Should Free Market Be Blamed?

We are in the new era of global financial market, with U.S. and E.U. governments leading the unprecedented effort to experiment a new form of partnership between the states and private corporations to rescue the financial market. But along the way as expected, some world leaders came out publicly denouncing the turmoil caused by the free market system. Some momentarily declared victories for conservative and protective policies, while others teased a parting shot at the mess left by Wall Street, “…looks like the teacher has some problems…”

Should we lay the blame on free market right away? This sort of crisis is unprecedented and it will not be business as usual after the crisis as we expect some fundamental change. However we can not conveniently ignore the fact that this is the same system that have brought us tremendous growth for these past decades with unparalleled level of global exports, capital flow, labor movement, technology and expertise transfer. We have benefited substantially from it but apparently it needs to be fixed. As much as we want to grieve and anger at this crisis, democratic system and free market are still the way forward – albeit with some major adjustment. If we were to play the blame game, there are many parties involved that pave the way for this mortgage and credit crisis to break out, including government policies that keep interest rates artificially low and inadvertently encourage excessive credit spending, cheap flow of capital from foreign countries with large reserve, and home buyers who live beyond their means. All play a role in this crisis, even though it will not be mistaken that the guiltiest party is still Wall Street. But the key point is we had a hard lesson, it is time to move beyond the debates of who we should blame.

Bear in mind it is people who create, run and eventually abuse the free market system. To be exact, government regulation is to oversee people in the system, there is too much at stake to leave the financial market entirely to irrational human beings so tempted by greed and troubled by the first sight of panic. In practicality, free market has never been devoid of regulation, treasury or finance departments, central banks, SECs and other regulatory bodies have always been functioning as the guiding hands, there is no ‘invisible hand’ as theorized in free market model. From recent trade imbalances between developing and developed nations right up to current financial crisis, the fundamental framework to make global economy work has never been clearer before, that is we need effective government regulation in the free market system. Not more or less.

So I will reiterate my position to support a democratic free market with optimized government regulation. The challenge that world leaders are confronting right now is to look for that optimum balance. Fortunately, we have got around to see the essence of the problem, so we will not recklessly abandon free market model because of a huge setback right now and return to socialist system. No, it does not hit us back to where we started, we just become wiser to navigate in free market capitalism.