The end of the free market?

IF you have been putting on weight, Peter Ubel, US physician and behavioral scientist, says you shouldn't get upset. Obesity, he says, isn't a result of genes, but of genes interacting with modern markets. You aren't to blame for that bulge pushing your belt, evidence that when capitalism meets human nature, it leads to misery and harm. Freedom to choose is accompanied by freedom to make bad choice. The free market, he says, isn't a viable proposition.
Ubel sticks to his guns because the free market is flawed. One of its fundamental assumptions is that human beings make rational choices. Not true because consumers succumb to the lure of high fat even when they are overweight. Despite high prices of gasoline, professionals drive from homes in suburbs far from their workplace. Most ludicrous example is the statutory warning written on cigarette packs. Smokers smoke despite the knowledge that smoking is injurious to health.
The other assumptions are also equally incorrect. The companies are dishonest and people don't have the necessary skills to intelligently evaluate the products and services they choose to purchase. So, the buyers buy paper clips, which slip off papers easily. They buy light bulbs, which burn out fast. The soap melts away at the mere touch of water.
If these things sound familiar, you must be halfway convinced that free market doesn't protect consumers. Buy a mobile phone; warranty expires the moment you step out of the store. Buy a refrigerator; the warranty might say free service but the handy person doesn't make that house call in one lifetime. Cheap and wasteful products are inevitable, when the market forces force the consumers, not the other way around. Sellers take buyers for an atrocious ride.
The bottom line is that unregulated markets allow people to make money at any cost. The recent financial meltdown is an outcome of that unrestrained freedom. Mortgage brokers made home sales without checking credit. The higher the house price, the more money they made in fees. Even better, they had no risk.
Banks that underwrote the mortgages were quick to unload the mortgages to avoid their risk. Secondary "financial institutions" either sold those mortgages in bulk or turned them into bonds to be sold. They passed on their risk and took huge cuts. Brokerages that bought and sold those bonds made money on every transaction. They never held any risky mortgages.
In the flurry of risk-avoidance, nobody bothered that the real estate was way overvalued. The bond rating companies were paid handsomely to say the bonds were high grade. The law firms made sure it was all technically legal. Lobbyists got very wealthy carrying the messages between the government and the greedy manipulators.
Communications firms took hyena's share of lion's kill. They praised the free market, and made heroes out of maverick businessmen, worshipping them for creating "innovative risk diversification systems." In essence, what it meant was to pass the buck on to pension funds and other investors, the slaughtered lambs of a deranged system.
It's, therefore, argued that the end of free market isn't only inevitable, but it's also desirable. But the economists can't agree amongst themselves. There are those who would like to argue that the free market has not been free since the New Deal. University of Virginia's Robert F. Burner claims that the financial free market in the United States ended after the creation of the Federal Reserve System in 1912. But then Nobel-winning economist Joseph Stiglitz argues that September 2008 marked the end to neoliberalism and deregulation as the fall of the Berlin Wall did to communism.
Again, Ian Bremmer, president of the consulting firm Eurasia Group, claims the state already functions as a leading actor. Thirteen of the largest oil companies are owned and operated by governments. Governments control three-quarters of the world's energy reserves. The Sovereign Wealth Funds are state-owned investment portfolios, which account for one-eighth of global investment, double the figure just five years ago. The combined assets of all such funds exceed the assets of all the world's hedge funds. Wherever the free market stands on the scale of being, Peter Ubel suggests a middle ground. Markets should be designed to take account of human nature. A government needs to move beyond informing consumers to persuading them.
Because, it's not enough to tell what has high fat contents unless people are convinced to avoid them. More reasons, says Ubel. The government can set building regulations to encourage stair walking. It can design commuter roads to promote bicycle riding. The structure of tax code can give incentives for rational saving.
Freedom isn't the cure to all of life's challenges; often it's the cause. The free market is free to exploit, greed and gluttony being staple diet. The consumers aren't its cause but effect. Obesity included.

Mohammad Badrul Ahsan is a columnist for The Daily Star. Email: [email protected]