Competitive markets and individualism

Is there a necessary link between individualism and competitive markets?Ultimately competitive markets are our best bet not because we want to bow down and worship The Market and follow market forces wherever they may lead, to whatever end, but because they serve us best in allowing us to be free to be who we are, each of us in our own individual and marvelous way.

​The most cursory glance at any liberal market economy will reveal that markets are not perfectly competitive. Two extreme and equally irrational reactions tend to follow the observation of this fact. One kind of irrational reaction is to say that because perfectly functioning markets don’t exist (let’s say can’t exist) we should never allow the price of labour to be set by the market. Instead, somebody should be appointed by law to fix wages for the whole of society and to dictate how the level of pay that is ‘too much’ and the level that is ‘too little’. Let’s call this the statist camp. The other kind of irrational reaction is to say that it doesn’t matter whether markets are imperfect, we must worship The Market and let it operate untrammelled regardless of how rigid and uncompetitive it might be. Let’s call this the ‘dogmatic laissez faire’ camp because it is prepared to follow free markets to whatever end. Both the statist and dogmatic laissez faire camps are quite wrong and have totally lost the plot. Like with many things, the truth lies somewhere in the middle.

The vast majority of sensible people want to find the best way forward for everyone. Most people just want to get on with their life and be happy and know that their neighbours too are happy and getting on with their own lives. So most folks are not rabidly devoted to one ideological cause or another, clinging desperately to their statist or laissez faire dogma to the bitter end. It just looks that way because of all the raging people on the internet, waving the colours of their own camp and accusing the other camp of being completely wrong and also a bit thick. For those searching for the truth, rather than simply waging pointless ideological warfare, the question is a simple one: what is the best way of organizing society? Through some form of intelligent centrally-planned social blueprint or through ‘creating conditions under which the knowledge and initiative of individuals is given the best scope so that they can plan most successfully’ as Hayek put it?

Creating conditions for individuals to thrive is not the same thing as setting up The Market as some kind of god to be worshipped at all costs. It is instead an argument that individual creativity and initiative is often a better way to achieve our goals than central planning. Not always, but often. Often enough to make the whole enterprise worthwhile. As Hayek wrote:

It is important not to confuse opposition against this kind of [central] planning with a dogmatic laissez faire attitude. The liberal argument is in favour of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that where effective competition can be created, it is a better way of guiding individual efforts than any other.

​Where effective competition can be created, it is the best way of guiding individual efforts. It is better than setting up a government functionary that will tell everybody what to do and what sort of bargains they should make with other people. And yes, there are situations where effective competition cannot be created and then we need to identify the roadblocks and see what can be done about that. What Hayek said:

[The liberal argument] does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required, and that neither the existing nor the past legal rules are free from grave defects. Nor does it deny that where it is impossible to create the conditions necessary to make competition effective, we must resort to other means of guiding economic activity.
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Sometimes competition isn’t possible and we need to find a better alternative but the key word there is ‘better’. We don’t need to find any alternative, or a worse alternative, we need to find a better alternative. The alternative must improve upon the existing situation! I know, shocking.

​It is not simply a matter of doing something, anything, so that we can say that at least we did something. It's not enough to have good intentions in an 'I couldn't just sit by and do nothing' kind of way. It is necessary to show how what we have done is actually better than what we had before. Hayek wrote:

Economic liberalism is opposed, however, to competition being supplanted by inferior methods of coordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known, but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority. 
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​This bring us nicely to the idea of individual liberty. As Hayek wrote:

Indeed, one of the main arguments in favour of competition is that it dispenses with the need for ‘conscious social control’ and that it gives the individuals a chance to decide whether the prospects of a particular occupation are sufficient to compensate for the disadvantages and risks connected with it.
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Here we reach a difficult point, because of course there are some people who are 100% averse to disadvantages and risks, and also 100% averse to making individual choices in case they get it wrong and then what? They would prefer to have all element of personal choice taken out of their hands because it's all too risky. Making mistakes and having to suffer consequences would be intolerable, so they'd prefer it if the government would supply everyone with a safety net so that nothing bad ever happens, (like getting fired, or going bankrupt) or if it does happen at least there's a lawsuit that can be brought to get a bit of money out of it as compensation for the trauma.

This is obviously fantastic news for those whose main goal in life is to ensure that they are never caught in a tight spot, but it’s a bit problematic for the rest of the people who want to be free to take a chance with a risky prospect. For example in relation to the risk of being fired, a risk which is borne by anyone who works in an employment relationship, we can easily bring in a law that reduces that risk by imposing penalties for unfair dismissal. Would you take a chance, hiring a doubtful prospect, when you might be stuck with them and unable easily to fire them if you later decided it wasn’t working? Of course you wouldn’t. It’s all very well for someone to rock up and ask the employer to take a chance on them, when actually it isn’t really a ‘chance’ but a commitment potentially for life because that person that you took a chance on could turn out to be very sticky and impossible to get rid of unless you’re prepared to incur huge costs and the ignominy of being the defendant in a lawsuit where you've been accused of being nasty to someone. It’s like when you kindly tell your friend they can crash in your house for a few days while they look for somewhere to live, and then…disaster! They don't bother to look for somewhere to live! They just settle in, get comfortable in front of your telly, hog your remote control, answer your phone when it rings, introduce themselves to the neighbours, eat all your food, never help with chores, and now you can’t get rid of them.

Seriously, there are people out there with very doubtful employment prospects. Fate did not grant them the best of parents, so they never graduated high school and they’ve had unfortunate run-ins with the law in their erratic past. These are the folk euphemistically referred to as being 'known to the police', having met during the many cautions they received in their youth. Now they are grown up, they have no credentials and a minor criminal record to boot, and they have to go out there and stand on their own two feet and see what is to be seen. The worst possible situation to put them in is one where they have to show up asking employers to give them a chance to prove themselves, when the truth is that if the employer decides it isn’t working there is a risk that the worker might decide to get a bit sticky and launch a game of legal charades in which there can be no winners (except the lawyers on both sides).

In the case of unfair dismissal legislation there is a built-in attempt to account for this by saying that the employee must have worked continuously for at least two years to qualify for unfair dismissal protection, and you could argue that two years is long enough for a worker to prove himself. There is also scope for an employer to argue that there were valid business reasons for the dismissal. The point however is not so much whether the law strikes the right balance but whether hiring and firing decisions should be adjudicated in courts of law.

In the end, the so-called ‘just cause’ versus ‘employment at will’ debate is not a debate about whether employers who fire workers without just cause are evil bastards. Sure, there are some nasty employers out there who deserve to be taken down a peg or two, but the debate is a bigger one. It is a debate about how best to organize society, and whether to have a system of safety-net rules that shield people from disadvantages and risks, or whether to have open and competitive markets in which people, once they’re all grown up and no longer children, can choose the risks they want to take in this life.
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