Global Financial Crisis:Free Market Advocates have NOT taken Cover!

In his postcard Where are the Free Market Advocates? Tajudeen Abdul-Raheem (Director, Justice Africa) questions why a Capitalist country such as the United States of America opts to bail out the rich (greedy bankers) and yet does not agree to have the state protect poor people. One can defend the state's role of facilitating a free environment that enables individuals to generate wealth thereby migrating from poverty.

Free Market principles advocate for the empowering of individuals to engage in private undertakings and for the state (governments) to engage in enterprises that are beyond the scope of private enterprise. It is wrong for Tajudeen to insinuate that when individuals engage in private enterprise; they do not take care of the interests of the poor, marginalized, and the sick. The state ought to ensure (through sound regulation) that private enterprise does not harm the interests of individual citizens. For example, matatu owners; boda boda taxis, airlines, bakers, hospitals, Agro-veterinary services, car manufacturers, cellphone service providers and bankers among others offer services to everyone at a fee.

By so doing, they help improve People's living standards.After collecting the payments from their customers, they pay taxes to the state. The state in turn uses the taxes to offer services (public goods) that ideally no private enterprise may engage in for profit. In other words, the state acts like a soccer referee. If the referee gets compromised and engages in fraudulent officiating of the game, it would be wrong to conclude that the soccer sport in itself is a bad thing. Change the referee!

He (Tajudeen) argues: "For decades we are told the state is 'useless', 'inefficient', 'parasitic', 'anti-enterprise' yet when the wheelers and dealers are in trouble they fall back on the same state to bail them out with freebies!" I do agree in part with this sentiment in so far as the methodology rich nations and their agencies such as the World Bank and IMF have always sought to drive the free market message to poor countries (especially in Africa and Latin America). For example, forcing poor nations to privatize service delivery in order to ensure that companies from wealthy nations take over such services is anti-free market principle. In other words, one need not engage in regime change and bomb out governments to enforce the 'market forces.'

The free market principle recognizes the importance of a 'referee' (regulator) and can never refer to such an important entity in the market as 'useless.' Perhaps what we need to explore here is the role (or absence) of a global referee. Wealthy nations are known to preach free markets but they do not allow poor countries to access their markets. Wealthy nations should not be made synonymous to the free market principle. If anything, they violate this principle with impunity and we, in our quest for foreign aid, allow them to ride roughshod on us.

The state has no 'freebies' to offer anyone apart from what it collects from the very capitalists who generate wealth. As to whether the state ought to bail out collapsing companies, the free market answer to that is no! Bailing out failure is an anti-market principle, since it will only perpetuate and gloss over the causes of financial crisis. We ought to scrutinize whether the U.S.A for example is bailing out the rich or the poor who saved in a collapsing private enterprise. The financial crisis is a pointer to the fact that one cannot cheat the market - not for long! (We see it here in our own Nairobi Stock Exchange when attempts to cover up broker failures come to the surface)

My friend Tajudeen must be deliberately out to distort facts about pro-market arguments or was simply sharing his disappointment on how America's 'socialist' solution is indeed further evidence that socialism does not work. In his own words; "The market, we are deceived into believing is no respecter of anybody and its immutable logic will fix things." Clearly this is not a deception. The market respects no one. It punishes individual, corporate or government failure with equal force.

In a socialist system, no one would ever have discovered that the collapsed companies in America had a problem, taxpayers' money would have kept them artificially in operation. It is precisely because of the market system that the World was made aware that the companies were in trouble.

Finally, we have points of convergence with Tajudeen as Africans: we should not expect others to be our messiahs but rather be our own liberators. We should stop ridiculing ourselves by talking about our problems to those who pretend to be out to help Africa. Yet again, I agree that we should not 'parrot' ideologies but interrogate them.

We are witnessing a new chapter in global history, but we shall not go beyond the market - because African indigenous enterprises are yet to make a mark in the global market. Let us learn from the American mistakes and push for high productivity and sane and sound regulation.

By James Shikwati
Mr. Shikwati is the Director of Inter Region Economic Network