Free market economy

1.	Do you think our free market economy, especially against the backdrop of unfettered transnational financial operations and the financial crisis, is the right way to live in a globalized world?

Answer by Jana Hybášková:
Globalization is not the result of the free market economy, in as much as the free market economy is not a function of globalization.

The free market economy is one of the key values by which we have agreed to live, to support it in our external relations. By free market economy we mean the economic freedom of every individual and equal economic rights for each individual. We Europeans are of the opinion that economic freedom is a necessary condition for the creation and sustainability of civil and political freedoms. The other values are democracy, rule of law and protection of human rights. You would be facing difficult times if we argued that the free market economy, as used in the Copenhagen criteria, or the Treaty on the EU, is not meant to represent equal economic rights.

The free market is a political idea based on the economic freedom of every individual. Freedom does not mean lawlessness. Freedom means a set of rules stipulated to provide equal opportunities. In western democratic thinking, freedom is not based on the limitation of the rights of others. The free market is based on transparency and accountability rules, equal competition, anti-monopoly policy, protection of ownership, and protection of intellectual property. The free market in the European understanding does not exclude the social state; the free market economy is not synonymous with wild capitalism - quite the contrary.

The history of totalitarianism provides evidence that attempts to limit economic freedoms are necessarily tied to attempts to limit civic freedom and individual human rights. To use globalization as an apolitical threat leading to the necessary limitation of economic freedom would mean a return to totalitarian and autocratic forms of social order.

It is not only Friedman and Hayek, but also our post-communist experience, that any attempt to limit economic freedom leads to the limitation of freedom in general. So, more important than limiting the free market economy is how to develop better rules and regulations to support it, to strengthen it, to make it more sustainable; an open opportunity for everyone, an open economic opportunity for everyone. Globalization can be a problem for sustainable development in its forms which are not based on the free market economy, be it exploitation of others' ownership, lack of competition rules, exploitation of children or forced labor, lack of respect of human rights of workers, occupation of others' national wealth.

Three examples of what could be done better are as follows: the world price of coffee in London Starbucks should be competitive with the price of still water. The price of coffee beans in Nigeria is not derived from the “real” cost – exploitation of soil, the price of water, the price of a working hour, the social and health insurance of the plantation worker, transportation cost to port, to the distant port of Southampton, to package, market, and finally make a retail sale in London. It is derived from the price of the same quantity of water.

Is there any free oil market? Where is it? You might say: in London today’s price of one barrel of Brent crude, or Dubai, or WTI is… have any of you thought about which part of an entire day's consumption of oil is sold on aifree market basis? The price of oil is not really free and never was. It is a negotiated price between the consumer and the producer, between the US, China and EU countries and OAPEC and OPEC and Russia. There is no transparent information. The same holds true in an even more precarious way for gas, since it is more difficult to store, or even electrical energy, which we can not store at all. The price of energy follows theilogic of world economic development, and certainly not in a clear, predictable and transparent way.

Coming to the financial crisis: the issue was the “real price” of CDO, CDS, and SBS financial derivates. Funds came under ever growing pressure to increase their profit. Banks, financial institutions where not able to increase the profit by any existing means, so they searched for new ones. In the case of CDO, CDS, and SBS, experienced bankers themselves did not understand how the price was set up. The price was not transparent even to them. How could they be accountable to their shareholders? How did they obey the law? Which kind of legal instruments - information, accountancy, income sheets, expenditure sheets - were at their disposal?

The rules which can help us Europeans advocating for more free market economic benefits from globalization are competition rules, anti-monopoly rules, protection of ownership, better control of financial markets, control of illicit drug and arms traffic, of human traffic, anti-money laundering rules, transparency rules, protection of shareholders, open public competition, reduction of unfair protectionism.

The direct threat to the free-market economy in the world is corruption, protectionism and exploitation.