Step Aside, Bureaucrats, And Make Way for Progress

We have seen markets fail, right? Some are quick to site such instances and proclaim the benefits of government regulation. However, government failure is often hidden and only a handful of people seem to be talking about it.

Here’s what the advocates of socialism and government control say. Its greatest objective is the common good, which it achieves by maximizing common wealth, better use of resources (like land and labor) and reducing disparity in wealth. Government jobs have assured salaries and promotions, regardless of whether you’ve sat around all day drinking tea. Is that what they mean by better use of resources? When we see roads with dangerous potholes, are we supposed to believe they’ve been constructed for the common good? Can the government take credit for the many benefits offered by the rapid technological development over the past few decades?

Give Free Markets a Chance

In recent times, free markets have had a number of wins. Remember the energy crisis of the early 1970s? America’s domestic oil production couldn’t keep pace with rapidly growing demand. By 1973, US oil production accounted for merely 16.5% of the global output and America had started importing more than 6 million barrels of crude oil per day. To add to its woes, the Organization of Arab Petroleum Exporting Countries declared severe sanctions targeting countries that were seen as supporting Israel, and America was one of them. The energy shortage threatened many industrial economies with possible recession.

The private sector saw the opportunity. It was the focus on returns on investment that resulted in the huge advancements made in extraction technologies as well as in ways of energy storage and fusion.

The government didn’t need to restrict consumption through taxes. The government didn’t need to give any incentives. All the government really needed to do was to step aside and let the market mechanism work freely. It was the market prices forces of demand and supply and market prices that drove decisions by private refiners and entrepreneurs to align production and supply to the huge demand for energy.

Today, the US has achieved energy independence, thanks to free-market initiatives. It is the world’s largest petroleum producer. Between 2008 and 2013, the US had increased its crude production by almost 50%.

Free Market and Economic Development

Let’s look at another example – Missouri. Its economy had been struggling for two decades. Missouri’s contribution to America’s total real GDP shrank from around 2% in 1998 to 1.6% in 2016. The unemployment rate fluctuated from close to 10% in 2010 to around 5% in 2016.

Over the past couple of years, the government has eased regulations and lifted tax burdens on corporates and consumers. All is still not well, but Missouri is making progress with freer market and less government interference. Missouri’s GDP growth was at 5.1% in the second quarter of 2018, delivering the best economic performance in more than five years!

Economic progress has a trickle-down effect. The state’s unemployment rate was down to 3.1% in October 2018.

In November last year, the government announced its intention of raising minimum wage from $7.85 an hour to $12 an hour by 2023. Given the economy’s performance, the private sector has already increased wages. For instance, Amazon increased the minimum wage for unskilled workers at its warehouse in the state to $15 an hour. This initiative wasn’t driven by any compulsion or some philanthropic act of CEO Jeff Bezos. Wages increased because sustained economic development led to more job openings and companies had to pay more to attract the best people at all income levels.

It is only when governments are willing to step aside and let the market mechanic work that an economy and its people can thrive.