“There Is No Such Thing As A Free Market” Is Not An Argument

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My home country of Singapore is one of the economically-freest countries in the world. I often remind my friends that we owe much of our prosperity and high standards of living to an economic system that is predominantly free market.

Perhaps the most common response I receive is that Singapore is a mixed economy — not a free market as I naively assume — and that there is ample historical evidence in its economic development documenting how the People’s Action Party (PAP) government has intervened.

This is a common refrain trotted out by anti-market ideologues, often presented as a snappy rhetorical trick to trip up anyone who believes in free markets.

Yet rhetorically snazzy one-liners that pervade internet discussions are more often than not grounded in simple errors. The error in this argument lies in the way it conflates the distinction between what social scientists refer to as the positive and normative.

The claim that we live in mixed economies of market and state forces is a positive/descriptive statement. It describes empirical reality as it is.

But to suggest that government intervention is desirable from this premise goes beyond the positive into the normative realm. A normative statement demands an action should be taken in light of the underlying value judgment. The key word is “should”. If you wish to avoid car accidents, then you should obey traffic lights because evidence shows they create social order on the road. If you wish to live a healthier life, then you should avoid smoking because science shows that cigarettes are bad for you.

Therefore, the claim that governments should intervene into the economy is a normative claim that cannot be reached by a mere empirical observation. That claim requires a theoretical explanation for why state mechanisms are preferable to market mechanisms or why markets fail.

The positive claim that “there is no such thing as a free market” fails to offer an explanation for whether government intervention into the market is desirable or undesirable. Absent the normative explanation, it is not an argument. It simply states an empirical fact.

We wouldn’t say that murder is wrong (normative argument) because most people don’t commit murder (positive statement). Instead, the adequate explanation is that murder is wrong because people have some form of ownership over their own bodies and hurting them against their free will is morally wrong.

To further illustrate this in economic logic, a market failure argument would provide such a normative thrust for government intervention.

For instance: consumers in healthcare markets are disadvantaged by a lack of information (asymmetry of information), therefore governments should regulate the healthcare providers to protect consumers. Or: climate change is a global externality that suffers from the misalignment of individual incentives, therefore governments should regulate carbon emissions to save the planet. These would be normative arguments that are logically sound (even though they may be empirically wrong).

This fallacious line of argument is commonly seen elsewhere. Leftists tend to marshal this form of argumentation by pointing to Scandinavian countries as a justification that democratic socialist forms of welfare systems “can work”. Pro-PAP Singaporeans commit a similar error when they blindly support the incumbent government without offering any explanation of the institutional mechanisms that underlie the country’s economic success.

It’s hardly surprising that this line of logical fallacy is widespread. Left-leaning intellectuals themselves from Robert Reich to the South Korean economist Chang Ha Joon perpetuate this misleading trope. Chang in particular, is fond of pointing out that there is “no such thing as a free market”, and that every market society invariably exists within an ever-changing constellation of government-enforced laws and regulations.

Well, of course. Does any serious economist claim that modern economic life exists within stateless vacuums?

The question is not an absolute one of whether we live in a theoretical free market utopia of neatly privatized property rights and a purely free price system. The answer is no, and that much is obvious.

The relevant question that confronts the social scientist is one of a relative nature. Which countries are economically freest? Which countries do we witness better standards of living for the least well off?

Of course Singapore is not an utterly free market economy. Since independence in 1965, the dominant PAP government has played a hand in steering foreign investment and paternalistically regulating our social habits.

But comparatively speaking to the 194 other countries on the planet today, it is unquestionably one of the freest economies in the world — increasingly so as China looms over Hong Kong.

Where it matters, the key market mechanisms of secure property rights, a free price system and profit-making have dominated policymaking. Look for example to its successful healthcare market.

Pharmaceuticals tariffs are almost non-existent in comparison to its Asian counterparts. Singapore’s strong commitment to the protection of intellectual property rights is a welcoming signal to pharmaceutical companies that their drugs are welcome and not subject to arbitrary licensing or confiscation by the state. Local hospitals are labelled as “government institutions”, but they are nothing like the bloated single-payer healthcare systems in the U.S. or UK. In reality operate as for-profit private firms and enjoy high operational autonomy. Perhaps most importantly, hospitals compete against one another for private patient consumers on the basis of profits, like in any other market.

These market activities take place within state laws of course, but the point to stress is that Singapore’s healthcare system is relatively free market compared to the healthcare systems of the world today. What this means is that the success of the Singapore case study is an argument in favour of free market capitalism, as opposed to other systems.

Classical liberal. I love the Wu-Tang Clan, Spaghetti Westerns and anything Aly & Fila.

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