do this. Judging from VInce Cable’s conference speech, I think he understands and is trying to do this.
We should also ask ourselves that is light touch regulation failed in the City, shouldn’t we be more careful of introducing it elsewhere?
As for the railways examples, I am not sure that fits. The UK has a very expensive railway system which has the knock on effect of encouraging people to use their cars instead, causing congestion, more road maintenance and more greenhouse gas pollution. I am not sure how you introduce more competition between railways, we don’t have 5 lines between London and Leeds for example.
The best railway system in Europe is the French one, hardly a free market solution.
Markets are generally a good idea, but one size does not fit all. I for one do not identify as supporting the free market because I find people who support free markets are not open minded enough about the alternatives which are needed when markets fail.
thanks for your contributrion geoffrey.
In the sense that I , and liberals, mean free markets thw US is probably the leats free market capitalist country in the world.
Writers as far back as galbraith senior have piointed this out, when reeagan was a champion of the ‘free market’ but not practicing it.
Even now, the US is replete with oligopolies.
It may have unrestrained markets but it doesnt have free ones.
I was not advoacting a free market solution for the railways, I have blogged on this site in the past advoacting their renationalisation.
The point I was making is that critics of the free market use the british railways as an exmaple of the free market failing, when the british railways are not run on free market lines, they are a series of monopolies, so their failure or success at this time is nothing to do with the free market economic system