A Costly, Not So Free Market
“Let’s Make This Economy Work for Everyone” was one of the most spoken phrases on the Democratic presidential debate stages on June 26 and 27. Elizabeth Warren kicked off the first debate asking America: “Who is this economy really working for?,” answering her own question: “for those with money.” What do these politicians even mean? Why does the economy work for the rich, while inflicting financial hardship on millions of others? What can be done to fix these problems? In short, the free market economy inevitably leads to unequal distribution of wealth and resources, and the most viable solution is to integrate more socialist policy into welfare and tax reforms. These reforms would provide more social support to our citizens and alleviate many negative effects of large corporations.
The current divide between rich and poor makes it difficult to deny the need for change. While the rich get richer, the middle class shrinks and the working class gets larger but poorer. CEOs make hundreds of times more than their employees, a gap that has been deepening since the eighties. As a result of their lower incomes, the poorest Americans live in communities with significantly higher crime rates, underfunded schools, and poorer health outcomes. Poor children are likely to endure this same cycle, a cycle that persists for generations thanks to the free market economy.
The free market is the structure under which our current economy operates. It allows the free exchange of goods and services, meaning people can buy and sell what they want, but the commodities available and their respective prices depend on collective supply and demand. It is closely linked to capitalism, which is largely a product of the free market. Capitalism is the system under which the people, rather than the government, own the nation’s machinery and production technologies. Both are major contributors to the socioeconomic inequality we see today.
When the free market economy first emerged in post-Feudal Europe, with merchants and artisans serving as the founding members of a new world system, it seemed like a promising alternative to generations of restricted economic activity. People saw the free market as a path to social mobility, to produce their ways to a better life. And produce they did. Ever since, our production has only increased, which has ultimately led us to our current standard of living, with more overall wealth than ever before. The free market worked its magic by allowing people to specialize and innovate, leading to more technological advances than ever.
Though it has had its benefits, this technological innovation is also a major source of socioeconomic inequality, mainly because of the way it has altered the labor market. Automation has fast-tracked the way nearly every good is produced, decreasing demand for American industrial workers, driving down their wages. Conversely, automation has increased demand for corporate employees with backgrounds in finance, business administration, software development, and many other fields that require higher education. These white collar workers are essential to business management, and their employers are willing to pay them higher wages. These natural consequences of the free market are only going to intensify in the face of artificial intelligence, which threatens even office jobs. According to the Brookings Institution, other jobs that are at high risk of being replaced are food service, transportation, and construction. What then would happen to the labor market? Who would be earning income? In her recent Harper’s Magazine article “Is Poverty Necessary?,” author Marianne Robinson explained, “Assuming a largely wageless workforce would produce spectacular wealth, whose wealth would it be? … the owners of these workerless factories and their investors.” This is capitalism at its finest, all thanks to the magic of the free market.
The seemingly quickest and most tangible solution to economic inequality─ and its ill effects─ is highly debated: raising the minimum wage. This solution has many potential risks, including unemployment and inflation. Furthermore, if employees are earning more and inflation increases, what is stopping CEOs’ salaries from multiplying? Could increasing the minimum wage facilitate even more inequality? If so, this solution would be the Bandaid on a gaping wound. We cannot simply raise wages without addressing the root cause of inequality: the free market.
However, increasing the minimum wage alongside a broader suite of policy changes is likely to prove extremely fruitful. These policy changes must be much more socialist than conservative. Socialism, as defined by Encyclopedia Britannica, is “public control of resources… [aimed at] achieving true freedom and true equality.” Completely eliminating the free market would be detrimental not only to our standard of living, but also the U.S.’s position as a major economic player. Socialism is a promising way to mitigate some of the negative effects of the free market. Though very many Americans are averse to socialism, it already subtly exists in our daily lives in the form of public education, transportation, parks, and infrastructure. Integrating more elements of socialism could promise greater socioeconomic freedom for many Americans.
Changing the tax system in favor of small businesses is one key way policymakers can combat the negative effects of the free market. As also mentioned in June’s debates, many large corporations are paying zero in tax dollars. Allowing large companies to expand exponentially only expedites the impacts of automation, because they have the ability to implement automation on a massive scale, let alone the resources to develop it. Furthermore, owners of conglomerates, such as Bill Gates and Jeff Bezos, amass massive sums of wealth, contributing to the inequalities we are seeing today. The mere fact that these individuals can amass so much wealth, while millions of Americans struggle to put food on their tables, raises many ethical questions.
So what can policymakers do to change the influence of large corporations? A pure socialist would want total government control over these companies. Many left-wing politicians, such as Warren, argue in favor of such extreme change. Forcibly breaking up large companies seems like a violation of property rights… and an inevitable trip to the Supreme Court. A more constitutional way to break up big companies would be to shape tax policy in a way that encourages conglomerates to break up on their own terms. The first step is to cap deductions and increase their taxes. Only then can we offer tax cuts to companies who are willing to break up into their subsidiaries, a more constitutional solution that could curb the momentum and threat of automation.
Breaking up large corporations would not entirely stop the threat of automation, which could be a good thing. We have to remain competitive on a global economic scale, and swearing off automation would forfeit our current advantage. However, we must find a way to balance economic growth with higher quality living standards for low-income Americans. One way we could do that is by supporting local businesses rather than multinational corporations. Unlike large corporations, small businesses lack the capacity to support large-scale automation. Instead, they rely on the artisan skills of their employees, which would increase the value of labor, and consequently, wages. Small businesses also foster job creation and a sustainable supply chain, which are essential in the face of automation, population growth, and effects of climate change. To support these small businesses, the government could offer tax breaks and invest in startups.[su_pullquote]Small businesses lack the capacity to support large-scale automation.[/su_pullquote]
We as citizens can help as well, by making a conscious decision to shop local, rather than stopping into the nearest Target or Walmart. The local businesses are there, but exist in the shadows of big-box stores. Though not economically feasible for lower-income Americans, those who can shop local should. We as citizens must also must protest the political influence of large corporations, whose lobbying efforts impact policy decisions. The Center for Responsive Politics reported that lobbying expenditures totaled $3.4 billion in 2018. These sums too often incentivize politicians to act in favor of big business rather than the average everyday American. Unless we see major changes to our democratic system, there will be no reprieve from the effects of large corporations anytime soon.
In the meantime, the government could make greater strides towards a more comprehensive welfare system. Even if we tax big business and support small business, there are still millions of Americans struggling to make ends meet. To improve their standard of living, we must improve our approach to healthcare, social security, and education, issues too complex to completely dissect. However, considering how many Americans are struggling to make ends meet, our government could be doing much more to preserve citizens’ livelihoods. Would these policy changes be much costlier to the average taxpayer? Not necessarily, as long as the government allocates its revenue beneficially and strategically.[su_pullquote align=”right”]Our government could be doing much more to preserve citizens’ livelihoods.[/su_pullquote]
The free market has gotten us to this point, but where it takes us next could make the majority of Americans much worse off. The government must intervene when the free market fails its citizens, and our free market is certainly failing many Americans today. That means our policymakers must overhaul our welfare system and act in favor of small businesses. With necessary reforms, maybe, just maybe, our economy actually could work for everyone.
Caroline Foshee ‘22 studies in the College of Arts & Sciences. She can be reached at caroline.foshee@wustl.edu.