Free Markets Are Not Usually Fair Markets

During our recent stay in Ethiopia, my wife and I visited "the Merkato"—supposedly the largest outdoor market in Africa. We also shopped in a variety of places during the week and we observed a spectrum of trading methods, prices, and products. Now I've visited lots of markets around the world. I've bartered in many cultures and I've always wondered how most individual sellers can survive, let alone thrive and grow in such chaos.

This trip showed me a new angle, and for the first time, I had a native guide and translator to question. Observing the open-air, bazaar style markets, was like watching an engine made of glass, transparent to it's core. I could see market forces working, money, goods, and services flowing and I realized that free markets are entirely personal, intimate, and real. Suddenly, I realized that the market is a window into its people. In essence, the market is the people.

If the people and the markets are more or less synonymous, then free markets represent free people. Cutthroat markets represent cutthroat people. Corrupt markets represent corrupt people, etc. As the people go, so goes the market. This is the strength and the downfall of capitalism. And it is why we must strive to sustain capitalist free markets; it is less about prosperity and more about character.

Many people (including my wife) view capitalism simply as the absolute rule of selfishness, for personal gain. It depends on the natural drive for self-preservation (and hence live-or-die competition) to power and preserve markets. If true, that would be despicable. But that is not capitalism. Some capitalists do become selfish, destructive beings, but that is not the heart of capitalism. Personal responsibility is the heart of capitalism, while innovation and creativity are its brain. This is inherent in the foundation of capitalism, which is built on individual rights to property, the fruits of personal labors, free access and choice (agency).

Realize that a free market has no expectation of fairness or equality, by external force (regulation). Rather, it must rely on its participants to exercise excellent moral judgment and to take personal responsibility for misbehavior. Free markets are amoral. They should be, by definition. They are forums of exchange, a means to connect and transact business, with little to no limitation. As such, they are simply cumulative manifestations of our own moral behaviors. By design, the free market system allows inequity and even immorality, just as it allows fairness, honesty, compassion, etc.

Fairness is a moral construct. While markets really should be fair, the market is not responsible for fair behaviors; we are, as participants in the system. This may seem way too simple, or naive. However, we (in "1st world", advanced nations) are usually quite removed from real markets and are lousy judges. Most Americans don't use bartering, at all. We expect fair prices to start with and we usually take what we are given, while occasionally seeking ways to gain the upper hand and maybe take advantage of a seller (think of bargain shopping, loss-leaders, and going out of business sales). We live in sanitized markets, void of clear moral challenges.

In developing countries, moral behavior in markets is much more important to a stable, ongoing sales relationship. However, their markets are more pointedly mixed, with honest and dishonest vendors interspersed. These markets rely on reputation and personal networks of trust and interdependence in order to function at all!

In Ethiopia, the vast majority of the population in Addis seemed to earn a living trading something or performing services. Most of the goods being traded were made elsewhere, out of the city, or country. This means that for any given item, a hammer, a carpet, an orange, or plumber you can find 50, or 100, or 1000 competing vendors—often clustered together on a designated "hardware" street, "carpet & drape" street, etc. How do you price compare for the best deal? How do you find what your looking for?

You make friends with a few shop owners and they become your agents. Over time, you build a network of trusted vendors who look out for you in their area of expertise. This is "fair dealing". When your carpet vendor of choice doesn't have the pattern you want, you describe it, and he goes looking for it in his network of trusted carpet sellers—maybe even in the shop next door. Behind the scenes, he negotiates a shared price to benefit both vendors, while still pleasing me, his loyal customer. Ironically, these dealings can result in lower prices for established clients. A newby pays a premium to participate, until a relationship is cemented, or else he gets a referral from someone to speed up the process. This isn't fair, but it is wise and it rewards moral behavior over time.

In Ethiopia, our drivers, our hostess, and our lawyer all knew specific people to go to for specific goods and services. Working through these networks was more pleasant, and less expensive than shopping alone. At first, it bothered me to depend on a "middle man" who didn't seem to bargain hard enough—until I began to see the structures of trust that are often hidden here in the US. We still have them here, in some ways. Though in the land of the mega-corporation, the human element (and thus moral responsibility) is often reduced, or eliminated.

Sadly, with the loss of direct moral contact in our markets, we have also become more immoral, selfish, deceitful, and dishonest. Ironically, we then try to compensate by making more rules and restrictions for our markets (making them less free), which simply frees us from direct responsibility even more, perpetuating an ever-restricting cycle into closed, enslaved markets that, inadvertently, can only reward the immorality of the dishonest.

Free markets are free on several levels:

• no outside regulation
• minimal (efficient) structures
• little to no costs or overhead controls
• free, open participation
• unlimited risks & benefits

These capitalistic freedoms do not necessarily make free markets anarchies, or "pits of vipers". Rather, the participants do, more often than not (sadly). With perfect Karma, the "champions of capitalism" are often their own worst enemies.

Essentially, freedom is only maintained by responsibility. Being responsible is a selfless act. Some claim capitalism is sustained by pitting selfish against selfish. That is false and will, in practice, destroy capitalism.

Capitalism is only maintained by balancing internal needs against external ones, seeking equality, fairness and balance by choice, by design, and even by personal sacrifice if necessary. Such is honest, honorable, and sustainable commerce in free (and fair) markets.