Hard SF : Odd Numbers : What's Wrong With Libertarianism & Free Markets

What's Wrong With Libertarianism & Free Markets

There is a current within SF writers' community of libertarianism. I suppose there is a certain internal logic to this. An author can operate, at least on one level, in his craft as an individual doing his own thing. So philosophies of individualism may be more common among authors than in the general population. Regardless of what grains of truth may exist here and there in the libertarian ideology, as a whole it seems to me to be a dangerous way to run a society in modern times.

Like any part of the ideological spectrum, what libertarians advocate varies from individual to individual and organization to organization. Whether or not they perceive it that way, their economic policies would at least in the short run favor the more affluent, and I believe there is good reason to believe this would be true in the long run as well. Although my income is above average, it is not high enough that I could depend on such a system benefiting me, even if it did not result in economic depressions and other problems. Besides this orientation to the wealthy, I would suggest the following issues with libertarianism:

Some Of The Issues

(1) Business Needs To Be Regulated

There are dishonest businesses and businesspeople. Theoretically, these could be dealt with by the Chamber Of Commerce, an industry-specific business group, or some other alliance of honest businesses - but it's not. Dishonest businesses take away customers from honest businesses, they make customers suspicious of honest businesses, they use deception to confound the process of informed competition, etc. It would be in the immediate self-interest of honest businesses to help shut down dishonest businesses. Other businesses in the same industry would have specialized knowledge that could make them the most capable at identifying dishonest business practices. Nevertheless, other businesses tend to do little to stop dishonest businesses. Industry does not regulate itself, so government must.

If businesses had not polluted before government established pollution controls, if businesses had not marketed addictive products like tobacco before government regulation, if drug companies had adequately tested their products prior to FDA rules, if businesses had regulated themselves so there wasn’t a vast financial crisis in 2008, if business had not carried out other practices with harmful effects on society - then it would be reasonable to consider that government regulations might be unnecessary. But that's not what history tells us.

History suggests businesses don't control their polluting because of environmental concern, without legal requirements. (Of course, if the pollution harms the company's facilities costing more than the cost of pollution control, they may act on that. They may build a tall smokestack so the soot falls on someone else's property, but they don't control themselves in order to avoid smog affecting the surrounding city.) In any case, it is reasonable for citizens to want pollution regulation done by an independent body rather than by businesses that have a vested interest in minimizing business expenses. If my bank won't let me withdraw from my account and I have to take my case to court, I don't want the court to be made up of bankers. If we need pollution control, we don't want it regulated by industrial companies.

The Libertarian Party's website position paper on the environment is mostly a rant about pollution by government bodies. Whatever the shortcomings of the government's own actions, we can all vote against the guilty politicians and we can even run for office against them. The average person simply can't have stock in every company that pollutes and take off time from work to go to all of their stockholders' meetings. Changing government policy isn't easy (partly because corporations spend vast sums to influence government officials). As hard as that is, it is more difficult for the average citizen to influence corporate polices using only consumer purchasing and stockholder meetings. And that is why we now have government regulation, not business self-regulation. (It might also be noted that the amount of “government pollution” may be related to the fact the government is responsible for trash disposal, sewage treatment, toxic waste abandoned by companies, hazardous materials used by the military, etc.)

In any case, if the government sent its employees to rob banks, libertarians would not conclude that since the government was guilty of bank robbery that we should repeal laws against bank robbery. They would say laws against bank robbery are good and we just have to stop the government from doing it. The same is true for pollution.

(2) Businesses Often Avoid Informed Competition

Free market advocates tend to sing the praises of competition and how it leads to improvements and forces companies to provide benefits for customers. However, if you look at / listen to advertisements, you'll find they do not tend to be very informative. Some tell you nothing meaningful about the product. Most ads do say something about the product, but in a way designed to provide limited information. They may mention some features in a way intended to make it sound good, but don't compare this to features offered by competitors. Some emphasize they are the only ones with some trade-marked "feature" while not saying what benefit it has. They hire actors with certain looks to leave people with some unfounded assumption about the product. And so on. Ads are designed to get you to buy without making an informed comparison with other products.

This is the natural course for business. Their purpose is to sell. Any business with a conscience is at a disadvantage competing with companies without a conscience. All in all, they have found it convenient to have ads with the minimum information necessary to sell, and the maximum amount of irrational appeal. Businesses and business groups are not going to change this on their own. We have to either conclude informed competition is going to be limited and free markets will only provide a bit of benefit from this, or we need government intervention to force companies to advertise and market in a way that increases informed competition so benefits can be obtained from it.

Businesses also try to prevent open and informed competition in a variety of other ways. One is designing products to have unnecessarily proprietary aspects or other forms of incompatibility. For instance, it is common for mass produced items such as cell phones to use battery rechargers that are incompatible with those available from competitors and even incompatible with those for other models made by the same manufacturer. Corporations also sometimes preempt start-ups (or other smaller competitors) with products / technologies that they considering threatening by buying out the other company. If the product / technology threatens the corporation's central game plan, that product / technology is often locked up and never allowed to see the light of day. There are also other monopolistic practices or other means corporations use to block or hinder real competition.

Some manufacturers produce the same product under different names / model numbers to sell to different kinds of stores. This makes it difficult for consumers to comparison shop between full-retail and discount-price stores, and similar complications. Some kinds of products also are replaced frequently with other models even if no significant change has been made. As a result, by the time product comparisons appear in something like Consumer Reports, the model numbers in the stores are different.

(3) Sometimes The Best Solution For Businesses Is A Compormise Enforced By The Government

I worked for a government agency that operates as an insurance company for workers compensation. The agency and workers compensation laws were set up back in the early 1900s, before the days of big unions, public assistance programs or most of the government regulatory agencies we have today. It came about as a compromise for businesses. Workers injured on the job were going to court and suing businesses to get some money for their medical and living expenses. When the court made the businesses pay, that could be a significant expenditure. It was a big, sudden expense similar to why people get fire insurance, accident insurance and such. But businesses were reluctant to be the first or only company to take on the expense of paying insurance premiums for workers compensation. That would put them at a competitive disadvantage.

However, court settlements were a big enough issue businesses eventually decided the best solution was to have all businesses required to have workers compensation insurance. Businesses with more accidents would pay higher premiums. On the one hand, companies did not want to be forced out of business because no private insurance company would sell them a policy, on the other hand insurance companies didn't want to have to sell policies to every company that requested one. So, in addition to private insurers, a government agency was created to sell workers compensation insurance to any business that asked for it.

The private insurance companies did not want this government agency to be too capable of competing against them, so many rules were set up restricting the agency. When the agency is selling lots of insurance, there's a limit on how much money it can make. When it's selling only a little, there are inflexible rules about what it must do. It is forbidden to sell other kinds of insurance or do non-insurance business, and it's restricted in where it can sell insurance. It is required to sell insurance to companies other insurers won't. And so on.

Actually, considering all these restrictions, the agency does rather well compared to private insurance companies selling workers compensation - a fact that runs counter to libertarian claims private businesses always do things better.

(4) Consumer Choices Aren't The Best Means For Citizens To Make Binding Group Decisions

There are some objectives that are less effectively addressed as consumers. Suppose the majority of citizens would like manufacturers to use methods that put less pollution into the air. Consumers can try to convince a manufacturer to take the risk of the extra expense of pollution controls while their competitors don't. Consumers can even try to buy stock and lobby for pollution control at the annual meeting. If/when some company starts using pollution controls, organizations can try to convince large numbers of consumers to buy that company's more expensive products because the products were made with less pollution. And so on.

This is a longer, less certain path than government regulation. Also, just as some companies continue to find consumers to buy cheaper, but poorly made, products; there would continue to be some companies that would find consumers willing to buy cheaper, but polluting, products. Advertisements from polluting companies would try to leave consumers with the impression they did not pollute. (It also becomes rather complicated if you have more than the one issue of air pollution. If there are efforts to only buy from non-polluters and efforts to only buy from those that don't use misleading ads and efforts to..., individual purchasing becomes a less practical method.) It seems to me it is reasonable for the majority to be allowed to decide what an acceptable amount of air pollution is whether or not there is a minority willing to buy products that would cause more pollution than that. The market does not allow majority rule to operate in that kind of manner.

Minorities have some rights, but I think the majority has the right to limit this in cases when harm to everyone may result. In an election, in a legislative body or in a regulatory agency an organized, public discussion can provide a more thought-out, informed decision on an issue. And structures can follow through on the decision in a thorough and consistent manner. (Not that anything human, government or free market, operates at 100% efficiency; but leaving everything to individual choices is not a mechanism for these collective decisions.)

(5) History Does Not Show That Business Forces Make Companies Efficient

Even if at any one given moment in time most of the more prominent businesses were acting more efficiently than less prominent companies, this does not seem to be a process that imposes efficiency on companies in general or the more prominent ones in particular.

I'm told that General Electric is the only company that has remained in the Dow Jones index since the beginning. The Dow Jones includes those companies that do well, at least for the time being. But all but one company has come and gone. Some have simply gone out of business, some have done poorly enough some other corporation was able to buy them out, some still exist but aren't doing well enough to stay in the index.

In the late 1980s a large part of the US savings and loan industry went under. Only 20 years later, in 2008, banks and investment firms were in another crisis – as a result of making the same kinds of foolish choices - with big name companies going out of business. American auto manufacturers aren't doing so well. (European imports are doing fairly well in the US and those are not cheap and they are made with union labor, so price and unions don't seem to explain US auto problems.) Not only have we had cases like Enron, we've had major financial institutions favoring Enron stock until the end. We've had issues with US airlines...

Microsoft is known for having bloated software. It is not responsible for much real innovation. Most advances have been developed by other companies; then Microsoft buys their company, bullies them out of business or otherwise use non-innovative means to take over the market.

Companies haven't used automated phone systems to efficiently talk to customers quickly - they use them to reduce staff size and leave customers on hold for long periods of time. They've outsourced their phone operations to other countries where the pay is low but the staff can be difficult to understand. And even with this inferior level of service there's an increasing tendency to charge customers for things like technical support.

(6) Economic Instability

Prior to organized government intervention to stabilize the economy, there were periodic economic depressions. The most serious being the Great Depression of the 1930s. Libertarians might like to believe the reason the Great Depression lasted so long was because of the beginning of public assistance, government intervention in the economy, etc. This can be countered in a few basic ways. First, the stock market crash occurred in October of 1929. FDR was elected in November of 1932. That was three years later and FDR was elected because the economy didn't look to be getting better. Second, not every country followed policies similar to FDR's in the US. Those that followed different policies experienced the Depression as well. Third, economic downturns have tended to be less serious since these government operations began. It's been 60+ years since the end of WWII, which is a reasonably long period of time to see if government intervention in the economy causes worse downturns. Apparently, it does not.

On the other hand, the financial meltdown of 2008 might have been avoided if the financial industry had not been allowed to put trillions of dollars in unregulated types of investments. Neither the individual corporations nor industry groups were acting to prevent those irresponsible business practices If the government had not been taking an approach somewhat in the direction of libertarianism we could have avoided this crisis.

(7) Prosperity

Libertarians claim free markets lead to greater prosperity than other economic policies. At best, this is a bit hard to determine. You're unlikely to find a libertarian who will indicate any country today as carrying out all the policies they advocate. And if they did indicate some country, it certainly would not be one of the world's top ten economic powers. We don't have a real-life reference point of what libertarian policies would do. (Since there are capitalist nations that are democracies, monarchies, military dictatorships, etc. it is safe to assume that if businesses really wanted an entirely free market economy there would be at least one somewhere or other.)

Since they can't compare prosperity of an existing libertarian economy with a government-regulated capitalist economy, they sometimes compare the economies of the top capitalist powers with Communist economies. But there’s more to the affluence of an area than its economic model. The state of Montana is not less affluent than the state of New York primarily because of different economic systems.

Prior to WWI, Czarist Russia's economy lagged far behind the major capitalist economies. Russia suffered greatly in WWI and more so in the civil war after the Communists came to power. The US only entered WWI towards the end and none of the fighting took place on American soil. Only about 20 years later, the USSR suffered greatly in WWII - with devastating fighting on their land and about 20 million of its people dying. Again, the US entered WWII later than other countries and fighting on American soil was limited to the attack on Pearl Harbor and more distant US colonies such as the Philippines. Under these circumstances it would not be surprising Russia could not compete with the US economy regardless of what economic policies Russia enacted.

(Libertarians started using the USSR as an example of economic failure when its Communism had had less than 70 years, including those devastating wars, to build up. Today, Russia has been capitalist for 20+ years, during which it hasn’t suffered from major wars or a Great Depression. So far, we have not seen capitalism bring it back to the international influence the USSR had.)

A Communist could throw around some interesting statistics. Around 1989, when Eastern Europe was rebelling, the New York Times published a chart comparing the economies of NATO and European Communism. The three poorest nations on the chart were all capitalist - Portugal, Greece and Turkey. Does this prove Communism provides more prosperity? No, that would be as silly as the libertarians’ comparisons. You need to know more about the countries you're comparing - history, natural resources, geography, etc.

The crucial point is, even if Communism was an economic failure, it does not necessarily tell us which variant of capitalism is best.

Libertarians won't make similar comparisons between capitalist nations with more social welfare and those with less social welfare. It is the more affluent capitalist nations that can most afford social welfare programs. So, any such comparison would show on average countries with more social welfare are more affluent; countries that are poor have less social welfare. But as you see, it’s not as simple as “economic policy = level of affluence”. One has to be careful for any attempts to make meaningful comparisons to economic policies and consequences. Still, if such case studies did hint at anything, it would not be in favor of libertarianism.

It is precisely those more inclined to free market approaches that are always telling company employees wages & benefits must be held down so the business can compete and telling US citizens wages & benefits must be held down so the US can compete in the world. It certainly is the logic of free markets that lower wages & benefits are an advantage to companies. Especially today with greater ability to use cheaper labor in other countries, a libertarian economy would mean a downward spiral of wages until they evened out at a level approaching (but not exactly) that of the lowest-paying company in the lowest-paying country. Then no company or country would be at a competitive disadvantage. Prices would decline also, but the necessity of items such as food, clothing and shelter would allow businesses to decrease those prices to a lesser degree than the decrease in wages. This might give great prosperity for the business owners, but not the vast majority of people.

100 years ago in the US, when economic policy was much closer to the libertarian ideal, most Americans were working longer hours at lower wages and were less prosperous even by the standards of that time. Developing countries today have economic policies closer to libertarianism than ours, but those countries have smaller middle classes because fewer of their people share in what wealth their country does have. It would be reasonable to expect most Americans would be in a similar situation if libertarian policies were instituted now.

(8) The Right Of The People To Choose

When legislation inconvenient to businesses are proposed one often hears arguments that if it becomes law businesses will move to other places, businesses will reduce their staffing, or they will do this or that. Businesses don't necessarily do such things as a conscious effort to sabotage such laws, but it can have an impact on areas attempting to implement plans preferred by the majority. Whatever the conscious intent of businesses, the practical consequences are that if government policies are warm and cozy for companies, companies operate more extensively. If government policy isn't as lopsided in favor of business, companies don't contribute as much towards the health of the economy. As a result, any statistics suggesting business-friendly policies are good for the economy in general are influenced by voluntary business choices as well as government policy. In principle, those private businesses choosing to be less cooperative when they don't get their way could be replaced by a public or private enterprise that would be more cooperative. If that was done, we would get a better idea what the impact of the government policy itself was. One way or the other, the majority should have the right to choose society's policies. Sometimes those policies may not turn out to be as useful as hoped for. But failure of a policy should not result because some business owners choose to reject the democratic process.

(9) Bureaucracy

Libertarians often argue against government agencies and operations they don't like by talking about government bureaucracy. Certainly, it's not so hard to find examples of government bureaucracy. But anyone who has ever worked for or had to have certain kinds of dealings with a large corporation will know they, too, have bureaucracies. Smaller businesses (and smaller political subdivisions) tend to be less bureaucratic. If you want to have automobiles built by little mom and pop companies, it can be done without bureaucracy. If you want cars built by a large mass-production factory (whether privately owned or government owned) the organization will have bureaucracy.

(10) A Time Of Crisis

An unrestricted market economy may have been beneficial in the 1800s, and maybe it would have no harmful consequences for an interplanetary civilization able to access enough resources elsewhere so it doesn't damage planetary ecosystems. However, we are at a point where we are causing an ecological / climatic crisis, but lack space resources to counter-balance this. We can choose to eat, drink and be merry today and die tomorrow; or we can choose to put limits on what we do today in order to live tomorrow. If there was some way to let those who preferred the first choice to party today and die tomorrow without it preventing the rest of us from accepting limits and living tomorrow, I'd let them go their own way. But that's not a feasible option. Therefore, I advocate setting necessary limits so we can live tomorrow. I don't consider letting businesses produce whatever they want (in whatever way they want), to advertise whatever they want in whatever way they want, and other economic activities contributing to the crisis to be a more essential right than the survival of the human race.

As noted above, businesses don't regulate themselves in terms of dishonest businesses. They also don't regulate themselves in terms of climate change and the environment. At some point in time, the crisis may become so severe and immediate that they do regulate themselves, maybe not. We can't afford to wait to find out or to hope that when they start to regulate themselves we haven't crossed the point of no return. Something has to be done now and we have the right to legislate it under these circumstances.

Consider a related matter. As time goes by, new technologies are developed that could be incorporated into products to reduce human impact on the environment and climate. For instance, cars with electric power or other alternative energy sources. When these technologies are new, they tend to be expensive. Left to a free market with no government intervention, these new technologies will not be commercially advantageous to auto companies for a number of years. Alternate energy cars began to be produced in small numbers many years ago and have shown themselves to be usable, but they have not been sufficiently profitable for large-scale production. Over time, the unit prices of these vehicles will come down, but society should not have to wait for the free market to reach that point. Society acting through government should have the right to say we can’t allow the harm to the Earth to continue until it is convenient for businesses to act differently.

(11) What'’s Good For Business Isn’t Always Good For Society

The purpose of a business is to make money for its owners. For a product to make money for a business there must be a certain number of consumers who either want it or can be convinced to buy it. However, that does not mean it is desirable to most consumers and does not cause harm. Let me give one example in addition to those used above. Some businesses find it advantageous to promote disposable products – selling one $1 disposable product each day to a consumer may be more profitable than selling a $10 product once a month. However, manufacturing huge numbers of disposable items can mean using more natural resources, making more pollution and causing more garbage when they’re thrown away. As I argued above, I don’t believe individual consumer purchases or stock ownership is the best way to deal with such an issue.

(12) Individualism

Individualism might be good if you live in a log cabin you built yourself, you farm and hunt for your own food, you weave your own clothes, chop your own wood for heat and make your own candles for light. But if you buy your food, clothing, shelter, heat and electricity you live in a community of people with complex interdependence. Your goods and services are mass produced in ways requiring team work. The individual choices of the particular homes, foods, clothes, books, etc. that this allows us would not be possible without coordination in some areas. Our lifestyle depends on a balance between individual and society. To one degree or another libertarians accept this – they usually believe that some things should be crimes and society has a right to control individuals in such matters. I believe most people and society would benefit from a balance further from individualism than libertarianism general favors.

(13) Baking More Pies Vs. Competing Over The Same Pie

Another issue with unregulated capitalism is the fraction of the economy devoted to activities that don’t produce new wealth. Consider financial trading. A modern economy would not function if there were no places to exchange currencies, buy and sell stocks and other securities, etc. On the other hand, much of actual financial trading does not produce goods or services to increase overall wealth. As a very simple example, we need currency exchange for travelers, but we don't "need" speculative currency trading. In cases like speculative trading it only redistributes which affluent people have the wealth. To take an analogy, it changes who gets bigger or smaller slices of the same pie, rather than making more pies so everyone has more to eat. This is an issue even today in our non-libertarian society. At least in our current society government efforts to try to maximize parts of the economy that produce goods and services, and minimize areas that are strictly "gambling" with no new wealth created are not forbidden by libertarian principles. We can see from experience that markets left to their own devices care more about the anticipated return on investment more than whether society as a whole ends up with additional wealth. I don't think we should close our options for society to guide this trend away from less beneficial areas of the economy.

(14) Financial Crisis Of 2008

The financial crisis in September 2008 is a good example of the issues of libertarianism. Governments of the world pumped untold billions of dollars into the financial sector to prevent a full meltdown into a depression. Libertarians would tend to argue that the crisis is just a necessary shake-out and "correction" for the economy - and they would claim that in the long run, for the majority of people, the net result would be somewhat more prosperous than in a regulated economy that did not have occasional depressions.

I'm not convinced that their claims are true, but whether or not they are that should not be the whole story. In the business world, some investors prefer stable, low-risk investments - although these have a lower average return on investment. Other investors will put at least part of their money into investments that have a higher risk of losing money, but have the potential to have a higher rate of return if things go well. If the majority of the people would rather have the economy regulated so it works like a low-risk, lower-return investment, perhaps that is the right way to organize the economy. There is more to life than merely increasing one's money as fast as possible. A sense of security and dependability has some human value also. The financial crisis has caused millions of people who had no say in corporate choices to lose their jobs, lose retirement money, lose college savings and/or lose their homes. Not having to worry about such things is worth some trade-offs.

In personal money investment, you can put the majority of your money in minimal-risk investments, and put just a small fraction in high-risk investments. In an unregulated economy, the entire system can fall into depression because of the poor choices of a certain number of companies in one pivotal sector of the economy. If a society chooses an unregulated economic system it's like putting the majority of society's money in high-risk investments. That's not a good idea.

(15) Science

Libertarianism conflicts with my scientific approach. Essentially, libertarianism claims that there is absolutely no possible way in which humans could use intelligence, past experience, scientific study or any other conscious effort to improve on the uncoordinated activities of a free market.

That's kind of like saying if a farmer wants a new variety of plant or animal it would be better for him to wait for random mutations to produce it rather than a conscious breeding program. Perhaps, that's not a truly good example as individual businesses do have managers with human minds. But if libertarians believe society would be better off without economic coordination, do they believe a corporation should have managers for each of its departments, but no central management for the whole company? Do they believe that companies should not belong to industry groups that coordinate activities? Do they think having a Chamber Of Commerce is a bad idea?

If libertarianism is the correct path, and if the uncoordinated actions of independent humans will lead to the best results, then why hasn't the "free market" of voting brought libertarians to power anywhere? Why haven't at least the majority of well-educated businessmen accepted it as the answer? (Yes, many businessmen hold certain ideas that are convenient for business which are also held by libertarians, but most businessmen don't accept the whole philosophy.)

Libertarians sometimes try to give themselves a scientific appearance by comparing free market forces to "the law of the jungle" that guides evolution. Science isn't just about observing nature in the wild and describing it. There is also applied science in which we try to improve on nature. Most of us who don't want to live a Stone Age life in the wild also don't want to live in a modern-day "jungle". Nor do libertarians. If a thief is smart enough to get through a bank's security system, or strong enough to take money by force, or dexterous enough to pick pockets, or fast enough to snatch purses and outrun victims - libertarians don't conclude the thief has won by the law of the jungle and therefore deserves what he stole. Then, libertarians advocate a big enough government and taxes to act on behalf of those who lost according to the law of the jungle.

(16) Property Rights

Libertarians often argue that property is a fundamental right, and they suggest that either we must accept an absolute right of property or reject all property rights (anyone passing me in the street has the right to take the hat off of my head). That is an absurdly extreme view of rights. The right to free speech doesn't necessarily mean I can slander you or disclose government secrets to other countries or shout "Fire!" in a crowded theater. A right which we consider to be of great importance and central to our form of society can still have limits placed on it based on harm to others.

Property rights must be subject to restrictions based on harm to others. For instance, we can't allow a factory to pollute air and water on its property as it will cause harm to others beyond the factory's property lines. Tobacco companies don't necessarily have the right to promote and sell products that will harm others. (Even if we were to accept the idea that tobacco companies had the right to promote and sell products that are harmful to consumers who are fully aware of the product's harmfulness, we could at least argue that the tobacco companies must not conceal the harmfulness from the consumers.)

There can be disagreements on just what kinds of harm from use of property rights must be restricted. For instance, when banks can act in ways that result in the financial meltdown of 2008, are the trillions of dollars and millions of unemployed people harm enough to restrict the banks’ property rights? Libertarians may wish that what they conceive of as property rights on general principles were absolute legal rights. However, our government policies are based on law as established by the political system. Questions of when and where property rights result in too much harm to be permitted will be decided by our political system. We should not let a religious-like belief in property to place it above the welfare of people.