Free Market Capitalism

Free market capitalism works very well most of the time. The fairness of price, and the quality of service, typically will only get better when there is competition and little to no outside regulation in an industry. Every industry that we complain about, insurance, health care, etc. is heavily regulated by the government. Heavy regulations by an outside entity (governments) promote the formation of monopolies. A monopoly is a business that has grown so big that it has no (or very little) competition. Without much competition a business grows fat and in efficient, prices go up and customer service goes down.

If a government makes it mandatory for a customer to buy a certain product, and have regulated this product to the point that there is very little competition, the pricing will be high and the service will be bad.

If a business is left to the balancing control of free market, it must stay lean and efficient for fear of losing customers to lower prices and better service. It’s survival of the fittest.

You may ask; how do government regulations foster monopolies?

First, let me be clear, some government regulating is needed and should be welcomed. No one wants sweatshops or 90 hour workweeks or products that will actually hurt instead of help. But this can be done with minimal regulating, because if customers have a free choice of goods and services much of the regulating will be done by them. For example if you buy a skin cream that makes you break out in a rash, you will not buy it again. The company making said skin cream will, either have to change the product and convince you of its safety or go out of business. The companys that provide the best customer service and pricing will naturally prosper.

So, back to the question of how over regulating fosters monopolies. Let’s quote Wikipedia here about state regulations in the insurance industry:

“McKinsey & Company estimated in 2009 that the U.S. insurance industry incurs about $13 billion annually in unnecessary regulatory costs under the state-based regulatory system.[18]”

How do we get to the point where we as the customers are footing the bill for $13 billion in annual unnecessary regulations?

Let’s take a pool of insurance companies all working hard to offer the best service for the lowest price. Then the government steps in and says if you guys want to stay in business you need to do _______ (fill in the blank with whatever). Now we have a number of different companies at different stages of success, usually you have one front runner that has more cash than the rest. All of the companies try and adjust and pay the cost to meet these regulations, most succeed in meeting them, but a few just don’t have the cash to make it, so they go out of business. Now it gets interesting, remember the front runner, he has more cash than the rest. The front runner looks around and says to himself, that regulation just eliminated some of my competition. Then he has the great idea to take the local government regulator out to lunch, just to discuss how to make the insurance business even better.

The local government regulator is pleased that someone from the insurance industry sees that the government is there to help.

At lunch the representative from the insurance company has an idea, “that regulation that you passed was a good one, but really to make it even better, we should add this one also.” “Oh and by the way, you are doing such a good job in your elected position as our government representative, my business would like to make a sizable contribution to your reelection effort.”

Very soon the insurance business with the most cash and the government are working hand in hand to make the insurance industry “better.” Soon there are only one or two insurance companies left who can meet all of the government regulations. No more competition. Prices go up and service goes down. Everybody is happy except the customer.

Now I know this is a very simplified illustration, but I think you get the idea.

Don’t be fooled this has played out thousands of times over the years in numerous industries. And it does not matter which political party is your favorite, they ALL do it.

If you are waiting for your political party to be in power to fix everything, your devotion to your party is misplaced. The only way to change the situation is through massive reform, a complete overhaul of the regulatory institution.

Just my two cents worth.

Jim McDairmant

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