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Posted by on Apr 8, 2010 in Economy, Markets, TG Roundup, USA

Is a regulation-free market practical ? A discussion

I’ve been listening to MMGL for a little while now and once heard a conversation between Mohan garu and Chakravarthy garu, on the show where he talked on health care. I’m waiting for the show which is going to be on the economic policies, etc. – the on Mohan garu promised to do ๐Ÿ™‚

I’ve had this question in my mind for some time. Since I couldn’t wait for that show and Chakravarthy garu reasoned out why free market could lead to more prosperity, I want to ask this question and start a discussion through this post.ย  I’m not contesting the ideals of free market, I only want to know how it can work in the real world.

How does a regulation-free market ensure that the capitalists (with their profit-making mindset) do their dealings morally ? (Please don’t get me wrong, I’m not questioning the scruples of honest capitalists in any way.) How can a regulation-free economy ensure that the the companies act morally ?

A couple of ways of ensuring this come to my mind.ย  One, an honest media which can point out the wrong-doings of the companies. Thus making the people decide not to buy any products from them and reducing their market share. When the parts of the media is owned by big tycoons, how can the media bring out honest journalism ? There’s also the “alleged” view that the govt. or political parties do not have any vested interests in having a media channel on their bandwagon.

Second is a very good law and order setup which will bring the immoral people to task. Again, another “alleged” issue is that the govt. doesn’t have any support from the lobbyists with an intention of returning the favor. Even in this kind of a setup the time it takes to bring these immoral people to justice can be, and sometimes is, very long.

In a globalized market of the present day, how can a nation ensure that the companies that operate in it’s land work for it’s benefit without regulations ? in terms of job creation, etc.This comes from the fact that the companies with an intention of producing goods at a cheaper price, shift their operations to another countries.

One could argue that when these companies shift their operations to nation A. The people of A have more jobs resulting in higher standard of living. They start to consume more goods and start getting higher salaries. All this might result in higher cost of producing goods in country A and the companies could switch their operations to some other nation.

In both the above situations, the time scale in which the market comes to an equilibrium after a disturbance is quite long. There are a lot of people and families who can lose their life savings (due to an immoral company) and livelihood (due to companies moving operations overseas). So,the following questions come to my mind:

– How did free market help them ? Or what should they have done, in a free market setting, to make sure they don’t lose out ?

– Should the govt. have intervened with requisite regulations for the immoral company not to take advantage ?

– In this kind of a setting, should and how a country act in the interest of the nation ? or in the interest of a free-market ?

I could have missed many things in the post, I’d be glad if someone could point me to some useful info in this regard. I found one essay by Guy Sorman, which is a summary of his book, Economics Does Not Lie. But I find his views a bit too simplistic and ivory-towered.

3 Comments

  1. Sandeep,

    I have been up to my eyeballs at work… didn’t have a chance to respond. I posted a couple of comments and a separate post on this subject.

    I don’t know how many will bite this boring topic. But, I will talk about it and debat on the April 16th show.

    • Mohan garu,

      I didn’t mean to complain about you not doing your interview with Charkravathy garu. Like I said in the post, these questions (mentioned in the post) kept popping in my head from time to time. But when Chakravarthy garu mentioned about how capitalism could help, these questions about it’s downside came rushing back. So I thought of writing a post so that interested people can drop a line when they could.

      I’ve read your posts on this subject and surely it seems like regulations are necessary. I’d like to hear the story from the other side as well, in terms of how a free market would’ve taken measures to prevent/deal with these crises and other issues like job loss and outsourcing, etc. Can you please try to address them in the show tomorrow ?

      Since you’ve already decided to have the topic on the show tomorrow, I’m eagerly looking forward for it. Thanks a million.. oh wait .. thanks a trillion that’s the scale of the debt right ? ๐Ÿ˜›

  2. Excellent questions Sandeep garu and these are perfect for a good discussion on Laissez Faire. I hope we can get into these on Mohan garu’s show. Please request Mohan garu to bring these up during our discussion.