What Exactly is a Free Market?
What do we mean by “free markets” or even “capitalism” for that matter? It’s probably not what you think. For many people, these terms conjure images of Wall Street bankers and multinational corporations. Perhaps they also bring to mind small businesses and scrappy startups. All of those are part of free market capitalism, but they’re only one piece of the puzzle.
To understand the whole picture, you need to start with a single individual.
Start with yourself. You have hopes and dreams, talents and passions. You want to build a life that brings you and the ones you love happiness and excitement even as you achieve independence and stability. Ultimately, you want to build a life with meaning, filled with purpose. Everyone of us wants that for ourselves. And for each one of us, that life looks as unique and diverse as we all are. For all the things we share as a community and a society, there is no getting around the fact that each of us values different things at different times in different ways. One person’s trash is another person’s treasure. No one can know you as well as you know yourself. The same is true for every one of us.
So here you are, a unique individual, out in the world trying to figure out life. Doing it the “free market” way means following three pretty simple rules.
Those are the rules of the free market: so long as you don’t hurt other people or steal their stuff, and so long as you keep your word, you’re free to do whatever you want. You’re free to work for whoever you want. You’re free to love and marry whoever you want. You’re free to worship whoever or whatever you want. You’re free to trade with whoever you want.
And with this freedom, you’re empowered to take on any problem you want to. Free markets destroy the problems in our society because they empower free people to destroy those problems and offer new solutions. Free markets empower everyone, but especially underdogs, upstarts and immigrants to take on the status quo precisely because they don’t need to seek permission first. Free markets don’t respect traditions unless those traditions are maintained peacefully. Free markets are the most radical, revolutionary force for change humanity has ever discovered. And the reason is simple. Free markets are nothing more and nothing less than each of us and all of us having the right to try our best at improving everything for each other.
We need to take the threat of climate change seriously. While the planet itself is remarkably robust—it has survived innumerable ice ages, volcanic eruptions, floods and droughts—human beings are fragile. We need fresh water, arable land, and biodiversity to survive. Every day we are faced with the news that seems more damning for the planet—and our futures.
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But if you think the situation is hopeless, think again. In the past three centuries, free markets have channeled human creativity toward solutions to enormous challenges like hunger, poverty, and disease. Markets created our modern global society, with interdependent economies that encourage peace and tolerance. If humanity is going to fend off climate change, then it will be free markets that make it happen.
Before we dive into some of the ways that free markets are already tackling climate change, it’s worth clearing up a few misconceptions. Since the 1980s, the largest reductions in greenhouse gas emissions have actually come from free market economies. Data shows that wherever markets are constrained, the environment suffers.
This phenomenon was predicted decades ago by the Nobel Prize-winning economist Simon Kuznets. In the 1950s, Kuznets hypothesized that as an economy develops, free market forces first increase and then decrease economic inequality. Over time, as the economy matures and per capita income goes up, environmental health increases. The reason? When you’re struggling to feed your family, you can’t afford to take care of the environment. Clean air and clean water may be essential to our survival, but they’re also luxury goods for millions of people. What the so-called Kuznets curve demonstrates is that the best answer to pollution is economic prosperity.
Another reason that free markets tend to produce cleaner environments is private property rights. In countries where property rights are strong, landowners are incentivized to manage their resources responsibly. If you’ve ever had a backyard of your own, you know the feeling.In America, 56% of all forested lands are privately owned and yet we have more forestland than we did on the first Earth Day more than 40 years ago. And despite the fact that 91% of all the wood harvested in the U.S. comes from these private forests, the total timber stock on private land has doubled since 1953. That’s because individuals, families, and companies who own the land have skin in the game, they want to keep trees growing and replant what they take so that they continue to get value from it, whether that value is financial or purely aesthetic.
The central claim of the book More From Less, written by MIT economist Andrew McAfee, is that free markets and technology are helping developed nations use fewer resources to produce higher levels of economic output. On one level, this “dematerialization” is fairly straightforward: whereas you used to need a camera, a calculator, a dictionary—all of them made of physical materials like wood and plastic—now you just need an iPhone. One device replaces dozens. But market forces have encouraged this process of dematerialization at every level.Let’s say you own a microbrewery. In 2020, the aluminum cans you use to package your beers are likely to use about 12% less metal than the cans of the 1980s. Why? Because computer-aided modeling allows engineers to design structurally perfect cans. And, crucially, because if you decide not to use the more efficient cans, your competitor down the road will, and she will be able to lower her prices and steal some of your customers. Competition and innovation are conspiring to save the planet.
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McAfee is no climate change skeptic. His mantra is, “it’s warming; it’s us; it’s bad; and we can fix it.” But he is an optimist who argues that the trends in the developed world should give us hope for a brighter, cleaner future. McAfee is confident that what he calls the Four Horsemen of Optimism—technology, capitalism, public awareness, and responsive government—will continue to unleash the power of human creativity, creating a digital economy of abundance. People will be richer, the planet will be greener, but only if we let free markets lead the way.
Most importantly for the future, markets are proven. They have done more to cut CO2 emissions than politicians and government. Across America, cities like Seattle, New York, and Chicago promised to cut emissions, but failed to meet their own goals. Compare that to Microsoft, which pledges not only to be carbon-neutral, but to eliminate CO2 equal to their emissions since they began in 1975. Walmart pledges to reduce one gigaton of CO2 emissions – more than France’s total CO2 emissions for three years.Markets reward people for conservation. Buy a Prius and you’re not only helping the planet, you’re saving money. Buy a smart thermostat, you can keep your house comfortable with less electricity. Markets hold people and businesses accountable for environmental success. The same politicians who failed to meet the last CO2 targets, on the other hand, promise next time will be different. Climate change is too important to trust to politicians who may be out of office before society can measure their success.
