Monday, November 07, 2005

The market is our guarantee

Do I really need a law to state that bread must be always available at every corner shop, that it be priced under $2.00 a loaf, and that it has to taste good? By rejecting bread (and sometimes all products from a particular shop) when a) It is more expensive than you’re willing to pay ; b) If they never seem to have the bread you want left or c) the bread is not nice in one way or another – we are acting as agents enforcing an implicit guarantee that we are getting acceptable value for money. * a statement saying that bread sellers should not overcharge is absolving ourselves of responsibility to keep them honest *
Why have a government agency to enforce bread standards when we are perfectly capable, as individual consumers, to in our own way dictate the standard by what we choose to buy. Poor quality, service or overpricing can still legally happen, but more efficiently adjusts to market pressure, than it could by direct mandates.
Similarly, do we need a law that states what hours you are allowed to work, that it must be at least a certain amount per hour, and that it should be fulfilling? All these criteria are important both for an employee and an employer, but by denying flexibility in the first two distorts the market mechanisms for all three. Different employees will have different priorities between remuneration, hours that can be worked and overall fulfilment in the job. Countries with price controls on bread end up having all bread at the same maximum allowed cost, not being readily available, and generally having dubious quality and no variety of choice. The free market in bread doesn’t necessarily make bread cheaper, but makes suppliers of bread compete to find breads that people will pay a high price for, while consumers will compete to find cheap but good quality breads.
A freer market in jobs will make employees and employers reputations much more important. Power will move from large unions and big companies to agencies, individuals, contractors, small employee groupings and nimble small businesses. The main difference to be seen will be a rise in the importance of job fulfilment over the letter of the industrial relations laws. The guarantees explicit in most awards are also guaranteeing that job fulfilment is a lower priority for employers than getting a reasonable fit in the costs and hours allowable.
Although large unions will lose a great deal of their power and influence, smaller unions and alternative worker groupings may actually have more clout by being able to favour certain employers over others for a range of tangible or intangible offerings.


Dr. Clam said...

The market is not a guarantee in times of scarcity: panic buying pushes up prices and the landless poor starve. This is why there have been no serious famines in India post-Independence: the state moves in and buys and sells essential foodstuffs at affordable prices. When food is plentiful, the market is good enough. But food is not always plentiful.

By the same token, when jobs are plentiful, the market can be left to allocate workers to jobs and vice versa. In times of high unemployment, workers whose skills are not in demand will go to the wall. Remember the Great Depression: countries where the government stepped in with make-work schemes muddled through okay, those where they didn't usually collapsed in an orgy of violence.

It is not enough to invoke Adam Smith's invisible hand ad nauseam, the world is not tha simple.

Last reply to a comment from lil' ole me: October 6th :(

First incisive insights on the 'Eurabian Intifada': ??? :)

Marco said...

My point was not that the market is 100% reliable, but that it constitutes a guarantee. For instance insurance guarantees don't work when the insurance company goes bust. The Argentinian government could not feed the needy when it went bankrupt. Besides, emergency provisions rather than legislative guarantees are what you are talking about anyway. Countries with high levels of worker regulation did no better than ones without, during the depression. High worker regulation( including lots of worker "guarantees") is a principal cause of high unemployment in any country, not its solution!