The free market system still works

Bail outs, protectionism, social unrest, failure of the free market system, inflationary fears are some of the words that are been used to describe the current economic crisis. What are the politicians and fringe economists accomplishing with those words?

Firstly certain politicians want more power to control the population. Larger governments, more control, more power means more corruption and inefficient industries.

I am trying to recollect when government run businesses are efficient, well run and profitable. Not in too many cases. Let’s look at Telkom, Eskom, SAA and the Post Office as examples. Telkom may be profitable but that is because Vodacom, a free market company, brings in all the profit. SAA keeps asking for more of our tax payer’s money to be bailed out.

Governments must be an enabler to allow business to flourish and employ people and create jobs.

Failure of the free market system

The fact that the world economy has grown so quickly is one of the reasons for the success of the free market economy. That is why, slowly, countries like China, India Russia and South Africa have begun to embrace it. Down turns are part and parcel of the free market system that corrects the excesses, greed and inefficiencies of the past.

Part of that unfortunate cycle is that jobs are lost. But there are also many advantages as people who have lost their jobs begin to start their own entrepreneurial companies. Competition will increase and therefore prices will stabilize and the monolithic companies, who have not been given bail outs and therefore failed or become smaller, will now have more competition.

Government should look to enable people who have lost their jobs to start their own businesses, make it easy to licence them and start trading quickly. Easy access to capital for starting a business must be given rather than supplying UIF and money for the dole. Human beings want to feel useful rather than be reliant on the state. It is better for their self confidence.

Protectionism

Some governments and fringe economist endorse protectionism. If a country is ineffective in a particular industry it should not operate in that industry and must be left to the country that producers the product or service more efficiently. This should happen even in the world of job losses such as the one we have now as we know it will be only temporary.

How much poorer would the consumer be if we did not have Chinese clothes that we buy for a fraction of the costs that we can produce it.

We need to find where our strengths are and use them. I still suspect that our medical industry and medical tourism can compete will any in the world including India, that is if our minsters do not add too much red tape and kill the industry and the opportunity to be one of the top private healthcare centres in the world, and cheaper than most in the first world.

Inflationary fears

The bailout and government interference will create inflation. Printing money, near zero interest rates, increased debt repayment due to increased lending will increase the prices and that will not be good for the consumer.

Therefore the free market must be allowed to clear itself of the inefficient companies and people, without the interference of government in controlling the finances. Government should be there to enable a much more competitive environment, easier access to finance and less red tape in stating a business.

The free market system, if allowed to work will not disappoint us in the long run, if central planning is allowed to prevail, we as consumers will suffer in the long run.

Written by:
Oresti Patricios
C.E.O.
OrnicoGroup
www.ornicogroup.co.za