The Myth of Free Markets

Introduction

The economic readings this past week with respect to the ideal of perfect competition and its antithesis, market control, compelled me to think about how free our markets really are. I've come to the conclusion that our world economy is really just a race for market control and all the talk about free markets is really just code for the freedom of very few individuals and businesses to pursue total market control.

Property Rights
One of the most important concepts in the western psyche, and particularly the American psyche, is the right to property. I contend that property rights, particularly intellectual property rights, represent one of the biggest obstacles to a truly free marketplace. Patents and copyrights, for example, are all about conferring market control. In 1980, the Bayh-Dole Act ( http://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act )  was passed which made it possible for federally funded research to be privately patented. Prior to the Bayh-Dole Act, federally funded research was placed in the public domain and anyone could take advantage of the knowledge. After Bayh-Dole, federally funded research could be patented by private organizations who could then charge expensive licensing fees for use of the knowledge. This, of course, grants tremendous market control to those who hold the patents and, by extension, to those who can afford the licensing fees.

Subsidies
In local economies, subsidies are often used to entice large businesses into a certain area. The problem, however, is that small, locally owned businesses in the same industry are not granted the same tax breaks and are often driven out of business as a result of not being able to compete on such an uneven playing field. David Cay Johnston provides an anecdote about how this plays out in chapter 9 of his book Free Lunch.

Agricultural subsidies tilt the playing field in the international arena by lowering the costs of producers in countries, such as the US, where those subsidies are common, thereby giving their agricultural products a price advantage in the global marketplace. Producers in countries without such subsidies, especially developing nations, can't compete in the global commodities market and are often driven out of business due to cheaper, subsidized imported products.
For a more comprehensive take on the harm that farm subsidies do, visit: http://www.heritage.org/research/reports/2012/06/farm-bill-2012-agriculture-policy-ripe-for-reform

Inflated Currencies
Another hindrance to  free market competition, particularly for agricultural commodities, is the inflation of currencies due to a single industry, often the oil industry. In smaller, developing nations, the ability to produce oil has a tendency to inflate the value of the currency of that country, thereby making all other commodities less competitive. Furthermore, as other industries fail as a result of this tilting of the market toward a single industry, that industry then has the competitive advantage in the labor market, which drives a race to the bottom for wages with workers in need of a job.

Political Power
The reinforcing feedback loop of wealth leading to political power which then leads to more wealth is another hindrance to a free market. Political power allows people and businesses the ability to influence laws and regulations in such a way as to eliminate competition (for example with subsidies as mentioned above).
Political power also undermines the free market by allowing elites to engage in wantonly criminal activity with impunity (Glenn Greenwald, With Liberty and Justice for Some). This confers a competitive advantage in the marketplace because non-elites are bound by a fear of prosecution and thus, mostly, operate within the confines of the law while elites are not necessarily constrained by the law. I would say that The Reckoning series we read underscores this ability by some to engage in massive fraud without fear of prosecution. This ability to operate outside the law, therefore, confers competitive advantage and thus market control.

Conclusion
Even though our economy is rife with stumbling blocks to a truly free market place, I think that grass roots awareness can counter these pressures. The creation of the "local, living economy" is a step toward a freer marketplace and an antidote to the market controlling oligarchy currently plaguing our economy.

Poverty Discussion

I would like to build on my statement about education and poverty and to try to incorporate it into the larger economic discussion and system-thinking framework.

In my previous post, I alluded to my belief that the benefits of education are a catch-22 situation. I say this because, on the one hand, education is statistically the best way out of poverty, but, on the other hand, the conditions of poverty make taking advantage of an education nearly impossible. A number of studies seem to validate this, including the famous Terman study of genius which ultimately showed that childhood socio-economic status (SES) is a better predictor of lifetime achievement than IQ (http://www.psychologytoday.com/blog/beautiful-minds/200909/the-truth-about-the-termites), and other studies demonstrating a correlation between parental income/educational attainment and that of their children (http://www.blackwellpublishing.com/specialarticles/ecca239a.pdf). This very strong correlation between childhood SES and adulthood SES appears to be an example of a self reinforcing feedback loop. Just as success tends to lead to further success, failure seems to lead to further failure. Why this is the case, of course, is tremendously complex and controversial. There are many ingredients that go into success (as traditionally defined by SES, achievement and recognition) including: extraordinary circumstances (i.e. luck), the ability to leverage oneself in various social institutions (i.e. social intelligence), access to opportunity, access to resources and, to a far lesser extent, intrinsic qualities such as intelligence, work ethic and character. I recommend Malcolm Gladwell's book "Outliers" for a more in depth discussion on success.

I therefore contend that our educational system is not the primary failure point in the cycle of poverty but rather our social and economic system. That being said, the solution to eradicating poverty is even more daunting than improving our educational system. If we are serious about eradicating poverty, we have to ask some very difficult questions:

• Do we need to mitigate access to resources and opportunity for some in order to increase it for others?
• How do we change destructive familial relationships that impede social development? 
• What are the trade-offs for realizing an equal playing field?
• What are we actually willing to trade?

Introduction to Readership

My name is Daryl Nieto and I am currently living in Albuquerque, NM which is also where I grew up. I served for about 10 years on active duty in the U.S. Navy. While in the Navy, I deployed a number of times to the Middle East, including a tour in Iraq. After I resigned my commission and left active duty, I taught math at a charter high school for high-risk students. Currently, I am a Budget Analyst at the New Mexico state office for the Natural Resource Conservation Service (NRCS). With the coming departure of our current State Budget Officer, I have been invited to apply for the position by the chain of command, so I may soon have a different job title (though with similar and overlapping responsibilities to those I currently hold).

One of my expectations for the coming year is that I will pick up the pace on a journey I started last September (or perhaps well before that). I was on a plane coming to Seattle to tour UW and gather information about their MBA programs. Initially, I was looking at an MBA program because I felt like my experience had outpaced my educational attainment - it was a way to help myself compete in an economic climate that is brutally competitive. On my flight up to Seattle, in the airplane's magazine, however, I saw an ad for BGI. I had never heard of a business school that focused on sustainability, so I was intrigued that I might actually be able to get an MBA and have it align with my developing values. Serendipitously, there was an information session for BGI the following day, which I quickly signed up for. After going to the information session, I was hooked. I procrastinated for a while as I internally debated the feasibility of logistics, but I knew it was where I belonged. Now, I am ready to pick up the pace and continue moving forward on what has become a journey instead of just another exercise in pragmatism.

As a corollary to my expectation of picking up the pace on my journey, I expect to discover how to implement the paradigmatic shift necessary to change the direction and impact of the most ubiquitous and influential institution of our current culture - business. In support of that, I expect to deepen my knowledge and understanding of sustainability in general and also come to understand it in the context of business.

One economic issue I am particularly concerned with is the eradication of poverty. One of my experiences teaching was that I felt helpless to convey my love and understanding of mathematics because my students, for the most part, were not high enough on Maslow's hierarchy of needs to appreciate something so abstract. It was a luxury that their lives did not afford them and it made me feel like a (very small) bandaid on a hemorrhage. So I ask the question now, and seek the solution for: how do we make it so that every child is in a place where education can work for them?