By Ron Robins. Re-published October 20, 2012. First published March 3, 2011, in his weekly economics and finance column at alrroya.com
Governments are repeatedly asked to create laws and regulations to restrain ‘free’ markets. Of course the failure of free markets is not usually the markets themselves, but it is often the character, or lack of it, of the individuals participating in those markets.
Some individuals or companies having gained powerful monopolistic or oligopolistic market positions make unseemly profits by exploiting their market power. Sometimes using abhorrent methods, they drive out other market participants and/or create major obstacles to bar new market entrants. Looking to recent US experience concerning its financial markets is insightful. But what is revealed about the character of the market participants there is found to a lesser or greater degree in markets everywhere, and in every country.
The 2007-10 US financial crises epitomizes the fact that free markets often give rise to behaviours by individuals where, in the quest for financial gain, they lose any sense of moral direction or mental discipline. They display a disregard for ethics, honesty and integrity.
Confirming that widespread loss of ethics was at the heart of the US-based financial crises is a January 2011 report by the US government’s Financial Crisis Inquiry Commission. A central finding was that, “there was a systemic breakdown in accountability and ethics at all levels.” By ‘all levels,’ the Commission refers especially to US government regulatory oversight agencies as well as to the financial institutions.
However, for the roots of such poor ethics you need only look at the behaviour of students in the US school system. It seems that cheating by students has grown alarmingly in US schools, colleges and universities in recent decades. The highly respected US Educational Testing Service says that “while about 20 per cent of college students admitted to cheating in high school during the 1940s, today between 75 and 98 per cent of college students surveyed each year report having cheated in high school… [and the] profile of college students more likely to cheat: business or engineering majors [and] those whose future plans include business.”
Such high levels of cheating especially in US schools associated with business education appear to suggest the schools are relatively tolerant of it. Thus, the students probably infer that cheating might be worthwhile in their business careers too.
When so many people accept cheating and dishonesty as normal, problems can become huge in number. And in working out their problems Americans frequently resort to adversarial methods using lawyers to solve their issues. As a result, the US is the most litigious society on earth with one lawyer for every 265 people, compared to one lawyer for 400 to 1,400 people in most western European countries.
Thus, the full costs to US society of poor ethics and undisciplined behaviour are immense, though difficult to quantify. In particular, they include the costs of administering, policing, and complying with numberless laws and regulations at all levels that stifle economic and societal progress.
President Obama is presently campaigning to reduce the number of government regulations that impede business efficiency. Yet, while in office he has added an inordinate number of new laws and regulations, as much or more than any other US president. Consider the many, many thousands of new laws and regulations alone in the Dodd–Frank Wall Street Reform and Consumer Protection Act (to purportedly stop a repeat of the financial meltdown) and the Patient Protection and Affordable Care Act (a massive, complex restructuring of US healthcare).
However, there is a way in which the numberless laws and regulations can be reduced and thereby promotes freer markets and greater prosperity for all. It requires that the individual acts in ways that he or she knows are right and ethical first, and that the gain or loss of any action is secondary. Hence it is a matter of individual consciousness.
In most religious and cultural traditions, honesty, not wronging others, etc., are central tenets. Also, most religions proclaim that if you harm others, the harm comes back to you one away or another, thereby reducing the temptation of unethical activities. However, even people who are non-religious would generally subscribe to the ideas of honesty and not harming others. Such behavioural guideposts help form the foundation for any civilized society. Thus, individuals acting with a high degree of consciousness would make the need for many laws and regulations redundant.
Americans should realize that their systemic problems of debt, deficits, structural economic deficiencies and loss of world standing, are at least partly due to a breakdown in their own individual and collective consciousness. If the US wants to regain the promise that true free markets can offer—and with fewer laws and regulations—they must ensure that its citizens aim for a higher consciousness: one of ethics, honesty, integrity and mental discipline. Though the example depicted here is the US, similar circumstances exist in countries everywhere.
For the US and all countries, it is not that free markets are bad and must be regulated. Regulations can be much reduced or even eliminated, if the markets are populated with individuals of higher consciousness and disciplined minds. Then that ‘invisible hand’ which guides all free markets can work its magic in creating sustainable prosperity and economic equity for all.
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