Benefits and drawbacks of free market trading in the UK

The UK economic system is based on the free market system and is one of the most globalised economies in the world. It is a successful country which accepts this system. Although many countries have success in this system, sometimes it is not suitable for developing countries such as China or Thailand. Most countries try to practice the free market trading in order to enhance their economic system and undeniably, this system is an ideology which each country may have to adapt appropriately. Even though capitalism and free trade are currently allowed to operate in UK, the role of government also plays a crucial role in many economic activities to ensure fairness of exchange transactions.

Free market can be defined as an economic system which buyers and sellers are responsible for making their choices without regulation by the government. The price mechanism plays an important role in a free market to determine allocation and distribution goods and services. This system has several benefits which both of the producers and consumers satisfy with the price. It seems to be that free market system has many great advantages but there are a number of arguments which indicate the possible disadvantages. The fundamental characteristic of a free market is that people who can control resources and wealth have privilege to purchase goods and services at high price so the poor people are thrown out of the market implicitly. Because of this situation, several ethical problems such as unemployment, crime, and environmental problems increase.

This essay will focus on an analysis of ethics and benefit of the UK free market since 1990. The first section examines the benefits and drawbacks of free market trading. The feature of free market is based on individualism and utilitarianism which form two sides of the argument. Next, the ethical problems caused from free market system will be highlighted. Due to the aspect of freedom, people may do what they want to regardless of reconsideration of society. The last point will analyze the possibility of the UK free market trading in the future and evaluate advantages and disadvantages for developing countries.

1. An analysis of benefits and drawbacks of the free market trading

1.1 Background the UK free market

The free market system was accepted since the eighteenth century in the UK. This system was continuously developed until now so as to obtain maximum benefit. Even though the freedom, which is the basic concept, plays a key role in the UK economic system, practically the government may enter to the market in some sections especially public goods and services. In other words, most decisions in UK are made by the price mechanism in the market and some decisions need to manage by the state such as education, hospital, and public utility. For example, road users have to pay for the road network through the petrol tax system controlled by the UK government (Bearshaw et al., 2001). They also confirmed that the state is responsible for almost 40% of all expenditure in the UK.

1.2 The concept of free market

Individualism is the basic feature of the free market system. It can be defined as ‘the nature, evolution, and function of such institutions in terms of the unplanned and unintended action of free individual agents’ (Schotter, 1990, p. 6). Buyers can easily purchase any commodities and sellers also produce and distribute whichever products they want to. There are no obstacles put in place by the state to limit the flow of goods and services between trading nations (ibid., p.7).

1.3 The benefits of free market

Based on the concept of individualism, there are three benefits of the free market system. First of all, Schotter (1990) stated that the entrepreneurs can make their own decisions about quantities and what goods should be produced. He also explained that if they produce a product which nobody want to or they produce too much, their profit will be decreased, reducing their income and forcing the production of new different products which the market demands. Secondly, the consumers may have various choices and can choose to buy quality goods. Every entrepreneur wants to produce the products which are sold to many people so there are also many competitors that can produce the same goods or better through the market. Therefore the producer should create distinctive products or produce high quality goods and services in order to increase sales. Lastly, there has been an increase in higher levels of education for graduate employment. Philo and Miller (2001, p.3) stated that ‘The essential individual freedoms were for employers to employ, for workers to be able to sell labor without the ‘restrictions’ of the trade union and for consumers to be able to buy’. The demand for the right to work is therefore converted to workers who have the individual’s right to go to work. It is suggested that the workers attempt to enhance their skills so as to satisfy the wage rate because everyone can sell their abilities into the market and the employers are free to hire employees at the lowest possible price. If people have different skills which are required in the market, they will have several opportunities to choose their jobs and request higher salaries.

1.4 The drawbacks of free market

On the other hand, Schotter (1990, p.47) insisted that ‘the very individual rationality that makes the market work so sell often destroys the optimality of its results’. The disadvantages can be divided into two parts. Firstly, he argued that people, who have good performance under the existing set of institutions, may have encouragement to work hard in contrast with people who do badly may not be supported. This is due to the fact that unequal distribution of income is in the society. Even though in the free market system workers free to supply their abilities, sometimes many skills which each one can do well might not be demanded in the market or many people have the same capability. Secondly, the public goods such as street lighting and public transportation, lack the encouragement from people to pay for them since there is no profit to provide these goods despite the fact that they are important for everybody. Schotter (1990) illustrated that the problem might happen if people think of public goods based on the free trade concept (ibid., p. 58). For example, the street lights should be installed to protect people but there is no one who wants to contribute to them because all people believe that everybody may use them which cannot be specified each person.

2. Identifying the ethical problem caused from the free market system

2.1 The ethical problems

It seems that the free market has several advantages. However, the benefits of this system also lead to ethical problems such as unemployment and environmental problems. Obviously, competition is a characteristic of the free market hence people who cannot compete with others will be easily ignored by the market system. Eventually they may lead to one part of the ethical problems. Two areas of moral problems can be identified.

Firstly, there was an increase in unemployment and poverty rate in the society. Most entrepreneurs try to reduce costs of their product in order to gain the high profit in the market. Consequently, they attempt to create new innovations such as machine and robot which can help them to manufacture many products in a short time and replace many workers. For example, the self checkout machines, which can be found at many ratailers such as Sainsbury’s in UK, can replace a lot of staffs. The buyers can make a payment by scanning the barcodes on their own goods to machines. Furthermore, an increase in jobless may be one effect of crime in the society.

Secondly, the environmental problems such as greenhouse effect, air pollution, etc may result from the free market system. Due to the concept of trade without any tariffs or subsidies imposed by the state, every firm produces their products in a way that they expect to obtain the highest profit. Therefore, they do not consider the full costs of pollution (Mankiw, 2001) . Exhaust from automobile creates smog that is breathed by the public, and hence the pollution created by drivers should be included the costs attributed to a company. Bearshaw et al., (2001) also stated that the main industries responsible for a release of carbon dioxide to the air are electricity, gas and transportation. These industries are important for production and distribution in a developed country, and yet have a significant effect on global warming. It is suggested that while the company receives full benefit from the free market trading, the problem of environment will continue to be a problem.

2.2 A case study of carbon footprint emissions of two retailers in UK

The Sainsbury’s and Tesco are currently the leading supermarkets in the UK and they create a vast amount of pollutions that lead to several environmental problems. They produce carbon footprint in many ways such as transportation, their buildings. For instance, refrigeration, which accounts for direct carbon emissions, is necessary for this business because they sell a lot of fresh food. However, they attempt to reduce their carbon footprint by several ways. Sainsbury’s convinces customers to bring their own bags so as to reduce the numbers of bags which bring about an increase in carbon emissions. This company also use 50% recycled material for producing their bags given to customers (J-Sainsbury’s, 2010). In addition, Tesco promoted the campaign ‘Greener living Brand’ since September 2009 which encouraged the customers to buy products such as energy-saving light bulb which can reduce the global warming. It also launched the website which contains methods of carbon footprint reduction. For example, this website shows ten ways to decrease carbon emissions such as washing clothes at 30 Celsius or lower. It will save around 45 kilograms of carbon dioxide per year. (Tesco, 2010)

3. Way forward for the free market in UK

3.1 An analysis of current UK economic trends

It is difficult to decide whether the UK free market will be maintained over the next hundred years or will be immediately accepted by a new system. However, the UK is a country which successfully practices the free market system, as can be evaluated by the gross domestic product (GDP) . The figure 1 shows that the annual changes in GDP index from 1979 to the first quarter of 2010. Overall, the GDP growth trend remained positive and increased gradually from 2005 to the second quarter of 2008. This implies that after the free market had accepted, the UK economic system developed in the right way. However, the UK GDP growth fell and became negative during the fourth quarter of 2008 until 2009 and turned into positive in early 2010 due to global financial crisis. In this case, the state attempt to cut unnecessary public expenditure so as to reduce fiscal deficit which is the result of the recession in 2009.

Figure 1: GDP growth in UK 2005-2009

Source: Office for National Statistics (Statistics, 2010)

Figure 2 Unemployment rate in UK 1979-2009 Figure 3 Public Sector Employment, UK

Source: Office for National Statistics Labour survey Source: Office for National Statistics Labour survey

Notes: 1. Unemployment rate is for those aged 16 and over

Additionally, the unemployment rate increased sharply from 1979 to 1986 and then decreased until 1990 as can be seen in the figure 2. It was because of the initial free market system that people became jobless. In 1990, there was a rapid increase in unemployment rate due to the contraction in monetary policy aimed at bringing down high inflation until 1993 (Jenkins, 2010). After that, the unemployment rate declined continuously until 2008 and then dramatically rose to 6.9% in the first quarter of 2009. This was due to the global recession which caused demand across the world fell sharply (Jenkins, 2010). However, figure 3 shows that the public sectors increasingly employed the staffs during 2008 to 2009 while the private sectors needed to reduce workforce and froze salaries. The UK government involved in this case in order that the labour market might recover quickly. (ONS, 2010)

3.2 Benefits and drawbacks for developing countries

Undeniably, the UK has a powerful role in the global economy and success of the free market system. However, it may have advantages and disadvantages of this system. If developing countries try to practice this system, they should learn from the UK and adapt the system in conformity with the nature of each country. Thailand is one of developing countries which support the free enterprise system. It learns from several situations in developed countries such as UK and USA. It started to open up the country since the late twentieth century. Thai entrepreneurs have freedom to invest in Thailand or foreign countries and international investors can also open and expand their businesses in Thailand. Thus, there are several benefits which improve Thai economic in a good way. However, it had to face with the Asian financial crisis in 1997 which bring about a dramatic increase in unemployment. It might also have several environmental problems such as air pollution that is caused by many industries. Due to these situations, Thai government may integrate free market trading to solve the problems effectively by formulating legislation. For example, in Thailand every factory must control harmful gases which release to the atmosphere by setting up the filterable equipments.

Conclusion

In conclusion, this essay has discussed about the benefits and drawbacks from the market system. It is also identified the ethical problems which come from accepting free market system. Some countries have received a considerable number of benefits from this system. Meanwhile, they might be confronted with several moral problems such as poverty, crime, and environmental problems. Nowadays, most successful countries increasingly become aware of the social problems. For example, many countries should be concerned about global warming that impact on the creatures in the world because of an increase in temperature near the surface of the earth. Moreover, the state of each country should play a key role to control the problems by formulating the policy. The free trading concept is accepted in the UK economic system and it is a successful country. Even though the price mechanism plays an important role in the UK market, some sections may be regulated by the government in order to support social justice.

However, developing countries can apply the free market system from UK. In practice, every country may have to suitably adapt the concept in order to increase economic welfare. This is due to the fact that each country has different characteristic such as population, geography, and history of economic system. Perhaps the free trade might be advantageous for developed countries. This may not mean that every developing country should practice according to them since the free market system has also positive and negative effects. Furthermore, the GDP can measure the growth of each country but it cannot use as an indicator to evaluate human happiness. Although some countries have their high GDP index, it cannot imply that everybody who lives there have a sense of well-being and those countries do not have the social problems. Consequently, the economics should grow in parallel with concerns for human welfare.