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Free market smells like free lunch

By William Lee-Ashley

We all know the old adage about a free lunch . . . that there is no such thing. The question is, do we dare say the same of the free market?

In school I was told how the operation of the free market, unhindered by monopolies or government regulation, was the driving force behind capitalism. I still firmly believe, as did Adam Smith, that pure competition is the guarantor of a free market.

The problem is, I am beginning to think this is only theory.

For decades individuals and corporations have successfully used the government—to the exclusion of their competitors—to gain a competitive advantage.

Whether it is a speculator who is granted access to an ore field on public lands; a beef packer who influences immigration laws to guarantee cheap labor; or, a hog farm that secures millions in tax breaks to build a facility, a select few have been able to use the government to gain an advantage over their competition.

Large hog farms gain ‘efficiency’ over small producers not only by externalizing their costs of production onto the environment, but also by securing huge subsidies from state and local governments. To encourage Seaboard Farms, the third largest pork producer in the United States, to build a farm and a plant in Guymon, Oklahoma, state and local authorities offered over $60 million in incentives. That equals about one-third the total cost of the facility. As examples of this sort of subsidy in the hog industry have multiplied in the past decade, the number of small to midsize hog farmers has declined to one-third of their original number. Paying one hog producer $60 million dollars is like giving a marathon runner a 12-mile head start.

Beyond using the government to gain a competitive advantage, individuals and corporations use Uncle Sam to hold that advantage. The big meat packers in Colorado—Conagra, Excel, and Swift—came out of the woodwork to oppose the country-of-origin labeling bill this year. These packing plants have cattle systems that pull livestock and meat—at reduced prices—from Canada, Mexico and other countries. The threat to them was that labeling would provide smaller plants and local ranchers with an expanded market share, while forcing these packers to rethink their practices. Deep pockets and hard lobbying killed the bill. Arguably, local farmers and ranchers suffered for it and so did Colorado consumers. Who benefited? Three beef packers.

Is it wrong for a business to use the government to eek out a competitive advantage to the exclusion of competition? Some would argue that it is not. What is wrong is for those same individuals to condemn government intervention in the economy—to preserve competition—as a violation of the free-market system.

I think it is high time we revisited what comprises a ‘free market.’ We need to see if a ‘free market’ differs from an ‘open, competitive market.’ And, perhaps we need to see if some of our current business structures threaten a truly open, competitive market.

We would not be the first ones to raise that concern. Two hundred years ago, in his book, “The Wealth of Nations,” Adam Smith warned that corporations could subvert the competitive forces of the marketplace. “The true discipline of a workman is not with his corporation, but with his customer,” Smith wrote. He was right.

We need to realize that the success of a few large companies, especially in agriculture, is inextricably linked with their abilities to secure tremendous subsidies from the government in the form of tax incentives, direct payments and trade negotiations.

The government will continue to be heavily involved in the economy—that is reality. We need to demand careful, measured government involvement in the economy to preserve competition—in the form of anti-trust rulings, preventing packer-ownership of livestock, ending corporate subsidies etc. Otherwise we will continue to have government involvement in the economy on behalf of a select few, and to the detriment of their competition, to consumers and to the nation as a whole.

Is this the system Adam Smith, the great defender of the free-market, had envisioned?

Note: William Lee-Ashley is the director of organization for Rocky Mountain Farmers Union.