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A topic that usually scares people when reading about Austrian Economics and the free market is the notion that once governments are gone they will be at the mercy of those evil, evil corporations. And then, who is going to protect us, poor, poor consumers?

FUD – FEAR, UNCERTAINTY AND DOUBT

How a free market truly operates (or more precisely, how it feels) is difficult to understand because it requires not only a leap of faith, but the necessary imagination to jump beyond government-induced rules. This is not easy due to the countless decades that governments have spent brainwashing us into believing that they actually matter. Worse. That they are actually necessary and our salvation.

Think of this. When we witness something we deem wrong, what is our most likely expression? We are willing to bet 10 SEK it is “the government should do something about it”.

Got that? “The Government”. Not you, not us, not the neighborhood, not the society for the protection of-whatever-is-wrong, not the media and most certainly not a company or corporation. The Government. We automatically assume that all solutions come from them. Is then any wonder that it is almost impossible for anybody to imagine a world without governments? And if they do, wouldn’t it be scary? Of course it would!

Anything unknown is scary by definition. We are biologically programmed to be scared of unknowns. It is simply survival instinct, but one that politicians have been quick and continue to be quick to exploit.

PEELING BACK THE LAYERS

In order to begin to imagine what a government-free, free market would look like, we need to eliminate government interference from our hypothetical world. This can only be done one layer at the time. These are just a few examples:

Taxes

One of the biggest reliefs in a truly free market is the absolute lack of taxes. This means more money to live and more money to invest. A direct consequence of this is that things become more affordable and therefore life becomes easier. Taxes also increase the size of markets, which creates competition, which benefits consumers by keeping corporations in check.

Competition

We explained before (in our lesson We Don’t Need No Stinking Competition) how free markets operate and why all the horrible anti-competitive practices governments are “protecting” us from are blown out of all proportion. The reality is that although free markets do not require competition, it is a good thing. But competition is also a merciless evolutionary machine from which there is no escape. The only rule in the free market is simple: fulfill customers’ needs or go broke.

It is true that corporations, particularly the big ones, will try all kinds of anti-competitive tricks and practices. After all, the raison d’etre (reason to exist) of any company is to make profits, however those tricks will not survive the market. It is the market that cleanses as it goes, not the government. Consider this. How many years of legal proceedings took the EU to un-bundle Internet Explorer from Microsoft Windows? Two, three? How much money was spent? 10 million EUR? 20 million EUR? And what was the result? Who cares! The market simply moved on. Other browsers were created and IE is losing market share precipitously. Do we care if Windows comes bundled with IE? No. It is a minor nuisance at worse.

A government-free market is infinitely more efficient and effective at weeding-out any and all anti-competitive practices, either by punishing the company where it hurts the most (the bottom line) or rendering the anti-competitive practice irrelevant.

It is quite simple. A corporation engaging in anti-competitive practices utilizes the ingenuity of its people (well-paid people) to do so. As such, they will be well motivated. However, on the other side of the ring, we have the market containing a massive amount of well-motivated people and companies looking after their hard earning money. No contest. The free market wins every time.

Immediacy

Statists usually point out the fact that with laws and regulations in place, certain consumer protection practices are imposed instantaneously and to every market participant. There is no time delay. The free market, on the other hand, takes time to operate. This is true.

In contraposition, free market solutions are comprehensive and evolving in real time, while laws and regulations stagnate and are updated on an irregular basis, if ever. In other words, in a free market there is an instantaneous and constant balance between customers’ wants and sellers’ wants. If one group tries to cheat the other, vengeance is instantaneous and automatic. For every new way one group finds to cheat the other, a new counter-solution shows up. This is so because both parties are actively engaged at all times.

Laws and regulations on the other hand, look at issues from a static point of view. Regulators want to know what the problem is and what the so-called “solution” is. The problem is that they are looking at one problem and one solution only. While they are doing this, market participants moved on to a new set of different problems and different solutions. Regulators can never compete against the free market. Furthermore, when they do so, they almost invariably create un-intended consequences that are worse than the problem they were trying to fix in the first place!

Limitation of liability

In our current market, governments take over our rights. As such they decide what is good or bad for us. Part of this decision is to limit the liabilities companies have on the environment, for example. If a company pollutes the water table we use, they will be (hopefully) heavily fined. However, who is going to repair all the damage they did to our lives? Nobody. Why? Because they have paid their “dues” to society for breaching “their” rules. And what about “our” rules? “Our” property? Thank you very much, go talk to the government.

The fine print

Many complaints about corporations deal with “fine print” issues. People enter into good faith contracts and then they suddenly realize that something they got for granted is not there. They feel cheated. They feel this is grossly unfair. They demand the government do something about it. And the question is why?

Why should the government do something about a private contract between two private parties? It is the job of the people to read contracts before they sign, not to complain after they have signed. If they are unsure about the terms, they should have sought legal counsel. But they did not do so. Why? Because that would be an extra cost. So, it is not only that people are lazy and do not bother reading contracts, but they are also so cheap that they don’t bother seeking professional help! And then, on top of that, they blame corporations for doing what corporations were supposed to be doing (i.e. making profit) and try to use the government to punish them!

In a government-free market, contracts are the most important relationship documentation there is. Everything is contractual and as such, many services will appear. These services will review, categorize, rank, recommend and reject contracts, all for a fee. But these services will make absolutely sure you don’t have to read or understand the contract. They will make sure you get a fair deal. Furthermore, these services will be affordable simply because of the overwhelming competition there will be for such services.

Think about this. Today, how many of you feel protected due to government “firm stand” on consumer protections? Not many. In the end, when most people feel cheated they absorb the loss. Why? Because the only other option is litigation and this is either incredibly complicated (to DIY) or incredibly expensive. In other words, people are not really protected consumers, it only seems so.

The best consumer protection there is, is a free market.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Evil corporations and consumer protection - Part 2

 

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