Monday, September 12, 2005

Anti Free Market Protests Planned

I'm not fundamentally opposed to the free market and I certainly wouldn't call myself a socialist. I do believe that there are a number of flaws in the free market and that these are often overlooked by supporters of the free market system as it currently exists.

As an example, it seems to me that many markets have a tendancy to become oligopolistic. In effect, a small number of very large companies come to increasingly dominate whatever sector of the market it might be. The economic history of the last fifty years would appear to bear this out. There are many examples: banking, supermarkets/retailers, TV and newpaper producers, the oil industry, soft drinks manufacturers...
It's a long list and it seems to be getting longer. It is, as I understand it, well accepted that oligopilistic markets do not behave in an ideal way. There are normally enormous barriers to entry into oligopolistic markets. Imagine trying to create a new business which must compete for market share with BP, for example. This provides oligopolies with a degree of immunity from the competition which is so vital to free market theory. The system also provides companies with significant incentives to collude with their (small number of) competitors in order to create what is in effect a collective monopoly.

This seems to me to be a significant flaw in the current system. Solutions would necessarily impose restrictions on some of the largest and wealthiest companies in the world. I wonder why governments don't talk about this problem much?

Anyway, I'm a mixed market man myself. The free market is useful but it must be regulated properly. Today, I don't think it is. All of this is a rather roundabout way of getting on to talk about the fuel protestors.

It seems to me that these people are protesting against the wrong people and are anyway woefully misguided.* They are protesting to the government but it isn't the government which has increased oil prices. Has Brown increased fuel taxes? No, in fact fuel duties are lower now than they were in 2000. In 2000 the level was 77% and it is now 66.7% (click to page 4). Now you can argue that that figure is still far too high and that's a legitimate position (not one I'd agree with obviously) but that isn't what's motivating these protests. Fuel duty has been at the current level for quite some time without any such protests being called.

No, these protests are motivated by the recent increases in the market price of fuel. This increase is just what you'd expect from the free market in the current situation. Demand is increasing and supplies are decreasing.** We can expect the price to increase until demand is reduced to a level which matches supply. A lovely new equilibrium position should be the result. This is the free market working perfectly.

So why the protests? It seems that the protests are basically about the way the free market reduces demand based on ability to pay. If you can't afford it, you can't buy it and overall demand falls as a result. These people are unhappy about this. They want the government to intervene to reduce the price of fuel at a time when supply is dangerously low.

What a bunch of pinko, big government supporting, price fixing losers. That's how the system works, people. Your calls for government intervention are just an attempt to disrupt the smooth flow of the free market system. Reducing the price now would increase the chances that rationing will become necessary. Next thing you know, we'll have queues outside government bread shops...

Seriously though, I'm delighted if people are begining to feel that restricting demand based on ability to pay is not always desirable. It's an interesting moral question and it doesn't get the attention it deserves. Unfortunately, I suspect most people who support the fuel protests just want cheaper petrol and don't give a toss about such issues.

It will be interesting to see which sections of the right wing press end up supporting these protests though. As far as I understand it,, if you are a free marketeer these protests are ideologically indefensible.

*I should add one caveat. Much of Scotland is rural, there is very little in the way of public transport. A car is a necessity to a far greater extent. For people in such a situation, I do have at least some sympathy.

** I'd argue this lends credence to the peak oil theory. You might prefer to believe that it's temporary. That's for another post though.

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