On August 2019, the influential Business Round Table (BRT) which is an association of the chief executive officers of nearly 200 of America’s most prominent companies announced that the purpose of corporations should move beyond their duty towards their stockholders and to the overall good that they can do[i]. This referred to creating value for the customers, investing in the employees, fostering diversity and inclusion, dealing fairly and ethically with the suppliers, protecting the environment, and supporting the communities where everyone of us works [ii]. All of this has come at a time when people’s dissent with capitalism has been put on the spotlight and the need for a modification has been felt.
A 2016 Harvard study found that 51 percent of U.S. respondents between the ages of 18 and 29 did not support capitalism[iii]. Also, the rise of socialist leaders like Bernie Sanders in the US and Jeremy Corbyn in the UK might make us think likewise, but this issue has been blown out of proportion[iv]. The popularity of leaders who support socialism does not mean that people have turned against the market. In reality, no markets in the world has been able to adopt free market ideologies to its purest form.
While esoteric debates rollover from time-to-time, the truth is that the free market benefits consumers the most. A free market is a competitive market which leads to better products, more innovation and better prices. A state-owned mechanism of running things would be more bureaucratic with a sluggish pace to do work. Even though the current US President Donald Trump has been declaring attacks on free-trade, America is one country which knows why free market economics work the best.
A free market would help corporations thrive and would make them more efficient. One big effect would be on the supply chain. Free markets would provide a plethora of new opportunities in a global-scale with more sourcing opportunities, more customers and more growth opportunities. Also, the innate part of the free market is that corporations will thrive to survive by differentiating their products and trying to offer something better to the consumers. This also, in turn, creates meaningful employment complementing job growth. An example would be the automobile industry which creates a lot of jobs. The industry experts claim that an average car with an internal combustion engine has 30,000 parts in a value chain[v]. All of the people have gained employment because trading has been allowed. A state-controlled mechanism, on the other hand, would limit the players in the market which would reduce the number of jobs in that area.
While the failure of socialism in the Soviet Union is one story that will not be forgotten very soon, the rationales on why the most developed nations stick to a market-based economy are evident. Also, free-market economics have proven to add on to the economic-growth, even more than any other systems. However, there have also been some long-running debates over just how freely a free market should be allowed to operate. But even with this debate, it’s principles have come out as an established norm.
[i] Murray, Alan. “America’s CEOs Seek a New Purpose for the Corporation.” Fortune, August 19, 2019. Retrieved from Fortune: https://fortune.com/longform/business-roundtable-ceos-corporations-purpose/
[iv] Melloan, George. “Free Market Economics: Still Alive in 2018?” Fee, January 8, 2018. Retrieved from https://fee.org/articles/is-free-market-economics-still-alive-in-2018/
[v] Radhika K.T.P. “Collateral Damage.” Business Today, July 29, 2019