Free market economy: Difference between revisions

Concerning your answer to question one: I think you have reduced the global financial crisis to financial derivates like CDS or CDO. But in my opinion it’s not only a problem of subprime lending. The origin of the crisis is how capital markets and our whole economy are construed. The shareholder-value approach (as you mentioned Friedman) and the resulting pursuit of profit forces banks to develop new products to receive more profit. Without increasing profit, a takeover ensues. This is the goal of listed companies. So it's not just the companies that operate within the free market system - it's the sytem itself in which they operate.

Later you mention several rules which are needed in a globalised free market economy. Your points are really great, but I don’t know how these goals can be achieved. The implementation of these rules should take place in a normative way (laws). But who will establish laws for controlling markets and enforcing its validity? There is a conflict between national laws and global validity. In Europe we have EU Directives that national states have to convert into national laws. I don't think there is any regulation for global rights...

After living through the post-68 normalization in communist Czechoslovakia, then living in the Middle East and witnessing capitalism growing and facing a crisis in my own country, I can only say that I am very far from disqualifying big systems and ideologies. Still, from the three systems I have witnessed in my life, capitalism allows for a comparatively larger number of freedoms, individual creativity and responsibility. Yet, in regard to all Leninism and Islamic fundamentalism, I am very far from saying that capitalism is wrong per se. What is wrong with capitalism is that if it is spoiled, it does not function. Corruption, preferential treatment, lack of information, insider trading, etc, are problematic issues. With fundamentalism and communism the problem is whether they function at all…So I am not going to propose any change to the system. On the contrary, if rules of individual responsibility, transparency and accountability, non-preferential treatment, and absence of corruption are applied, the system will be as open as possible to individual initiatives.

Control and new financial regulations is what you ask about in the second half of your question. Definitely there is a tool: FATF is the key instrument. Please learn about it. The second instrument is the US legal system – the so-called Federal Treasury matters. The US is the hub for the vast majority of financial operations. If the customers brake the rules, if the transfers are not accountable, if there is a substantial amount of suspicion – of money laundering, human trafficking, drug trafficking, arms proliferation, duel-use problems - then the US is usually a very effective safeguard. So far Switzerland has been the opposite. This has changed. The same is going to happen to off-shores and to Luxemburg. So the comprehensive compromise reached between the US and the EU in the G – 8, G-15 is reflected in US and EU legislation. And this is how it works. This is why we need these summits and we must not protest against them, otherwise we close off the last effective action for agreement. Another good tool for cooperation is the TEC – Transatlantic Economic Committee. Thank God we have a lot of meeting points in EU-US relations which can translate the ideas into work and into common legislation, so it is not only an EU directive. The vast majority of EU directives, especially those which deal with financial instruments, are as well communicated and negotiated informally and formally with respected US bodies. EU-US cooperation happens every day in real time. So the EU does not function solemnly as well as the US. Good communication and cooperation also happens with Japan. The rest is still the rest of the world. Russia and China are problematic. This is where transatlantic society has to square its head.

I never wanted to demonize capitalism in respect of the free market economy! If you compare it with different systems you’ve undergone by yourself I understand your preference. But I think we should consider different alternatives of what went wrong (and actually does go wrong) within this system. It’s not about comparing given systems in my opinion. Particular elements should be reconsidered (for instance, financial markets, the divide between rich and poor, economic policy over environmental, etc.).

You mention the FTFA. This organization only regulates money laundering and the financing of terrorism and has little more than 30 members. In my eyes, this is not and appropriate instrument to control a global issue like capital markets. It can only contribute.

I think you didn’t get the point I’m driving at. I’m aware of the threats to the system you mention. Besides the problems of bribery, protectionism or money laundering, this system per se is not stable and unfair. People are greedy and the free market economy increases this fact. The same applies to environmental problems.

This is a very personal opinion, perhaps a little pessimistic. Nevertheless, I respect your opinion based on personal experiences I never had. To finish with a proverb of Thomas Hobbes: “Homo homini lupus”. :-)