23 Things They Don't Tell You About Capitalism: Item #1 -- There's No Such Thing as a Free Market
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Then there are price regulations. I am not talking here just about those highly visible phenomena such as rent controls or minimum wages that free-market economists love to hate.
Wages in rich countries are determined more by immigration control than anything else, including any minimum wage legislation. How is the immigration maximum determined? Not by the "free" labor market, which, if left alone, will end up replacing 80–90 per cent of native workers with cheaper, and often more productive, immigrants. Immigration is largely settled by politics. So, if you have any residual doubt about the massive role that the government plays in the economy’s free market, then pause to reflect that all our wages are, at root, politically determined.
Following the 2008 financial crisis, the prices of loans (if you can get one or if you already have a variable rate loan) have become a lot lower in many countries thanks to the continuous slashing of interest rates. Was that because suddenly people didn’t want loans and the banks needed to lower their prices to shift them? No, it was the result of political decisions to boost demand by cutting interest rates. Even in normal times, interest rates are set in most countries by the central bank, which means that political considerations creep in. In other words, interest rates are also determined by politics.
If wages and interest rates are (to a significant extent) politically determined, then all the other prices are politically determined, as they affect all other prices.
Is free trade fair?
We see a regulation when we don’t endorse the moral values behind it. The 19th-century high-tariff restriction on free trade by the U.S. federal government outraged slave-owners, who at the same time saw nothing wrong with trading people in a free market. To those who believed that people can be owned, banning trade in slaves was objectionable in the same way as restricting trade in manufactured goods. Korean shopkeepers of the 1980s would probably have thought the requirement for "unconditional return" to be an unfairly burdensome government regulation restricting market freedom.
This clash of values also lies behind the contemporary debate on free trade vs. fair trade. Many Americans believe that China is engaged in international trade that may be free but is not fair. In their view, by paying workers unacceptably low wages and making them work in inhumane conditions, China competes unfairly. The Chinese, in turn, can riposte that it is unacceptable that rich countries, while advocating free trade, try to impose artificial barriers to China’s exports by attempting to restrict the import of "sweatshop" products. They find it unjust to be prevented from exploiting the only resource they have in greatest abundance – cheap labor.
Of course, the difficulty here is that there is no objective way to define "unacceptably low wages" or "inhumane working conditions." With the huge international gaps that exist in the level of economic development and living standards, it is natural that what is a starvation wage in the U.S. is a handsome wage in China (the average being 10 per cent that of the U.S.) and a fortune in India (the average being 2 per cent that of the U.S.) Indeed, most fair-trade-minded Americans would not have bought things made by their own grandfathers, who worked extremely long hours under inhumane conditions. Until the beginning of the twentieth century, the average work week in the U.S. was around 60 hours. At the time (in 1905, to be more precise), it was a country in which the Supreme Court declared unconstitutional a New York state law limiting the working days of bakers to 10 hours, on the grounds that it "deprived the baker of the liberty of working as long as he wished."