Firms don’t like the free market

by Milan on October 19, 2010

in Biofuels, Climate change, Economics, Renewables

While companies often pretend to view the free market as their preferred economic arrangement, that’s not really the way of things. Like most people, they would rather have things skewed to their advantage and they will press government to try to achieve that. After all, would you prefer?

  • To compete with other firms that are working on putting out products that are better than yours and cost less
  • To have the government pass a long requiring consumers to buy more of your product every year, ideally at prices that are mandated to increase

That utopia is what biofuel producers have achieved for themselves, in the form of mandatory volumes for renewable fuel production and purchasing. For example, the 2005 U.S. Energy Policy Act mandated that 7.5 billion gallons of biofuel be produced by 2012, regardless of the cost. It is also what mandatory levels of construction of renewables like wind and solar give to firms.

In the first case, that is deeply inappropriate given that today’s biofuels don’t help with climate change and tomorrow’s may never exist. In the second case, the mandate is actually quite defensible. For economic reasons, we need to boost the volume of renewable capacity installed, since that is what will drive technological advancement and the development of economies of scale. Politically, we need to produce a group of companies that are invested in renewable options and which deliver jobs, tax revenue, and votes.

For firms, the free market is a consolation prize. If I can’t get special treatment, at least I can try to stop my competitors from getting it. Something like that dynamic eventually needs to emerge for climate change. It is unfair and probably ecologically disastrous to give away the right to pollute to big firms that have been doing so heavily so far. Instead, we need to establish common rules for everyone, like an economy-wide price on carbon. Realistically speaking, we also need to work towards a situation where the inevitable political favours that will be granted will be given to firms that are actually doing things that will help us avoid global climate calamity – not those that are doing all they can to hasten it.

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{ 17 comments… read them below or add one }

Tristan October 19, 2010 at 9:58 pm

I strongly agree – but would add, we’ve never had a free market. Since the 2nd war, we’ve had a welfare state – initially a welfare state for corporations and for people, but increasingly the people’s welfare state has been eroded and the corporate welfare state remains.

The problem, which I’ve stated before, (i.e. in this post on Rawls’ defence of capitalism: http://northernsong.wordpress.com/2010/07/18/whats-wrong-with-rawls-defence-of-capitalism/), is that in our society firms have an undue amount of influence. This prevents the country from being democratic, but more important, it prevents leaders from engaging in rational planning.

The best explanation for how this happens seems to be Ferguson’s investment theory of politics:
http://en.wikipedia.org/wiki/Investment_theory_of_party_competition

Milan October 19, 2010 at 11:48 pm
Milan October 20, 2010 at 12:01 am

It’s worth noting that the perspective expressed in this post holds the free market to be an essentially desirable thing – one that governments should push toward, in defiance of the attempts of firms to get special treatment.

The trickiest thing is doing this intergenerationally. Allowing today’s firms to emit greenhouse gases in an unlimited way gives them a special advantage over future firms that will need to live within constraints. More seriously, it puts the general population of the future at considerable risk.

A truly ‘free’ market, in which one group of people cannot inappropriately take advantage of another, requires both that the government treat firms within the same generation equally and that it price carbon at a sufficiently high level to make firms act as though they care about future generations.

Tristan October 20, 2010 at 9:58 am

Statements about a “true free market” have the same validity as statements about “true” communism. Sure, might be a nice idea in theory, but we’ve never tried it. And places were it is tried, it is imposed usually through neo-colonialist force, and no economic system imposed by force on a population ought dare use the notion of “freedom” in its name.

In reality, both the idea of the free market, and “really imposed free markets” (which are not free) are tools of oppression. A genuine “free” market would be a market where the market conditions were set freely by the people in it – which means they could democratically choose to redistribute property rights, to give land to the dispossessed, to have health care and education for all, etc…

Tristan October 20, 2010 at 10:07 am

“one that governments should push toward, in defiance of the attempts of firms to get special treatment.”

Governments are controlled by unions of firms, called parties. To say the government should act against a common interest of firms is to call for some kind of a revolution.

Milan October 20, 2010 at 10:07 am

A genuine free market is different from wealth allocation via direct democracy. Critically, a free market needs to accept some notion of property rights that trump public will.

If a person or entity owns something, acquired it by legitimate means, and is not using it in a way that harms others, it seems a central tenet of a free market approach that it cannot be taken away, even if there is strong popular support for doing so.

Tristan October 20, 2010 at 2:03 pm

Your definition is trivial. If the people overwhelmingly desire the limitation of some property rights it will almost certainly be on the basis of unjust aquisition or harm. It is always the legitimacy of the right to property which is challenged. But your statement is normal liberal ideology – if you took the implications of your own ideas seriously you wouldn’t make tired nozickian claims but instead deal with the fact that what we call free markets are always hugely subsidized or colonizing imposed.

Milan October 20, 2010 at 2:11 pm

Redistribution often has a sharply arbitrary quality. While the general collection of those who are rich have a lot of wealth that arose from inappropriate actions, or is being used in inappropriate ways, it is unlikely that populist redistribution movements will end up focusing only on ill-gotten or ill-used wealth.

In some cases, at least, those who lose most from redistribution are members of the middle class, since they don’t have the kind of elite connections that might shield them.

To what extent should we tolerate depriving people of legitimate wealth, in order to try to achieve general societal rebalancing?

Tristan October 20, 2010 at 10:52 pm

It would be impossible to redistribute wealth in a matter more arbitrary than it is through birth.

Milan October 21, 2010 at 8:27 am

More so in European countries where inheritance rules are fixed.

If a woman wants to give her vast personal fortune to the Rainforest Action Network, instead of her oil executive children, I think she should be able to.

Everything about birth is arbitrary: from sex to health to class. That said, at least inheritance is non-arbitrary from the perspective of parents. In most places, you are obligated to provide a minimum standard of living for your children. Whatever you spend on them beyond that is discretionary.

Tristan October 21, 2010 at 9:45 am

Inheritance is entirely arbitrary from the person receiving the wealth – and this is the relevant comparison to the “sharply arbitrary” character of redistribution.

Honestly though, I’m not having this argument with you. We had it ten years ago concerning Nozick-Rawls, and I think your position is disgusting.

Milan October 21, 2010 at 9:51 am

It’s the civility of your discourse that makes you so convincing.

Tristan October 21, 2010 at 11:55 am

There is a certain value in being convincing, but there are lots of views that I don’t think deserve respect. For instance, the view that property rights trump rights to food, water, shelter, decent work, not being assaulted etc… I don’t think this view meets the basic standards of moral credibility – it’s disgusting. To criticize the redistribution of wealth as “sharply arbitrary” while living in a society where the sharply unequal distribution of wealth is a case of so much suffering and lack of genuine freedom, is not just imperfect, but a sign of radical moral degeneration.

Milan October 21, 2010 at 12:03 pm

As my father pointed out, such statements are “unhelpful to productive dialogue”.

Expressing yourself that way doesn’t make you convincing and it doesn’t advance either your ideas or the discussion in general. It’s not an appropriate way to conduct oneself in what is intended to be an intelligent forum.

Tristan October 21, 2010 at 12:13 pm

It’s not appropriate to hold certain views – such as the view that if you don’t happen to have enough money to buy water, you should just drop dead. Or, if you can’t afford expensive surgery because of some rare condition, you should spend the rest of your life unable to work. And yet, those are the views which we push in the name of the free market. Recently the government that you work for called for what would be the end of the Canadian health care system – this is not a position which can be held by morally serious persons.

There are certain ideologies which we can not tolerate – and uncritical acceptance of free market ideals is one of them.

Milan October 21, 2010 at 12:21 pm

I am not objecting to the content of your arguments, but to the manner of their delivery. It makes other people afraid to comment and chokes off discussion.

I have made the same mistakes myself at times. It would be better if we both made more of an effort to keep things civil.

Tristan October 21, 2010 at 1:20 pm

The manner of delivery is not essentially more offensive than the content of an argument. For instance, if someone argues in favour of racial segregation, that is more wrong than a response which condemns the argument as degenerate. Not all arguments deserve civil responses. One argument which does not deserve civil response is the idea that if you can’t pay for water, you should die. And that’s what the free market tells us – so we need to be very careful when weighing certain rights, such as property rights, against other rights, like the right to life, to decent opportunities, etc… Not to do so is morally degenerate.

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