Is a Free Economy a Fair Economy?

Posted by: on Oct 19, 2011 | No Comments

The United States of America has emerged an economic superpower during the last couple of decades primarily because of its liberal trade policies. The world’s biggest ‘free trade’ zone was created with the removal of restrictions on interstate commerce by the US Constitution. At present, the US economy is the richest in the world, with a GDP of $14.12 trillion US dollars (Source: World Bank, World Development Indicators)

In today’s open market, free trade policies have undoubtedly improved the competition among domestic and international players. This has engendered continual innovation, thus leading to better products. The theory of comparative advantage states that, when each nation specializes in goods having lower opportunity costs, the economic welfare of all the nations improve collectively. In other words, each country produces what it can optimally and trades the surplus with other countries for what it needs. In this ideal situation, the market is solely driven by the forces of demand and supply and all countries are benefitted by trade.

Another reason why a free economy is a fair economy is because it boosts healthy competition and prevents the creation of monopolies. As there are more competitors in the market, customers benefit from lower costs and higher quality.

A final case in favor of a free economy is that it helps lower the cost of living. When the government adds import/export taxes and tariffs, the product is sold to the end consumer at a much higher price. This, in turn, significantly increases the cost of living. In a free economy, on the other hand, the government intervention is minimal. This helps ensure that the goods and services are produced efficiently and the general standard of living is improved.

The Downside of a Free Economy: Is There One?

Despite the overwhelming empirical evidence in its favor, the concept of free economy has been shunned by many for different reasons. And, one such reason is that it encourages “Dumping”, which implies exports at ridiculously low prices. Protectionists argue that the products are subsidized to such an extent that it often becomes difficult for domestic industries to survive. However, it would be unreasonable to state that the importing country is at a loss completely. After all, its citizens benefit from not just lower prices, but also greater choices. The loss of the domestic businessmen is surely more than covered up by the combined gains of the customers.

The government often intervenes in the pretext of “fair economy” to protect its own interests. It functions with the notion that producers are more important to the economy than consumers. In reality, it is the general population that drives a nation forward. And, a free economy gives the “power to the people”, thus making it the ideal path to progress.

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