What does ‘free’ mean?
One of the criticisms of criticisms of attacks on supermarkets like Iain Dale’s recent missive is that a free market doesn’t exist because supermarkets have so much purchasing power.
This is definitely not the case and appears to be based upon a misunderstanding of economic freedom. A free market is one in which there is no governmental interference. Just as free trade is trade with no governmental interference. The market may not be free, but that is not because supermarkets have a lot of buying power, that does not matter at all in terms of the freeness of the market (unless that power is granted them by government action).
In the case of agriculture, the market is not free due to subsidy, tariffs and regulation imposed by government. The exchange between the producer and the purchaser however is non-coercive for products which are allowed to be exchanged. There are not (to my knowledge) any price controls involved.
The supermarket’s side is also not free, there are regulations, the planning bureaucracy and so-called competition rules.
So no, we don’t have a totally free market, I’ll agree with that, but the exchange is free and is not coerced.
Of course, a free market may not produce outcomes which you approve of. For example, you may disapprove of certain crops being grown or animals being reared, but if there is demand then they will be grown. You may think that prices are in some way unfair (although that is not a valid reason for intervention since fairness is unmeasurable and one person’s fair is another’s unfair). Objections to the outcomes of a free market do not mean that the market is not free however. Then again, in matters of individual preference who are you to enforce your preference on all others?
It may be that a free market would not mirror the idealised free market (isn’t that the main reason intervention is justified?) and that is a reasonable argument to make, but an entirely different argument.
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August 29th, 2007 at 3:38 pm
No, Tristan, I don’t buy it. “Free” implies free from any coercion, not just government coercion.
There is a double standard in certain libertarian circles that will only consider an action to be an attack on freedom if it is a government that is doing it.
Supermarkets do have a lot of power, and this brings a diminution of the freedom of the market.
I’m not aware of any cures for this that aren’t worse than the disease, but that is, as you say, an entirely different argument.
August 29th, 2007 at 4:26 pm
“The supermarket’s side is also not free, there are regulations, the planning bureaucracy”
You must be joking! Tesco are masters at using their corporate power to push through their plans using all their legal and financial muscle in a way that no small trader, or local residents, can ever afford or compete with.
Is it right that when local residents don’t want their area dominated by a new superstore it is forced upon them because of the planning laws?
And the market created by a superstore is not free. While a shopper may prefer to wnadre down the road to the local florist, bookshop etc the fact is they are lazy and they will end up buying other goods while they are buying their groceries, rapidly putting the small trader out of business and creating a local monoploy.
Of course the variety of food goods that major supermarkets offer far outweighs wht local stores can offer, but it is in other areas that they are able to exploit their position as food retailers and destroy other traders.
In addition their ability to dominate food processing means they totally distort the market - and as has been recently publicised a bit more regulation on that front would not go amiss http://www.guardian.co.uk/supermarkets/story/0,,2148876,00.html
August 29th, 2007 at 8:09 pm
Joe Otten, libertarians agree, that “free” means free from any coercion. You aren’t free, if another person, or organisation, forces you to be his slave. But libertarians might not agree that supermarkets using their purchaising power would be coercion. After all, they wouldn’t have that power, unless the consumers wouldn’t have voluntarily given it to them. You as a consumer can choose to use only small shops, keeping them thus alive, and stop complaining.
August 29th, 2007 at 8:28 pm
Libertarians can believe what they like. I a Liberal not a Libertarian.
August 29th, 2007 at 9:12 pm
People shop at supermarkets because they are cheap, convinient and provide goods that are percived as high quality. Claiming people are somehow forced not to go small shops by their own laziness is both insulting and ridiculous. Small businesses are not charities and do not deserve charity, which is basically what you are asking for.
Beliving government should regulate corner shops into success is wanting government to force society to be the way you want it to be.
I, as a Liberal, believe it should be shaped by the choices made by millions of ordinary people every day.
August 30th, 2007 at 8:11 am
Joe:
Where is the supermarket coercion?
Are they using force? Are they breaking people’s legs if they refuse to sell? Are they taking people to court to force them to sell? (which would of course be government coercion).
A disparity in purchasing power is not coercion.
Duncan:
The market distortions are not of their making though. The whole planning process distorts the market.
Distortion of the market comes from use of coercion, which unless Tesco are breaking legs or threatening people comes from the government (perhaps at Tesco’s request, but that’s still government force).
As to your assertion that you are a Liberal not a libertarian, libertarians are liberals (although not necessarily Liberals). You seem to be asking for the world to be forced into your view of how it should work, which is not liberal.
You also still do not understand the meaning of free in this context. The market in which superstores exist is not made unfree by their existence. Nothing about that is unfree. If small shops cannot exist because people are lazy, then that is a consequence of freedom. Freedom does not mean the freedom to run any business you like and to succeed. Freedom means the ability to pursue that given you have the resources without coercion from another body.
August 30th, 2007 at 8:12 am
tinter: Exactly right. Well put.
August 30th, 2007 at 10:53 am
Tristan,
There are other forms of coercion than threats of physical violence, as you well know!
Supermarkets routinely have contracts with farmers that force them to meet the supermarket’s demand on a day-to-day basis at a fixed per-unit price. If they fail to fulfill their orders they are threatened with financial penalties or the loss of future orders.
As you can imagine, this ruins the normal demand curve - if a farmer over-produces he has to sell his excess produce at a loss on the (practically moribund) wholesale food market; if he under-produces he is forced to air-freight in produce from abroad at an even bigger loss.
The farmer gains from neither of these transactions but is forced into them because the supermarket
August 30th, 2007 at 11:09 am
(continued from last post, pressed submit too early!)
The farmer gains from neither of these transactions but is forced into them because the supermarket is practically their only customer - and that is coercion.
In a market with more, smaller buyers (and no subsidies!) supply and demand would be balanced, prices would be elastic and not fixed, and no-one would be forced into selling at a loss - that supermarkets have managed to suspend the normal rules of supply and demand should be deeply troubling to anyone who believes in free markets!
August 30th, 2007 at 11:21 am
Joe:
That is incorrect. The contract is entered into freely. ‘Practically only customer’ is not the same as a monosopy.
If the contract is not good then the farmer should not sign it and should look for other avenues of revenue or get out of farming.
If people are selling at a loss then that means that there’s an excess of supply, not that supermarkets are subverting economic laws somehow.
Again we come back to subsidies keeping farmers in business when under free market conditions they would have gone bust, thus distorting the market.
August 30th, 2007 at 12:20 pm
“libertarian”, you said
“After all, they wouldn’t have that power, unless the consumers wouldn’t have voluntarily given it to them.”
Sure, X gives Y power, Y uses it against Z. I don’t see how the voluntary nature of the X-Y relationship implies that Y cannot be coercive against Z.
“You as a consumer can choose to use only small shops, keeping them thus alive, and stop complaining.”
Gee, why should I care about suppliers? That would be like cutting off my own head and handing it to you on a plate, etc, etc.
I would rather the market were freer on a point of principle. I am not a farmer or a supermarket, so it has little to do with my own interests.
Tristan:
“Again we come back to subsidies keeping farmers in business when under free market conditions they would have gone bust, thus distorting the market.”
Indeed. And this is probably the cause of the problem. Without subsidised over-supply, the fewer farmers that remained would be in a much stronger bargaining position.
So perhaps we should celebrate supermarket abuse of suppliers as a natural correction to farm subsidies!
August 30th, 2007 at 2:14 pm
Its not abuse! Goods are valued by how much people will pay for them, not by if some farmers would like to be able to continue making a living producing goods nobody wants. That there is oversupply due to subsidy doesn’t somehow make the supermarkets abusive by paying the value of the goods. In the end, we need less people farming if we are going to have a sustainable sector; if that isn’t achived by ending subsisdys, then it should be a welcomed correction- it will leave a stronger, better sector behind.
I wonder if you think that someone, somewhere should have been forced to buy the goods produced by the British manufacturers going out of business in the 1980’s- a similar example of a declining sector. Why the special alarm over farmers?
August 30th, 2007 at 4:34 pm
Tinter,
I don’t think anybody is suggesting that the price paid constitutes abuse. But the terms imposed, as described by Joe T, do.
If there is a courgette surplus, instead of consumer getting lots of cheap courgettes, (which is what would happen in a free market), the farmers have to dump them. It’s the sort of thing that we would expect to happen in a planned economy. Why? Because a monopoly is a planned economy, and the closer we get to it, the more like a planned economy things will look.
August 30th, 2007 at 6:54 pm
How are the terms imposed? Nobody is forcing the contracts on farmers- they are signing them because they are the best deal available.
Consumers prefer a certain type of produce, and supermarkets use a certain distribution system. As the market is so uncompetitive, they tailor their contracts to meet their needs. Once farmers wanting to sign the contracts aren’t in a huge surplus, then they won’t be able to do that.
Its not abuse, its a result of them selling a good that has limited value. Regular supply of goods requires a contract, and while there is oversupply the supermarkets can dictate terms at lesiure.
If there was anything close to a reasonable supply of food, the supermarkets would be competing with each other. The reason farmers don’t benefit from the compeition that exists in the market is that there are far too many of them.
I don’t understand why supermarkets are treated as if the don’t compete with each other. All drain cleaning companies are drain cleaning companies- I guess there is no competition? We need some dramatically diffrent structure in each company in order for the market to be competitive?