Wednesday, May 31, 2006

Is the "free market" always right?

Iain Dale comments on Waterstone's taking Ottakars's and believes that "The End of British Bookselling is Nigh". As many commenting on his blog have been quick to point out, this is not an unusual occurrence in the free market, and this raises the Conservative dilemma of whether to support the free market or the small business when the two conflict.

I have to be perfectly honest - I think the small business should be supported. There are times when the free market isn't always right. Often it fails to deliver real diversity and specialty, instead pushing everything towards an identikit approach (look at the way Waterstone's branches have gone from being highly specialised and localised to a crude chain) and denying the consumer the opportunity to discover exciting new products. Looking at the books on my shelf, many would never be there if I'd only been buying from the big national chains and the internet. Similarly my DVD collection would not be as diverse as it is without stores with large stock selections allowing me to browse - there's only so much the internet can do to tempt me to buy a product.

Small businesses are the backbone of our society and their loss is everyone's loss. When all the shops for a particular product become identical there is no real choice at all. That market is not truly free. Sometimes government intervention is necessary for the benefit of consumer choice.

2 comments:

Paul Burgin said...

Gosh, I can't believe it! You actually agree with me on small businesses. :)
At least now you will have an idea why I dislike an unfettered free market!
I also recently blogged on my local bookshop in a similar vein!

http://paulburgin.blogspot.com/2006/05/in-praise-of-local-bookshops.html

mark adams said...

This is not a case of consumers being denied choice, it is a case of one alternative being overwhelmingly better to another.

Choice and diversity are not the same thing. In this instance people have chosen lower prices over variety. That might not be your preference but it is a preference people have expressed through their buying decisions.

I am sure some people mourned the passing of the hand-built automobile when Henry Ford launched the model T. However, Ford did not destroy choice, he opened up a new choice to millions of people (whether to buy a car they could not previously afford).

By choosing lower priced books people have increased their real income which they can spend on entirely new products. You would not have such a book collection were it not the "identikit" approach adopted with the invention of the printing press. Economic growth, often by attaining economies of scale, has increased personal disposable incomes and with it, our ability to express an individual identity.

Government is not a friend to choice or diversity. Regulation is a regressive tax which shuts out smaller players. There is a clear positive relationship between the size of government and the average size of firms. This does not enhance choice because overrides the preferences people have expressed in the market.

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