Markets are crucial to human progress: We need more of them, not less
Many outrageous things happened around the world over the course of the last week. But judging by both the level of popular interest in the story and the reaction to it, the most heinous was the decision of a mother to send an invoice to the parents of a boy who did not turn up to her son’s birthday treat. A demand for £15.95 was slipped into the boy’s schoolbag after he missed the outing to a local ski centre.
The adverse reaction to this story seems to be partly based on the feeling that it was inappropriate to introduce the principles of markets – a price was charged – into purely social relationships. Hostility to markets is a very widespread phenomenon. Many people get apoplectic at the idea of markets being introduced into the NHS. It was actually the post-war Labour government which began the process in 1951, charging for teeth and spectacles. But why let facts get in the way of faith? Firms which fill gaps in the market by providing loans to high credit risk individuals are regularly pilloried for the rates of interest which they charge.
But the whole history of progress is based upon the gradual spread of markets across the range of human activities. In the distant mists of pre-history, humans were organised into tiny, self-sufficient groups in which markets were unknown. As the American anthropologist and best-selling author Jared Diamond points out in his latest book The World Until Yesterday, life was pretty unpleasant. Nasty, brutish and short, as a famous philosopher once said.
Diamond has a wealth of evidence from areas like New Guinea, where primitive forms of human social structures survived almost until the present day. Contact with other small bands of people was largely based upon the principles of rape, pillage and murder. Strangers were intensely feared and liable to be killed on the spot.
As a species, it took us many thousands of years to start to work out that, in order to benefit from what other groups could produce, it was better to use markets and trade rather than invasions and looting. In modern times, societies which have tried to suppress markets, like Stalin’s Soviet Union, Mao’s China and contemporary North Korea, have merely perpetuated grinding poverty for the masses. On a much less serious note, Ed Miliband’s pledge to buck the market and freeze energy prices has just left him looking foolish.
The real problem with the birthday party was that the bill was sent after the event, without the prior consent of the participants. Places on the trip were limited, and telling people in advance that no-shows would be charged would have been an efficient way to ration scarce resources. Otherwise, the only sanction would be social disapproval. And social norms are always open to exploitation by free riders. An example is in the NHS, where a modest charge to visit a GP would go a long way to reducing pressures on surgeries. Most people behave reasonably, but a minority abuse the system. We need more markets, not less.