Some Thoughts On The Free Market

To some extent I have idiot proofed this blog. I delete comments that are silly, just argumentative and not informed.  

I am not surprised anymore at the ignorance of people who sound educated (they write in English) but they are actually poorly informed. 

One fellow once sent a comment insisting that our economic growth has decreased because of the rise of China. I usually delete such comments because they are just noise and distract from the conversation.

Despite Chinese growth and China being the largest investor in Africa, almost the whole of Africa has seen strong economic growth over the past 20 years, including some African countries that have seen double digit growth.  

China has not diminished the GDP growth of Africa.

Likewise despite strong growth in China, our neighbours like Indonesia and the Philippines have seen strong growth of 5% to 7% over the past years, especially the Philippines.  Chinese growth is in fact good for the whole world. They buy more things from us.

Like wise there is serious confusion about the meaning of free market or open market. 

Before governments, before empires and minus invasions and colonisation the 'natural state' of the world is a free market. 

When the first human being harvested some fruits and exchanged it for a chicken with another human, that was free trade. 

The free market is the best thing that is available for the human race, up there right beside oxygen. Simply because it means freedom. 

And many of you are also confused about freedom. Freedom makes you a Muslim -  a true submitter. Anything less than a free market makes you less of a Muslim. Maybe we can talk more on this later.

The more you mess with a free market, you become poor. 

The more you mess with a free market, the less Muslim you will be. 

Muslim meaning one who submits to the good around him, to the Natural environment. Nature is always Muslim. 

Surah 22:18 Do you not see that to Allah submits (sujud) whoever is in the heavens and whoever is on the earth and the sun, the moon, the stars, the mountains, the trees, the moving creatures and the people?..

The mountains, stars, the moon, the trees and everything together makes up Nature. Everything in Nature must submit to Allah. It is as Muslim as you can get.

There is no such thing as a failure of the free market. There are sometimes human imposed distortions (which always fail) and there are corrections in the free market. Ultimately all market distortions lead to corrections in the free market. Allow me to explain.

Lets take the US sub-prime housing bubble. It was a free market. The banks and the people could pretty much do what they wanted. Sadly greed and carelessness got in the way. There was a huge distortion. And the market collapsed. It had to correct itself.  The free market punishes mistakes and disciplines mistakes with failure. 

Or when 100 traders congregate in one shopping mall selling computers, phones and accessories. Some of them will have to close shop because there are too many in one location. Some will have to move location or sell other products which the market can sustain.  There will be a balance in that mall. Then the mall is considered successful.

You cannot create distortions where one fellow corners the whole mall, then sublets the shops at a subsidised rental to bumi traders. In turn he is 'reimbursed' by the government for the amount of the rental subsidy plus extra. He makes easy money - a distortion. And the bumi traders cannot get rid of the crutches - another distortion. 

Worse the same fellow insisted that all the bumi traders MUST buy their products only from him or his designated company. They were forced to buy at a high price and their choice of products was limited. Further distortions. So what happened? Low Yat 2 collapsed.  End of story.  The market punishes mistakes with failure. You close shop.  

There is no market failure. The market rewards products that sell and weeds out (or punishes) those that cannot.  It is called a correction. Micro level or macro level - it is a market correction.

Any sort of government intervention in business and the economy is a distortion, especially when government intervention seeks to fix prices or control access to the market. This is the dumbest, most stupidest thing that any government can do. You mess with the free market you become poor.

In Malaysia the business and economic side of the NEP have ALL been disasters. In any business or industry where the government has interfered it has been disastrous. Can anyone make a list? It will be too long. Because the government's intervention is always through the mechanism of creating distortions in the market. 

All distortions will lead to corrections. The market punishes distortions with failure too. The distorted market will automatically want to correct itself - to return to its steady state.  Many people just do not understand this.

Colonialism was a huge distortion, an attempt to corner the market in colonised territories. But you cannot enjoy evening tea in London having chocolate with nutmeg and cinnamon when the natives in the colonies from where they "extracted" the nutmegs and cinnamon got fed up of the looting and started shooting arrows at your British sons.  It just does not work that way. There has to be an equilibrium that can sustain itself. And the equilibrium keeps moving. As people progress, we all leave the bullock carts and acquire the capacity to drive Mercedes and Audis.  The free market rewards knowledge and hard work with success.  (It goes without saying. Boleh faham ke?)

What is the job of government? The job of the government is two fold:

1.  make sure the market operates with as few distortions as possible. The government must facilitate the efficient functioning of the free market. (This may include rules and regulations to deny the odd pirate that appears over the horizon.)  You mess with this, everyone becomes poor. 

2.   make sure that access to market opportunities are open to anyone who wishes to participate.   This is very important. This may mean helping some with a little bit extra. But do not stop or slow down the others. Encourage the slow to speed up. Encourage the fast to run even faster.  

Never distort the market. 

Never deny access to the market.

Either of these will make us poor. Mercedes will turn into bullock cart again.