Can We Finally Give Free Markets a Chance?

A theory of “market failure” is widely touted as the cause of our current economic woes, despite the theory’s own failure and the inherent shortcomings of its various incarnations, as revealed in the Independent Institute’s book, Market Failure or Success. Rather, systemic government failure is the far more consistent explanation for disasters such as the 2008 financial crash, as detailed in “Anatomy of a Train Wreck: Causes of the Mortgage Meltdown”—a chapter in our recent book, Housing America—which shows the role of government failure in creating the financial bubble that misdirected resources into inherently unsustainable activities.

Indeed, we see such failure at nearly every turn when we examine government operations: thirty years of centralized, command-and-control at the U.S. Department of Education has produced worse schools with fewer graduates, at a massively higher cost. The Department of Defense’s failure to provide for the common defense resulted only in the addition of more bureaucracy in the form of the Department of Homeland Security. And, most recently, we have the inept response of the Environmental Protection Agency—tasked by law since 1994 to plan for and be first responder to oil spills—and other federal agencies to the BP blowout. And the list goes on.

Such continued acceptance of government failure must result from a false assumption that since government provides a service now, government must be necessary for that service’s provision—i.e., these are “public goods” that a market would not provide—or at least, not sufficiently—if government did not provide them.

Which brings us to the significance of the Independent Institute’s logo, the lighthouse, and the promise it is meant to convey. For, contrary to the long-accepted assumption that lighthouses—with services available to all regardless of their paying—would be provided only if the government provided them, Nobel Prize-winning economist Ronald Coase revealed their actual history, showing that, when allowed, lighthouses were privately established and operated until the government took them over.

The stark fact is that markets have been fettered, regulated, and stifled by government control for decades, with resultant handicapped abilities to respond to our needs and desires. Research and topical commentary by the Institute’s array of scholars provide sound, workable, market-based answers for society’s concerns:

• Prior to government involvement, literacy and school attendance rates in the United States were 90 percent and rising. Today, private education is enjoying a remarkable renaissance in many developing countries in which a large private education industry, often aimed at serving the poorest of students, exists to alleviate the failure of government-run schools.
• Would the more effective response to the attacks of 9/11 have been to authorize bonded privateers to pursue al Qaeda via constitutionally provided Letters of Marque and Reprisal? Privateers wreaked so much havoc on Britain in the War of 1812 that Lloyd’s of London ceased offering maritime insurance except at ruinously high premiums. No wonder Thomas Jefferson said, “Every possible encouragement should be given to privateering in time of war.”
• Private environmental-protection groups such as the Audubon Society and the Nature Conservancy license oil and gas drilling in environmentally sensitive preserves they own, responsibly weighing the risks against the benefits as measured by the income derived from drilling. At the same time, private developers on southern coastal barrier islands are protecting sensitive shorelines more effectively than has the government. Institute studies show the tremendous promise of property-rights approaches to conservation for protecting offshore resources and other sensitive habitat, as well as endangered species.

And so it is for myriad other services that governments “must” provide. In case after case, Independent Institute studies provide consistently conclusive, peer-reviewed evidence that society is better cared for and protected by the free flow of information among voluntary actors—individuals and entrepreneurs—freely allowed to innovate and exchange. In short, free markets. Can we finally give them a chance?