Infree market systems, governments implement structures that delegatethe decision-making authority to the private sector or individuals.In essence, markets are left to operate with little or no governmentintervention (Field, 2014, P. 15). Thus, from this viewpoint, theconcept “free market economy,” which is synonymous with“laissez-faire economy,” comes to being. Governments usually playa minimalist role in the economy, allowing individuals to pursuetheir interests with minimal restriction. Although the free markethas been advanced as an efficient way of running the economy, someloopholes have been associated with the manner in which it functions.The free market has led to market failure, the development ofcatastrophes such as climate change, and stripped consumers andregulatory bodies the power to avert the development of suchmisfortunes.
Thefree market has been lauded for its capacity to enhance theproduction and distribution of goods and services in economies(Field, 2014, P. 15). Efficient economies empower the masses topurchase the products that they need at affordable prices, and, atthe same time, enable producers to sell as many products as they canat a profit. In such markets, all societal resources are utilizedefficiently. However, when economies fail to operate efficiently,market failure is inevitable it is manifested in monopolies,externalities, and public goods. Simply put, market failure isperceivable as a state of affairs where the distribution of goods andservices is inefficient. An increase in the complexity of society hasbeen attributed to an increase in the severity of the market failure,which may lead to social harm.
Deducingfrom the above discussion, free markets lead to the emergence ofmonopolies. A monopoly refers to the capability of a single actor toinfluence market prices significantly (SUBHASHINI,2015, p. 41). Since the role of the government is limited, in freemarket economies, power is accrued in the hands of the privatesector: market power. These entities usually reduce production todrive up prices and maximize profits. Consequently, very few goodsreach the noncompetitive market, and too many products spread to thecompetitive markets. In the aftermath, income is concentrated in thehands of the individuals who have market power.
Secondly,free markets lead to externalities. Externalities are the effects ofthe actions of a single party on the lives of other people(SUBHASHINI,2015, p. 41). Buyers and sellers may make decisions that may,ultimately, affect the parties that are not in the market. A classicillustration of this kind of externality is pollution. Nicholas Sterncontended that climate change is the greatest market failure becauseof its impact on society (Stern, 2015). According to him, everyonecontributes to the emission of greenhouse gasses in one way oranother.
Third,free markets lead to a deterioration of public goods. Public goodsprovision falls within the jurisdiction of the government(SUBHASHINI, 2015, p. 41). Thus, when the role of the government, inan economy, is limited, the provision of these products will bebrought down significantly. Natural resources like water and air arealso regarded as public goods. These resources are available freelyand have no market. Thus, the private sector, in the absence of anactive government, will discharge toxins into the atmosphere.
Theclimate can be viewed as a public good because the individuals who donot pay for it cannot be exempted from using it. Since the freemarket systems encourage people to act with minimal governmentintervention, markets have few provisions for prescribing theappropriate amount or type of public goods to be allocated among themembers of society (Stern, 2015). When the influence of publicpolicies is inadequate, the incentives for private investors to makeinvestment choices that favor the efficient use of natural resourcesbecome insufficient. Thus, climate change can be linked with marketfailure since the utilization of public goods is inefficient. Giventhe broad magnitude of climate change, its implications for economicgrowth and development cannot be overlooked.
Consumersand regulatory bodies, on their own, may find preventing thedevelopment of events such as climate change perplexing because ofits broad impact (Stern, 2015). Climate change is a globalphenomenon. Thus, individuals that are confined within onegeographical location may not make a significant impact in combatingclimate change. Also, the effects of climate change are persistentand evolve over time. Once greenhouse gasses reach the atmosphere,their effects may last for extended periods since the climate systemresponds slowly to increases in GHG concentrations. More lags in theeconomic, environmental, and social responses to climate change makean intervention, by regulatory bodies and consumers, more difficult.
Ina recap of the above discussion, the free market has led to marketfailure, the development of catastrophes such as environmentaldegradation, and denied consumers and regulatory bodies the power toavert the development of such misfortunes. In free market economies,administrations implement systems that extend the decision-makingauthority to the private sector. In such administrations, marketsoperate with little or no government intervention. As discussedabove, the free market has been forwarded as a resourceful way ofadministering the economy however, some loopholes have beenassociated with the manner in which it functions, as discussed above.
Field,R. (2014). Motherof Invention: How the Government Created "Free-Market"Health Care (p.15). OUP USA.
Stern,N. (2015). WHYARE WE WAITING? THE LOGIC, URGENCY, AND PROMISE OF TACKLING CLIMATECHANGE.Presentation, London School of Economics and Political Science.Retrieved from:http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/06/Stern_Why_are_we_waiting_Presentation_FINAL.pdf
SUBHASHINI,M. (2015). ECONOMICSOF ENVIRONMENT (p.41). Bangalore: PHI Learning Pvt. Ltd.