Class and Inequalities: Is the free market system the best economic system to solve income inequality?

Class and Inequalities: Is the free market system the best economic system to solve income inequality?

The free market system allows merchants, capitalists, and workers to freely pursue their own personal gains, with as little restraint as possible, but is it really the best economic system to solve the widening gap between the rich and the poor? Are there any limitations to this system?

There is a global consensus that the free market economic system is the best, but that governments should also regulate large companies. About 61% of 20,791 individuals polled agreed that the free market economic system was the best system on which to base the future of the world, according to a poll done by GlobeScan. More are in favour of more government regulation, though. Support for more regulation reached at least two-thirds in every country polled except Russia and Germany.

Therefore, this shows that the free market system may not be working as well as it should in some countries, despite the great support for free markets.

There are some who believe that free markets and trade works as long as there are certain institutions like the World Trade Organisation to ensure that there is fair play. However, governments have been reluctant to step back and allow the free market system to work because afterall, global trade benefits everyone, as money will trickle down from the rich nations to the poor.

Some of the limitations of the free market system include the focus on short term profit – and over the years, environmental and social issues have been brought up. For example, instead of solving income inequality, free markets can actually widen the inequality.

Garrett Hardin (1968) wrote about the “tragedy of the commons” and he believed that a space that belonged to all would eventually be neglected or abused, like the oceans and the forests. The solution to this can only be a public commitment.

The assumption is that everyone has equal resources, and everyone had the choice to do whatever they wanted, provided that they have the resources to attain it. That means those who do not have enough resources, such as money, will not be able to get educated, for example. The lack of education is a cause of income inequality.

Another limitation of the free market system is that all the wealth will be concentrated in the hands of the rich and the poor will end up getting poorer. Unregulated markets will end up this way.

This unequal access to resources can widen the income inequality in some countries if the free market system is practiced. Certain commodities have to be provided by the government to ensure that everyone has equal opportunities, like basic food supply.

This raises the question of whether we can find a balanced market system that can decrease the income inequality.

I believe that there is no economic system that is completely free – there is always some kind of government intervention, as shown by the examples above. Even the United States, once considered to be completely free, believes in private enterprise and free market approaches with some government intervention. Redistribution of wealth from the rich to the poor is also practiced in economies when there is government intervention, for instance, taxing the rich and giving subsidies to the poor.

Having a free market system with some government intervention is the right direction to go in wanting to reduce inequality. It may not be the best, but it seeks to find some balance.

Bibliography

Hardin Garrett. (1968). The Tragedy of the Commons. Retrieved August 18, 2008, from The Tragedy of the Commons, by Garrett Hardin. Website: http://dieoff.org/page95.htm

Globescan. (2008). 20-Nation Poll Finds Strong Global Consensus: Support for Free Market System But Also More Regulation of Large Companies. Retrieved August 18, 2008, from Globescan. Website: http://www.globescan.com/news_archives/pipa_market.html

Q: How does today’s globalization differ from ancient globalization?

Q: How does today’s globalization differ from ancient globalization?

Globalization is the process of increased interaction and integration among people, companies and even governments of different nations. This process can be sped up by technology, trade and investment.

However, globalization is not a recent phenomenon. For many thousands of years, people travelled to unknown lands in ancient times, and expanded trade, power and transportation networks. For example, the Silk Road across Central Asia is an example of how trade and investment moved from civilization to civilization. Trade today is more important than a few centuries ago, due to the growth of trade in services and the rise of production and trade by multinational firms.

One difference between ancient and modern globalization is the development and the use of technology over the recent decades. It is this development in technology that has fuelled large scale migration and investments. Modern globalization has brought us to places faster and cheaper, due to the telecommunications and technology infrastructure that is in place. Today’s globalization affects more people and overnight changes are made, as compared to ancient globalization that took hundreds of years to implement changes.

The opening up of various economies due to policy change is also another difference of ancient and modern globalization. The elites of ancient times, for example, emperors and rulers of the day passed on their ideologies from a top-down approach, and people had to accept whatever that came their way.

Today, many governments adopt free-market economic systems, thus opening many doors of opportunities for international trade and exchange. Barriers between economies have been broken down, and international trade agreements have been forged to ease investment and trade. Modern globalization has further developed the business structure.

Immanuel Wallerstein, the father of the world systems theory proposed that a centre – periphery relationship exists between countries. The Pharaoh, Emperors of China, for example, all regarded themselves as a ‘God-king’ and viewed their country as central in the world, and other countries as peripheral. Ideologies were adopted to exert their power, for example, Confucianism was adopted in the Han Dynasty and passed on to its citizens in the area of legal principles which were used in the law structure of the state to exert power. Today’s globalization encourages democracy.

Policy changes have also changed the movements of people. In ancient civilizations, the migration of people used to be for labour purposes but today, it is more of a move of capital. In ancient civilizations, assimilation into a new culture meant that you had to forsake your own culture and beliefs to fit in, but today, different cultures can live harmoniously together, without having the need to give up one’s culture. Diverse cultures are widely accepted as contributing to a cosmopolitan society. 

New concepts of citizenship and identity are created due to this widespread population movement, and today’s globalization has contributed to a blurring of one’s national identity.

In conclusion, today’s globalization differs from ancient globalization in the number of people it affects, trade, the use and development of technology, policies and the relationship between the ruler and the state, and in one’s national identity.

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