Jon Stonger recently wrote about the power and success of free market economies in the American Diaspora. With his trademark whimsical charm and enamoring banter, we were regaled with anecdotes of truth through power, intelligence beyond faith, conviction for our present system of economics, and sense of pride and nationalism that would cause even the strongest cynics of our American system to shed a tear of pride.

Image Credit: Steve Woods

Despite the heroic efforts of Mr. Stonger to portray the positive aspects of the Free Market economy as a ‘light unto the world,’ the unfortunate reality is that our fulsome market financial system is not the best solution for us at home, for American business around the world, or for others who we are privileged to share the planet with. As we have seen over the past several decades, the Free Market system of exchange is fraught with perils that doom us to certain failure, tempting us with hymns of profit and returns like sirens calling from the cliffs.

The following myths, which are headed by direct quotes from Mr. Stonger’s article posted this past Monday, show some of the common misconceptions that too many state as fact imagining that our way could not be so ill defined. As follows, there are no golden tickets for us to claim through the Free Market system, only continuously intensifying situations of debt, poverty, and dependence.

Myth #1: Free trade helps to generate wealth around the world, allowing poorer countries to improve conditions, increasing the availability of goods worldwide, and providing new and growing markets for American products.

Limits on state controlled industry seems like a positive impact, but the simple fact is that free markets are not the same thing as fair markets. Take agriculture, for example. Farmers in the United States live within a system that has access to fertile land, access to water through irrigation, and subsidized farming acts. The international trading price of corn is currently approximately $3.70/per bushel. With the ability of all of our fertile, irrigated land, according to the Iowa Corn Growers Association a farmer should be able to grow 183 bushels per acre on average. Without considering business costs such as labor, fuel, machine maintenance, fertilizer, and seed corn, a US corn producer makes only $677/acre per year. Assuming they are supporting a family of 4, they need to produce 2400 acres of corn every year just to be at the poverty level, and that is before considering the business costs. Again, this is for a family of 4. How do they survive? While many unfortunately don’t, government subsidies come into play to help out. This is America playing outside of the free market system they impose upon the rest of the world. And subsidies aren’t all–tariffs and other rules rig the game in favor of American farmers.

Given the example of the American system, why is it that lesser developed nations don’t give their agriculture sector the same types of benefits? The answer comes in the form of economic aid. Many nations around the world are dependent upon international aid given out by the World Trade Organization (WTO) and the International Monetary Fund (IMF), both internationally represented, but based in Washington, D.C. and commonly referred to as the Washington Consensus. In order to receive the aid that is crucial to their survival, they must meet certain requirements imposed upon them by these groups. Among these are limits on subsidizing producers, but also include a cap on tariff collection, and the requirement of industry privatization.

The term “Third World” has now become synonymous in our lexicon to ‘poverty,’ the mentioning of which brings to mind children starving in destitute nations wracked with conflict and disease. However, this is not the doing of God or fate, but is rather a direct result of free-market capitalism, the history of which goes back many centuries to colonization and other factors long before our current economic crisis. Nations around the world who were tired of living under the shadow of North American and European governance tried to develop their own systems, only to find that they are now prisoners of demands place upon them by the free market system.

People around the world who are concerned with mere subsistence agriculture due to poor conditions are not able to produce enough food for themselves, let alone to even begin to worry about market prices. If individuals are not able to feed their own families, then the arguments of modernization are moot. We cannot worry about education, health care, and other priorities if people cannot even meet the simplest requirements of survival.

The free market argument to this situation is that individual countries need to develop a comparative advantage. That is, if you cannot be competitive in agriculture, then you must find a niche to develop to become competitive in. The US makes automobiles in Detroit, but can buy them cheaper from Japan. Japan can grow corn, but not very well due to their mountainous terrain. Therefore, we can either buy a car from Detroit, or grow one in Iowa to trade corn for cars. That idea makes sense, but why do we still have the “Big Three” working up in Michigan, ready to be bailed out? The answer comes in the form of tariffs. Tariffs are taxes put upon goods that are imported from other nations. The restriction put upon these abilities by the WTO limits the aptitude to do this allows for the governments of more developed nations to profit off of imports and at the same time make their domestic products seem more attractive by relative price. If impoverished nations cannot collect proper tariffs, then their domestic products are not as competitive by price, and will potentially cause a chain reaction of unemployment, lost profits, and other economic problems.

WTO/IMF regulations on business privatization are possibly the most myopic of the free market vision. Stating that the state government of a country cannot control certain areas of production means that private citizens must purchase the business and operate it. Doing so requires capital investment (money). In a country that cannot feed itself, who has the amount of money needed to buy a major industry? The answer is simple: Multi-National Enterprises. Consequently, countries are forced to sell off their industries, which they can never realistically reclaim, to foreign investors to meet the WTO/IMF criteria. They then lose the money made from them to the already developed countries, i.e.: the US, EU, China, Japan, India, and others. Thus, the cycle of underdevelopment continues.

Myth #2: The goal of free markets is to promote competition, which increases consumer choice and leads to better products and lower prices.

Free markets lead to the creation of poor quality goods and the dependence of consumers on producers. Producing a high quality good would mean that consumers would be able to use that good, with reliability, for a long period of time. The cheaper goods that are bought in the United States are less expensive for two reasons: 1) they are subsidized, and 2) making lower quality goods is in the interest of the producer.

While I have explained the effects of subsidizing a product, the idea that lower quality goods are produced may be a shocking revelation for some. The business idea is simple: lower quality goods are cheaper to produce. This makes them comparatively advantageous from a competitive standpoint. Additionally, lower quality goods deteriorate faster, which requires consumers to replace them with more frequency, thereby giving more money to the producer. Why would anyone produce a high quality, inexpensive good when they can set up a dependence pattern that will earn them larger amounts of money in the long run?

This model is again based on a ‘win-lose’ situation. Wal-Mart wins because it is allowed to freely execute competitors in a open market, but do we receive more choice on higher quality goods at long-term lower prices with better customer service? Ask yourself that while you do some shopping this holiday season.

Myth #3: [F]ree markets work[ed] better. They provide[d] more prosperity, more opportunity, and more growth than socialist or communist systems.

Two examples: China and Latin America. One situation is communist and one is democratic, but the communist one is capitalistic and the democratic ones are socialist. I wanted to use these just to make sure we cover all the bases of economics and government that Mr. Stonger has outlined for us.

China is a state that has a communist form of government, but exercises tendencies of both managed and free market economies. While the situation of its history has been well documented, the ideals that a new China has displayed to the rest of the world are staggering. They have achieved signficant advancements in technology, agriculture, and world monetary supply. They’ve also managed to heavily invest in United States debt to the point that if it were to be collected at any time in the near future would be sure to bankrupt us. While we have heard that communism doesn’t work well, here we have an example of just the opposite.

South American governmental tendencies over the past 25 years or so have been influenced by the United States as they always have been, but now they are doing something different with that relationship. They have developed stable and free democracies, but have freely elected leftist politicians to lead them and their economies through the first part of the 21st Century. While leaders of the “New Left” such as Morales in Bolivia and Chavez in Venezuela have continually disrupted the Washington Consensus with their defiance towards anti-submissive behavior, their actions have been defended by other nations across the continent. There are now nine freely and fairly elected socialist executives across Central and South America. Their combined power and access to raw materials have allowed for them to establish a new economic community known as the “G-20 Developing Nations,” which rejects the free market policies of the Washington Consensus and continues to prosper without aid or respect from the ‘developed’ world while representing 60% of the world’s population, 70% of its farmers and 26% of world’s agricultural exports.

The policies outlined by advocates of the Free Market propagandize that the economic ideas that the west has agreed to since 9 November 1989 must be the correct ideas. The truth is that those ideas form a small subset of a number of economic possibilities. There are many paths to righteousness, but we must allow for individuals to make the correct choices for themselves in the unique situations rather than subject them to the will of the free market. Half of the world’s population lives on less than two U.S. dollars a day. Free market figures shows that overall GNP is growing around the world, but between the lines of data we see that the rich are getting richer while the poor are getting poorer. We are all suffering from the effects of a free market system imposed upon ourselves and the entire world. Free does not equal fair, nor does it equal good. All that free markets allow us is the possibility of losing in a worldwide match of musical chairs.