Tuesday, July 3, 2007

More Free Market Ramblings from Stevie Joe

As I pointed out in my last post, corporations have an obligation to their shareholders to maximize profit. The number one value is money. So, what happens when you apply that value system in a free market economy?

Many corporations have discovered that a surefire means to increase profitability is to lower production costs. Hence, we have a race to the bottom. If you manufacture in China, wages are low, the government keeps the workers in line, and there are essentially no safety or environmental regulations. So, you can make a big profit.

In this model, how do you establish and protect fair wages, a clean and safe environment, and workers' rights? Remember, the corporation's primary goal is to make money, not to promote these other values.

The free market economists say, naturally, that the market itself will correct this as consumers demand these things. So, in order to maintain sales volume and profitability, corporations will have to clean up their acts. However, this argument makes two big assumptions. First, it assumes that consumers are aware of the issues and have the information necessary to make an informed choice when shopping.

Second, the free market economists argue, à la Adam Smith, that all problems are resolved when people act in their own interest. If so, why would consumers choose products made by socially responsible corporations? Perhaps a clean environment would be a concern, but how will shoppers decide that supporting fair wages, workers' rights, and a safe workplace advance their own interest better than low price?

So, if these other values are important, how do you protect and promote them? One answer is, of course, government regulation. While the free market economists hate this answer, it has worked where it has been applied while their own model has failed. The problem we face now is how to encourage countries like China to follow our path. The free market economists want "free trade," but while our trade with China might be "free," it is not fair. The playing field is lopsided, and, as a result, workers and our environment lose.

Take That, Mr. Smith!
Stevie Joe Parker

1 comment:

j.d. said...

Americans, as a general rule, will buy whatever they can at the best price they can with willful disregard to the conditions of manufacture - case and point: Wal-Mart's continued success.

I agree Stevie Joe. The consumers really don't care. It is the Government's job to oversee the welfare of it's citizens.