Basantipur Times

Single European Act of 1986

]

The fragmented nature of EU institutional structure provides multiple channels through which organized interests may seek to influence policy-making. Lobbying takes place at the European level itself and within the existing national states. The most important institutional targets are the

Commission

, the Council, and the European Parliament.

[19]

The Commission has a monopoly on the initiative in Community decision-making. Since it has the power to draft initiatives, it makes it ideally suited as an arena for interest representation.

There are three main channels of indirect lobbying of the Council. First,

lobbying groups

routinely lobby the national delegations in Brussels. The second indirect means of lobbying the Council is for interest groups to lobby members of the many Council-working groups. The third means of influencing the Council is directly via national governments. As a consequence of the co-decision procedures, the European Parliament attracts attention from lobbyists who target the

rapporteur

and the chairman of the committee. The rapporteurs are

MEPs

appointed by Committees to prepare the parliament's response to the Commission's proposal and to those measures taken by the Parliament itself.

Lobbying in

Brussels

was born only in the late 1970s. Up to that time, "diplomatic lobbying" at the highest levels remained the rule. There were few lobbyists involved in the system and except for some business associations, representative offices were rarely used. The event that sparked the explosion of lobbying was the first direct election of the

European Parliament

1979

. Up until then the Parliament consisted of a complex, and companies increasingly felt the need of an expert local presence to find out what was going on in Brussels. The foundation of lobbying was therefore the need to provide information. From that developed the need to influence the process actively and effectively. The next important step in lobbying development was the

, which both created the

qualified majority

vote for taking decisions in the

Council

and enhanced the role of the Parliament, again making EU legislation more complex and lobbying further more important and attractive for stakeholders.

In the wake of the

Abramoff scandal

in Washington and the massive impact that this had on the lobbying scene in the

United States

, the rules for lobbying in the EU—which until now consist of only a non-binding code of conduct-—may also be tightened.

[20]

[edit]France

France

, the political system does not integrate the lobbying practice. Much French republican thought has been suspicious of the claims of "particular interests," which are often contrasted with the "general interest" of the nation. This is one interpretation of Rousseau's

Social Contract

, for example. So while lobbying has always been practiced in France, organized lobbying made a significant appearance in France only in the early 1980s. Since then, it has steadily grown; many interest groups routinely seek to influence the French institutions as the Government and the French Parliament ("National Assembly" and "Senate"). To make up the lost time, more and more French enterprises try to organize their own lobbies by creating their own public affairs department. In recent years, growing numbers of

grassroots

and grasstop lobbies have been organized by citizen groups, representing interests such as genetically modified organisms and software piracy.

But there is currently no regulation at all for lobbying activities in France and, as a consequence, this practice suffers from a lack of transparency. There is no regulated access to the French institutions and no register. For example, the internal rule of the National Assembly (art. 23 and 79) forbid to members of Parliament to be linked with a particular interest. However, MPs don't have to declare their interest and the list of MPs' assistants is not public. At last, there is no rule at all for consultation of interest groups by the Parliament and the Government. Nevertheless, a recent parliamentary initiative (motion for a resolution)

[21]

has been launched by several MPs so as to establish a register for representatives of interest groups and lobbyists who intend to lobby the MPs. The purpose of this initiative is to introduce standards of conduct and access to the National Assembly. Through the use of a register, these standards of conduct and access will enable the Assembly to identify and maintain a list of the representatives of interest groups who follow legislative activity and to supervise fully the access of those representatives to the National Assembly. This motion has not been adopted yet.

[edit]Other countries

Only countries where lobbying is regulated in parliament bills include:

Georgia (1998)[22]
Hungary (2006).[22]
Lithuania (2001)[22]
Poland (2005)[22]
Israel (1994)[23]
Italy (Regional Level, 2002 - cfr. P.L. Petrillo, "I gruppi di pressione nella Regione Toscana", in www.amministrazioneincammino.luiss.it)

[edit]See also

Main article:

List of basic public affairs topics

[edit]References

^ BBC Definition of "lobbying"
^ NPR - A Lobbyist by Any Other Name? - NPR discussion of Ulysses Grant and origins of the term lobbyist.
^ Deanna Gelak (previous president of the American League of Lobbyists) mentioned this in her book Lobbying and Advocacy: Winning Strategies, Resources, Recommendations, Ethics and Ongoing Compliance for Lobbyists and Washington Advocates, TheCapitol.Net, 2008, LobbyingAndAdvocacy.com
^ "lobbying". Merriam-Webster Dictionary.Com.
^ "lobbying". BBC News (London). 1 October 2008. Retrieved 24 March 2010.
^ "lobbist". Random House Unabridged Dictionary. 2006.
^ Non-Profit Action description of "Lobbying Versus Advocacy: Legal Definitions".
^ U.S. Senate definition of Lobbying.
^ Andrew Bounds and Marine Formentinie in Brussels, EU Lobbyists Face Tougher Regulation, Financial Times, August 16, 2007.
^ [1]
^ Bowell, Thomas. Knowledge and Decisions
^ Public Administration Select Committee (5 January 2009)."Lobbying: Access and influence in Whitehall" (pdf). Retrieved 5 January 2009.
^ Public Administration Select Committee (5 January 2009). "PASC calls for a register of lobbying activity". Retrieved 5 January 2009.
^ "Government rejects call for lobbying register". Civil Society. Retrieved 2010-03-03.
^ Porter, Andrew (8 February 2010). "David Cameron warns lobbying is next political scandal". The Daily Telegraph(London). Retrieved 2010-03-03.
^ "The Right to Petition". Illinois First Amendment Center.
^ http://www.whitehouse.gov/issues/ethics/ Ethics
^ "Lobbying Versus Advocacy: Legal Definitions". NP Action. Retrieved 2010-03-02.
^ Kierkegaard, Sylvia (2005) How the Cookie (almost crumbled). Computer Law and Security Report Vol.21 Issue 4
^ Green Paper on European Transparency Initiative European Commission, 2006. Retrieved September 20, 2009
^ French National Assembly : Motion for a Resolution on Lobbying (21 November 2006)
^ a b c d GLOSSARY - Alphabetical list of terms associated with the Lobbying industry.
^ http://www.knesset.gov.il/lexicon/eng/lobby_eng.htm

[edit]Bibliography

Geiger, Andreas: EU Lobbying handbook, A guide to modern participation in Brussels, 244 pages, ISBN 3-9811316-0-6, Helios Media GmbH, 2006
GLOSSARY - Alphabetical list of terms associated with the Lobbying industry.
The Bulletin, 16 March 2006, p. 14, Lobbying Europe: facts and fiction
The European Lawyer, December 2005/January 2006, p. 9, The lobbyists have landed
Financial Times, 3 October 2005, p. 8, Brussels braces for a U.S. lobbying invasion
Public Affairs News, November 2004, p. 34, Judgement Call
The European Lawyer, December 2004/January 2005, p. 26, Lifting the lid on lobbying
Pier Luigi Petrillo, Democracies under Pressures. Lobbies and Parliaments in a comparative public law, Giuffrè 2011 (www.giuffre.it)
Pietro Semeraro, Trading in Influence and Lobbying in the Spanish Criminal Code, [2]
Wiszowaty, Marcin: Legal Regulation of Lobbying in New Members States of the European Union, Arbeitspapiere und Materialien - Forschungsstelle Osteuropa an der Universitat Bremen, No. 74: Heiko Pleines (ed.): Participation of Civil Society in New Modes of Governance. The Case of the New Member States. Part 2: Questions of Accountability. February 2006 (PDF).
Heiko Kretschmer/ Hans-Jörg Schmedes: Enhancing Transparency in EU Lobbying? How the European Commission's Lack of Courage and Determination Impedes Substantial Progress, Internationale Politik und Gesellschaft 1/ 2010, S. 112-122.
"Lobbying" (Web). BBC News: Politics (London: BBC). 22 December 2005. Retrieved 2007-01-30.
"Police loans inquiry is widenened" (Web). BBC News: Politics (London: BBC). 30 March 2006. Retrieved 2007-01-30.

[edit]External links

*	Look up Lobby in Wiktionary, the free dictionary.

[edit]United States

Lobbyists.info - The largest, comprehensive database of 22,000 registered lobbyists. Contains searchable profiles of lobbyists and government relations professionals, their clients and issues.
LobbyistFinder.com - Searchable & editable database of 34,000 registered state lobbyists.
Top 25 Lobbying Groups - Fortune lists the top 25 lobbying groups as of 1999.
LobbyWatch - a project of the Center for Public Integrity with reports on lobbyists and lobbying efforts as well as a searchable database
OpenSecrets.org
NoLobby.com - Capitalism Magazine mini-site. Opposes lobbing restrictions on free speech grounds.
Lobbyists and Lawyers, Barnacles and Leeches, Selfishness and Corporatism - The truth about lobbyists and their affect on public policy and legislation.
The Citizen's Guide to the U.S. Government - an online tutorial containing information for individuals who wish to address issues with their elected officials
Free Speech National Right to Life page containing documents opposing excessive regulation of "lobbying" as infringement on "right to petition" guaranteed by the First Amendment.
Public Affairs Links
First Street Research Group - The First Street Research Group publishes free research reports on the lobbying industry.

[edit]Europe

Free market

From Wikipedia, the free encyclopedia

For free-market economy, see

Market economy

Part of a series on

Liberalism

Development[show]

Ideas[show]

Schools[show]

People[show]

Regional variants[show]

Religious liberalism [show]

Organizations[show]

* Liberalism portal

v · d · e

Part of a series on

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[edit]Supply and demand

Main article:

Supply and demand

Supply and demand are always equal as they are the two sides of the same set of transactions, and discussions of "imbalances" are a muddled and indirect way of referring to price.

[3]

However, in an unmeasurable qualitative sense, demand for an item (such as goods or services) refers to the market pressure from people trying to buy it. They will "bid" money for the item, while in return sellers offer the item for money. When the bid matches the offer, a transaction can easily occur (even automatically, as in a typical

stock market

). In Western society, most shops and markets do not resemble the stock market, and there are significant costs and barriers to "shopping around" (comparison shopping).

The model is commonly applied to wages, in the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell (supply) their labor for the highest price. The consumers of labors are businesses, which try to buy (demand) the type of labor they need at the lowest price. As populations increase wages fall for any given unskilled or skilled labor supply. Conversely, wages tend to go up with a decrease in population.

When demand exceeds supply, suppliers can raise the price, but when supply exceeds demand, suppliers will have to decrease the price in order to make sales. Consumers who can afford the higher prices may still buy, but others may forgo the purchase altogether, demand a better price, buy a similar item, or shop elsewhere. As the price rises, suppliers may also choose to increase production, or more suppliers may enter the business.

[edit]Spontaneous order or "invisible hand"

Main articles:

Invisible hand

and

Spontaneous order

Friedrich Hayek

argues for the classical liberal view that market economies allow

spontaneous order

; that is, "a more efficient allocation of societal resources than any design could achieve."

[4]

According to this view, in market economies sophisticated business networks are formed which produce and distribute goods and services throughout the economy. This network was not designed, but

emerged

as a result of decentralized individual economic decisions. Supporters of the idea of spontaneous order trace their views to the concept of the

invisible hand

proposed by

General equilibrium theory

The Wealth of Nations

who said that the individual who:

"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the [common] good." (

Wealth of Nations

)

Smith pointed out that one does not get one's dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather one appeals to their self interest, and pays them for their labor.

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

[5]

Supporters of this view claim that spontaneous order is superior to any order that does not allow individuals to make their own choices of what to produce, what to buy, what to sell, and at what prices, due to the number and complexity of the factors involved. They further believe that any attempt to implement central planning will result in more disorder, or a less efficient production and distribution of goods and services.

[edit]Economic equilibrium

Main article:

Economic equilibrium

has demonstrated, with varying degrees of mathematical rigor over time, that under certain conditions of

competition

, the law of

Supply and Demand

predominates in this ideal free and competitive market, influencing prices toward an

equilibrium

that balances the demands for the products against the supplies.

[6]

[7]

At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's preference (or utility) for each product and within the relative limits of each buyer's

purchasing power

. This result is described as market efficiency, or more specifically a

Pareto optimum

This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as

Perfect Competition

, which therefore cannot be results of the market that they create. Among these assumptions are complete information, interchangeable goods and services, and lack of market power, that obviously cannot be fully achieved. The question then is what approximations of these conditions guarantee approximations of market efficiency, and which failures in competition generate overall market failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to

asymmetric information

Some models in

econophysics

[8]

have shown that when agents are allowed to interact locally in a free market (i.e. their decisions depend not only on utility and purchasing power, but also on their peers' decisions), prices can become unstable and diverge from the equilibrium, often in an abrupt manner. The behavior of the free market is thus said to be non-linear (a pair of agents bargaining for a purchase will agree on a different price than 100 identical pairs of agents doing the identical purchase).

Speculation bubbles

and the type of

herd

behavior often observed in stock markets are quoted as real life examples of non-equilibrium price trends. Some laissez-faire free-market advocates, like Chicago school economists, often dismiss this endogenous theory, and blame external influences, such as weather, commodity prices, technological developments, and government meddling for non-equilibrium prices.

[edit]Distribution of wealth

Main article:

Distribution of wealth

The distribution of purchasing power in an economy depends to a large extent on the nature of government intervention,

social class

labor

and

financial markets

, but also on other, lesser factors such as family relationships,

inheritance

gifts

and so on. Many theories describing the operation of a free market focus primarily on the markets for consumer products, and their description of the labor market or financial markets tends to be more complicated and controversial.

Joshua Epstein

and

Robert Axtell

have attempted to predict the properties of free markets empirically in the agent-based computer simulation "

Sugarscape

". They came to the conclusion that, under idealized conditions, free markets lead to a

Pareto distribution

of wealth.

[8]

[edit]Laissez-faire economics

Main article:

Laissez-faire economics

The necessary components for the functioning of an idealized free market include the complete absence of artificial price pressures from taxes, subsidies,

tariffs

, or government regulation (other than protection from coercion and theft), and no

government-granted monopolies

(usually classified as

coercive monopoly

by free-market advocates) like the

United States Post Office

Amtrak

patents

, etc.

[edit]Deregulation

Main article:

Deregulation

In an absolutely

free-market economy

, all capital, goods, services, and money flow transfers are unregulated by the government except to stop collusion or fraud that may take place among market participants.[

] As this protection must be funded, such a government taxes only to the extent necessary to perform this function, if at all. This state of affairs is also known as

laissez-faire

Internationally, free markets are advocated by proponents of

economic liberalism

; in Europe this is usually simply called

liberalism

. In the

United States

, support for free market is associated most with

libertarianism

. Since the 1970s, promotion of a global free-market economy,

deregulation

and

privatization

, is often described as

neoliberalism

The term

free-market economy

is sometimes used to describe some economies that exist today (such as

Hong Kong

), but pro-market groups would only accept that description if the government practices

laissez-faire

policies, rather than state intervention in the economy.[

specify

] An economy that contains significant

economic interventionism

by government, while still retaining some characteristics found in a free market is often called a

mixed economy

[edit]Low barriers to entry

A free market does not require the existence of competition, however it does require that there are no barriers to new market entrants. Hence, in the lack of coercive barriers it is generally understood that competition flourishes in a free-market environment. It often suggests the presence of the

profit motive

, although neither a profit motive or profit itself are necessary for a free market. All modern free markets are understood to include

entrepreneurs

, both individuals and

businesses

. Typically, a modern free market economy would include other features, such as a

stock exchange

and a

financial services

sector, but they do not define it.

[edit]Legal tender and taxes

In a free-market economy, money would not be monopolized by

legal tender

laws or by a central bank, in order to receive

taxes

from the transactions or to be able to issue

loans

Index of Economic Freedom

]

Minarchists

(advocates of minimal government) contend that the coercion of taxes is essential for the market's survival, and a market free from taxes may lead to no market at all. By definition, there is no market without private property, and private property can only exist while there is an entity that defines and defends it. Traditionally, the State defends private property and defines it by issuing ownership titles, and also nominates the central authority to print or mint currency. "Free-market anarchists" disagree with the above assessment – they maintain that private property and free markets can be protected by voluntarily-funded services under the concept of

individualist anarchism

and

anarcho-capitalism

[9]

[10]

A free market could be defined alternatively as a tax-free market, independent of any central authority, which uses a medium of exchange such as money, even in the absence of the State. It is disputed, however, whether this hypothetical stateless market could function.

[edit]Index of economic freedom

The

Heritage Foundation

, a

conservative

think tank

, tried to identify the key factors necessary to measure the degree of freedom of economy of a particular country. In 1986 they introduced the

, which is based on some fifty variables. This and other similar indices do not

define

a free market, but measure the

degree

to which a modern economy is free, meaning in most cases free of state intervention. The variables are divided into the following major groups:

Trade policy,
Fiscal burden of government,
Government intervention in the economy,
Monetary policy,
Capital flows and foreign investment,
Banking and finance,
Wages and prices,
Property rights,
Regulation, and
Informal market activity.

Each group is assigned a numerical value between 1 and 5; IEF is the arithmetical mean of the values, rounded to the hundredth. Initially, countries which were traditionally considered capitalistic received high ratings, but the method improved over time. Some economists, like

Milton Friedman

and other

Laissez-faire economists

have argued that there is a direct relationship between economic growth and economic freedom, but this assertion has not been proven yet, both theoretically and empirically. Continuous debates among scholars on methodological issues in empirical studies of the connection between economic freedom and economic growth still try to find out what is the relationship, if any.

[edit]History and ideology

The meaning of "free" market has varied over time and between economists, the ambiguous term "free" facilitating reuse. To illustrate the ambiguity:

classical economists

such as

believed that an economy should be free of monopoly rents, while proponents of laissez faire believe that people should be free to form monopolies. In this article "free market" is largely identified with laissez faire, though alternative senses are discussed in this section and in

criticism

. The identification of the "free market" with "laissez faire" was notably used in the 1962

Capitalism and Freedom

by economist

Milton Friedman

, which is credited with popularizing this usage.

[15]

Some theorists might argue that a free market is a natural form of social organization, and that a free market will arise in any society where it is not obstructed (i.e.

Ludwig von Mises

Hayek

). The consensus among

economic historians

is that the free market economy is a specific historic phenomenon, and that it emerged in late medieval and early-modern Europe.[

] Other economic historians see elements of the free market in the economic systems of

Classical Antiquity

] and in some non-western societies.[

] By the 19th century the market certainly had organized political support, in the form of

laissez-faire liberalism

. However, it is not clear if the support preceded the emergence of the market or followed it. Some historians see it as the result of the success of early liberal

ideology

, combined with the specific interests of the

entrepreneur

Support for the free market as an ordering principle of society is above all associated with

liberalism

, especially during the 19th century. (In Europe, the term 'liberalism' retains its

connotation

as the ideology of the free market, but in American and Canadian usage it came to be associated with government intervention, and acquired a

pejorative

meaning for supporters of the free market.) Later ideological developments, such as

minarchism

libertarianism

and

Objectivism

also support the free market, and insist on its pure form. Although the

Western world

shares a generally similar form of economy, usage in the United States and Canada is to refer to this as

, while in Europe 'free market' is the preferred neutral term.

Modern liberalism

(American and Canadian usage), and in Europe

social democracy

, seek only to mitigate the problems of an unrestrained free market, and accept its existence as such.

[edit]Classical economics

In the

classical economics

of such figures as

and

David Ricardo

, "free markets" meant "free of unnecessary charges"

[16]

and a "market free from monopoly power, business fraud, political insider dealing and special privileges for vested interests".

[17]

A "free market" particularly meant one free of

foreign debt

;

[18]

as discussed in

The Wealth of Nations

[19]

Alternatively, stated, it was a market freed from

Feudalism

and

serfdom

, or more formally, one free of

economic rent

, in the formulation by David Ricardo of the

Law of Rent

[edit]Marxism

Marxist

theory, the idea of the free market simply expresses the underlying long-term transition from

feudalism

. Note that the views on this issue – emergence or implementation – do not necessarily correspond to pro-market and anti-market positions.

Libertarians

would dispute that the market was enforced through government policy, since they believe it is a

spontaneous order

and

Marxists

agree with them because they as well believe it is evolutionary, although with a different end.

[edit]Liberalism

Support for the free market as an ordering principle of society is above all associated with

liberalism

, especially during the 19th century. (In Europe, the term 'liberalism' retains its

connotation

as the ideology of the free market, but in American and Canadian usage it came to be associated with government intervention, and acquired a

pejorative

meaning for supporters of the free market.) Later ideological developments, such as

minarchism

libertarianism

and

Objectivism

also support the free market, and insist on its pure form. Although the

Western world

shares a generally similar form of economy, usage in the United States and Canada is to refer to this as

, while in Europe 'free market' is the preferred neutral term. The advocates of

modern liberalism

(American and Canadian usage), and in Europe those of

social democracy

, seek ostensibly only to mitigate what they see as the problems of an unrestrained free market, and accept the existence of markets as such.

To most

libertarians

, there is simply no free market yet, given the degree of state intervention in even the most 'capitalist' of countries. From their perspective, those who say they favor a "free market" are speaking in a relative, rather than an absolute, sense — meaning (in libertarian terms) they wish that

coercion

be kept to the minimum that is necessary to maximize economic freedom (such necessary coercion would be taxation, for example) and to maximize market efficiency by lowering trade barriers, making the tax system neutral in its influence on important decisions such as how to raise capital, e.g., eliminating the

double tax

on dividends so that equity financing is not at a disadvantage vis-a-vis debt financing. However, there are some such as

anarcho-capitalists

who would not even allow for taxation and governments, instead preferring protectors of economic freedom in the form of private contractors.

[edit]Criticism

A concern has been raised that this article's Criticism section may be compromising the article's neutral point of view of the subject. Possible resolutions may be to integrate the material in the section into the article as a whole, or to rewrite the contents of the section. Please see the discussion on the talk page. (September 2010)

Critics dispute the claim that in practice free markets create

perfect competition

, or even increase

market competition

over the

long run

. Whether the marketplace

should be

free is disputed; many assert that government intervention is necessary to remedy

that is held to be an inevitable result of absolute adherence to free market principles. These failures range from

military

services to

roads

, and some would argue, to health care. This is the central argument of those who argue for a mixed market, free at the base, but with government oversight to control social problems.

Another criticism is definitional, in that far-ranging governmental actions such as the creation of corporate personhood or more broadly, the governmental actions behind the very creation of artificial legal entities called corporations, are not considered "intervention" within mainstream economic schools. This inherent definitional bias allows many to advocate strong governmental actions that promote corporate power, while advocating against government actions limiting it, while putting these dual positions under the umbrella of "pro free markets" or "anti-intervention."

Two prominent Canadian authors (both very hostile to the "Chicago School" philosophy) argue that government at times has to intervene to ensure competition in large and important industries.

Naomi Klein

illustrates this roughly in her work

The Shock Doctrine

and

John Ralston Saul

more humorously illustrates this through various examples in

The Collapse of Globalism and the Reinvention of the World

[20]

While its supporters argue that only a free market can create healthy competition and therefore more business and reasonable prices, opponents say that a free market in its purest form may result in the opposite. According to Klein and Ralston, the merging of companies into giant corporations or the privatization of government-run industry and national assets often result in monopolies (or oligopolies) requiring government intervention to force competition and reasonable prices.

[20]

Critics of laissez-faire since

[21]

variously see the unregulated market as an impractical ideal or as a

rhetorical device

that puts the concepts of freedom and anti-

protectionism

at the service of vested wealthy interests, allowing them to attack

labor laws

and other protections of the

working classes

[22]

Because no national economy in existence fully manifests the ideal of a free market as theorized by economists, some critics of the concept consider it to be a fantasy – outside of the bounds of reality in a complex system with opposing interests and different distributions of wealth.

These critics range from those who reject markets entirely, in favour of a

planned economy

or a communal economy, such as that advocated by

Marxism

, to those who merely wish to see

market failures

regulated to various degrees or supplemented by certain government interventions. For example,

Keynesians

recognize a role for government in providing corrective measures, such as use of fiscal policy for economy stimulus, when decisions in the private sector lead to suboptimal economic outcomes, such as

depression

recession

, which manifest in widespread hardship. Business cycle theory is used by Keynes to explain '

liquidity traps

' by which underconsumption occurs, in order to argue for government intervention with central banking. Free market economists consider this credit-expansion as the cause of the business cycle in refutation of this Keynesian criticism.

[edit]Externalities

One practical objection is the claim that markets do not take into account

externalities

Some proponents of market economies believe that governments should not diminish market freedom because they disagree on what is a market externality and what are government-created externalities, and disagree over what the appropriate level of intervention is necessary to solve market-created externalities. Others believe that government should intervene to prevent

while preserving the general character of a market economy. In the model of a

social market economy

the state intervenes where the market does not meet political demands.

John Rawls

was a prominent proponent of this idea.

[edit]Differing ideas

Some advocates of free market ideologies have criticized mainstream conceptions of the free market, arguing that a truly free market would not resemble the modern-day capitalist economy. For example, contemporary

mutualist

Kevin Carson

argues in favor of "free market anti-capitalism." Carson has stated that "From Smith to Ricardo and Mill, classical liberalism was a revolutionary doctrine that attacked the privileges of the great landlords and the mercantile interests. Today, we see vulgar libertarians perverting "free market" rhetoric to defend the contemporary institution that most closely resembles, in terms of power and privilege, the landed oligarchies and mercantilists of the Old Regime: the giant corporation."

[23]

Carson believes that a true free market society would be "[a] world in which... land and property [is] widely distributed, capital [is] freely available to laborers through mutual banks, productive technology [is] freely available in every country without patents, and every people [is] free to develop locally without colonial robbery..."

[24]

[edit]Simulation of biological laws

[edit]Martin J. Whitman

*	An editor has expressed a concern that this section lends undue weight to certain ideas relative to the article as a whole. Please help to discuss and resolve the dispute before removing this message. (August 2011)

Not all advocates of

The Tradition of Spontaneous Order,

consider free markets to be practical. For example,

Martin J. Whitman

has written, in a discussion of

Keynes

Friedman

and

Hayek

, that these "…great economists…missed a lot of details that are part and parcel of every

value investor

's daily life." While calling Hayek "100% right" in his critique of the pure command economy, he writes "However, in no way does it follow, as many Hayek disciples seem to believe, that government is

per se

bad and unproductive while the private sector is,

per se

good and productive. In well-run industrial economies, there is a marriage between government and the private sector, each benefiting from the other." As illustrations of this, he points at "

after

and the other

and

." The notable exception is

Hong Kong

which found prosperity on an extremely austere free market concept.

He argues, in particular, for the value of government-provided credit and of carefully crafted tax laws.

[26]

Further, Whitman argues (explicitly against Hayek) that "a free market situation is probably also doomed to failure if there exist control persons who are not subject to external disciplines imposed by various forces over and above competition." The lack of these disciplines, says Whitman, lead to "1. Very exorbitant levels of

executive compensation

… 2. Poorly financed businesses with strong prospects for money defaults on credit instruments… 3. Speculative

bubbles

… 4. Tendency for industry competition to evolve into

monopolies

and

oligopolies

… 5. Corruption." For all of these he provides recent examples from the U.S. economy, which he considers to be in some respects under-regulated,

[26]

although in other respects over-regulated (he is generally opposed to

Sarbanes-Oxley

[27]

He believes that an apparently "free" relationship—that between a corporation and its investors and creditors—is actually a blend of "voluntary exchanges" and "coercion". For example, there are "voluntary activities, where each individual makes his or her own decision whether to buy, sell, or hold" but there are also what he defines as "[c]oercive activities, where each individual security holder is forced to go along…provided that a requisite majority of other security holders so vote…" His examples of the latter include

proxy voting

, most merger and acquisition transactions, certain cash tender offers, and reorganization or liquidation in

bankruptcy

[28]

Whitman also states that "

Corporate America

would not work at all unless many activities continued to be coercive."

[29]

"I am one with Professor Friedman that, other things being equal, it is far preferable to conduct economic activities through voluntary exchange relying on free markets rather than through coercion. But Corporate America would not work at all unless many activities continued to be coercive."

[30]

[edit]See also

[edit]Notes

^ "Free Market." Rothbard, Murray. The Concise Encyclopedia of Economics
^ Dictionary of Finance and Investment Terms. Barrons, 1995
^ http://www.donsheelen.org/page14.aspx
^ Hayek cited. Petsoulas, Christian. Hayek's Liberalism and Its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment. Routledge. 2001. p. 2
^ Smith, Adam, "2", Wealth of Nations, 1, London: W. Strahan and T. Cadell
^ , by Eugene Walras
^ Theory of Value, by Gerard Debreu
^ a b Critical Mass – Ball, Philip, ISBN 0-09-945786-5
^ Biography of Murray N. Rothbard (1926–1995)
^ The Machinery of Freedom
^ COLE, Julio H. and LAWSON, Robert A. Handling Economic Freedom in Growth Regressions: Suggestions for Clarification. Econ Journal Watch, Volume 4, Number 1, January 2007, pp 71–78.
^ DE HAAN, Jacob and STURM, Jan-Egbert. How to Handle Economic Freedom: Reply to Lawson. Econ Journal Watch, Volume 3, Number 3, September 2006, pp 407–411.
^ DE HAAN, Jacob and STURM, Jan-Egbert. Handling Economic Freedom in Growth Regressions: A Reply to Cole and Lawson. Econ Journal Watch, Volume 4, Number 1, January 2007, pp 79–82.
^ AYAL, Eliezer B. and KARRAS, Georgios. Components of Economic Freedom and Growth. Journal of Developing Areas, Vol.32, No.3, Spring 1998, 327–338. Publisher: Western Illinois University.
^ Who Broke America's Jobs Machine? by Barry C. Lynn and Phillip Longman, the Washington Monthly
^ The Fictitious Economy, Part 1, An Interview With Dr. Michael Hudson, by Bonnie Faulkner with Michael Hudson, 15 July 2008
^ This interpretation is advanced in The Language of Looting, Michael Hudson
^ The Financial War Against Iceland, Michael Hudson
^ The Wealth of Nations, Adam Smith, Book V, Chapter 3: of Public Debts
^ a b The End of Globalism. Saul, John.
^ "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."—Wealth of Nations, I.x.c.27 (Part II)
^ "Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate… [When workers combine,] masters… never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen."—Adam Smith, Wealth of Nations, I.viii.13
^ Kevin Carson, Naomi Klein: The Shock Doctrine November 7, 2007
^ Kevin Carson, The Iron Fist Behind the Invisible Hand: Corporate Capitalism as a State-Guaranteed System of Privilege
^ social Darwinism. (2009). Encyclopædia Britannica. Encyclopædia Britannica 2009 Student and Home Edition. Chicago: Encyclopædia Britannica.
^ a b Kevin Carson, The Iron Fist Behind the Invisible Hand: Corporate Capitalism as a State-Guaranteed System of Privilege, p. 4
^ Martin J. Whitman, Third Avenue Value Fund Letters to our Shareholders July 31, 2004 (PDF), page 2.
^ Martin J. Whitman, Third Avenue Value Fund Letters to our Shareholders July 31, 2004 (PDF), page 5.
^ Martin J. Whitman, Third Avenue Value Fund letter to shareholders October 31, 2005. p.6.
^ Martin J. Whitman, Third Avenue Value Fund letter to shareholders October 31, 2005. p.5-6.

[edit]References

AYAL, Eliezer B. and KARRAS, Georgios. Components of Economic Freedom and Growth. Journal of Developing Areas, Vol.32, No.3, Spring 1998, 327–338. Publisher: Western Illinois University.
BOETTKE, Peter J. What Went Wrong with Economics?, Critical Review Vol. 11, No. 1, P. 35. p. 58
Stiglitz, Joseph. 1994. Whither Socialism? Cambridge, Mass.: MIT Press.

[edit]External links

Free Enterprise: The Economics of Cooperation Looks at how communication, coordination and cooperation interact to make free markets work
Fair versus Free by Milton Friedman
Freedom to Work, to Earn, & to Buy by Harry Browne

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Categories: Capitalism | Classical liberalism | Libertarian theory | Economic liberalism | Free market

Market economy

From Wikipedia, the free encyclopedia

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A market economy is an economy in which the prices of goods and services are determined in a free price system.[1] This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed economies, where the price system is under some state control or at least heavily regulated. In mixed economies, state-directed economic planning is not as extensive as in a planned economy.
In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.[2][3] The term free-marketeconomy is sometimes used synonymously with market economy,[4] but, as Ludwig Erhard once pointed out, this does not preclude an economy from having social attributes opposed to a laissez-faire system.
The term used by itself can be somewhat misleading. For example, the United States constitutes a mixed economy (substantial market regulation, agricultural subsidies, extensive government-funded research and development, Medicare/Medicaid), yet at the same time it is foundationally rooted in a market economy. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. This is evidenced by the current lack of consensus on issues such as central banking, and welfare.
It is also possible to envision an economic system based on independent producers, cooperative,democratic worker ownership and market allocation of final goods and services; the self-managed market economy is one of several proposed forms of market socialism.[5]

[hide]

1 Systems

1.1 Capitalism

1.2 Market socialism

1.2.1 Socialist market economy

[edit]Systems

Although no country has ever had within its border an economy in which all markets were absolutely free, the term typically is not used in an absolute sense. Many states which are said to have a market economy have a high level of market freedom, even if it is less than some parts of the population would prefer. Thus, almost all economies in the world today are mixed economies with varying degrees of free market and planned economy traits. For example, in the

United States

there are more market economy traits than in the

Western European

countries (an exception being the UK, which is considered, even by Greenspan, to be a freer market than the US).

[6]

[edit]Capitalism

Main article:

Capitalism

Capitalism generally refers to an economic system in which the means of production are all or mostly privately owned and operated for profit, and in which investments, distribution, income, and pricing of goods and services are determined through the operation of a market economy. It is usually considered to involve the right of individuals and groups of individuals acting as "legal persons" or corporations to trade capital goods, labor, land and money.

Capitalism has been dominant in the Western world since the end of

feudalism

, but most feel that the term "mixed economies" more precisely describes most contemporary economies, due to their containing both private-owned and state-owned enterprises, combining elements of

and

socialism

, or mixing the characteristics of market economies and planned economies. In capitalism, there is no central planning authority but the prices are decided by the demand-supply scale. For example, higher demand for certain goods and services lead to higher prices and lower demand for certain goods lead to lower prices.

[edit]Laissez-faire

Main article:

Laissez-faire

Laissez-faire is synonymous with what was referred to as strict capitalist free market economy during the early and mid-19th century as an ideal to achieve. It is generally understood that the necessary components for the functioning of an idealized free market include the complete absence of government regulation, subsidies, artificial price pressures and government-granted monopolies (usually classified as

coercive monopoly

by free market advocates) and no taxes or tariffs other than what is necessary for the government to provide protection from coercion and theft and maintaining peace, and property rights.

Milton Friedman

and

Friedrich Hayek

stated that

economic freedom

is a necessary condition for the creation and sustainability of

civil

and

political freedoms

. They believed that this economic freedom can only be achieved in a market-oriented economy, specifically a free market economy. They do believe, however, that sufficient economic freedom can be achieved in economies with functioning markets through price mechanisms and

private property rights

. They believe that the more economic freedom that is available, the more civil and political freedoms a society will enjoy.

Friedman states:

"Economic freedom is simply a requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction it reduces the area over which political power is exercised" Friedman, Milton and Rose Friedman, Free to Choose: A Personal Statement, Harcourt Brace Jovanovich, 1980, p. 2-3
"Capitalism is a necessary condition for political freedom" Capitalism and freedom

Studies by the Canadian

think tank

and the American

think tank

state that there is a relationship between economic freedom and political and civil freedoms to the extent claimed by Friedrich von Hayek. They agree with Hayek that those countries which restrict economic freedom ultimately restrict civil and political freedoms.

[7]

[8]

Generally market economies are bottom-up in decision-making as consumers convey information to producers through prices paid in market transactions. All states today have some form of control over the market that removes the free and unrestricted direction of resources from consumers and prices such as

tariffs

and corporate

subsidies

. Milton Friedman and many other microeconomists believe that these forms of intervention provide incentives for resources to be misused and wasted, producing products society may not

value

as much as a product that is valued as a result of these restrictions.

[edit]Social market economy

Main article:

Social market economy

This model was implemented by

and

after

. The social market economic model is based upon the idea to realise the benefits of a free market economy, especially on economic performance and high supply of goods, while avoiding disadvantages such as

contractionary monetary policy

, destructive competition, concentration of economic power and anti-social effects of market processes. The aim of the social market economy is to realize greatest prosperity combined with best possible social security. As a difference to the free market economy the state is not passive, but actively takes

regulative

measures.

[9]

The social policy objectives include employment, housing and education policies, as well as a socio-politically motivated balancing of the distribution of income growth. Characteristics of social market economies are a strong

competition policy

and a

. The theoretical fundament is build on

ordoliberalism

Catholic social teaching

and

Democratic Socialism

[10]

[edit]Market socialism

Main article:

Market socialism

Market socialism refers to various economic systems in which the state owns the economic institutions and major industries but operates them according to the rules of supply and demand. In a traditional market socialist economy, prices would be determined by a government planning ministry, and enterprises would either be state-owned or cooperatively-owned and managed by their employees. The distinguishing feature between non-market socialism and market socialism is the existence of a market for the means of production, and the criteria of profitability for public enterprises; which can either be used to reinvest in production or finance government and social services directly.

Libertarian socialists

and left-anarchists often promote a form of market socialism in which enterprises are owned and managed cooperatively by the workers so that the profits directly remunerate the employee-owners. These cooperative enterprises would compete with each other in the same way private companies compete in a capitalist market. An example would be

Mutualism (economic theory)

[edit]Socialist market economy

The

People's Republic of China

currently has a form of market socialism referred to as the

socialist market economy

, in which most of the industry is state-owned through a shareholder system, but prices are set by a largely free-price system. Within this model, the state-owned enterprises are free from excessive micromanagement and function more autonomously in a

decentralized

fashion than in planned economies. A similar socialist-oriented market system has been implemented in

Vietnam

following the

Doi Moi

reforms.

[edit]Criticism

Robin Hahnel

and

Michael Albert

"(...) claim that markets inherently produce

class division

" {divisions between conceptual and manual laborers, and ultimately managers and workers, and a de facto labor market for conceptual workers}. Albert says that even if everyone started out with a

balanced job complex

{doing a mix of roles of varying creativity, responsibility and empowerment} in a market economy, class divisions would arise. Without taking the argument that far, it is evident that in a market system with uneven distribution of empowering work, such as Economic Democracy {the model of market socialism

David Schweickart

has developed and refers to as "economic democracy"}, some workers will be more able than others to capture the benefits of economic gain. For example if one worker designs cars and another builds them, the designer will use his cognitive skills more frequently than the builder. In the long term, the designer will become more adept at conceptual work than the builder, giving the designer greater bargaining power in a firm over the distribution of income. A conceptual worker who is not satisfied with his income can threaten to work for a company that will pay him more (...)".

[11]

Therefore according to this critique class divisions would arise inevitably.

*	This section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (May 2011)

Another practical objection is the claim that markets do not take into account

externalities

(effects of transactions that affect third parties), such as the negative effects of pollution or the positive effects of education. What exactly constitutes an externality may be up for debate, including the extent to which it changes based upon the political climate. Some proponents of market economies believe that governments should not diminish market freedom because they disagree on what is a market externality and what are government-created externalities, and disagree over what the appropriate level of intervention is necessary to solve market-created externalities. Others believe that government should intervene to prevent