Free Markets vs False Markets

Posted: Sep 28, 2013 12:01 AM

One of the great benefits of free markets is that they are eminently adaptable, constantly changing to meet the forces of supply, demand, and price. They are, in many ways, like organisms or ecosystems, evolving over time to improve. As factors change, industries or firms meet those changes, sometimes successfully, and sometimes, not so much.

The public is best served by this process—but, as we all know, some people aren’t content to simply let the market work. Some people want to tinker, adding rules and costs, without any regard to the impact.

This fundamentally distorts the marketplace, and in an era in which regulatory costs alone are north of $1.75 trillion annually, it puts immense pressure on US firms, especially in industries for whom prices have remained stagnant or even dropped.

The US sugar industry, for instance, has seen its prices remain steady at about $.20 per pound for the last three decades. In that time, all of their costs have sky rocketed: regulatory costs, labor costs, energy and transportation costs. Some firms have been able to adapt, others have not and have gone out of business. And while this can serve the domestic marketplace well, many other countries have taken the opportunity to further burden US firms by massively subsidizing their own sugar companies.

The pressures of increased labor and operating costs haven’t escaped these firms—but in places like Mexico where producers are less efficient than here in America, the government stepped in. Half of Mexico’s sugar mills were purchased by the government so they didn’t go out of business, and the government now owns 20% of the industry. That makes the government Mexico’s largest single sugar producer and exporter—and while they keep prices high domestically, Mexico then turns and sends its excess supply into the US Marketplace at lower prices to artificially harm their competition.

In the last 5 years, Mexican sugar’s entrance into the US marketplace has grown from almost nothing to over 2 millions tons—a number that has nearly doubled in the last year!

The answer to this is normally a straightforward one—work actively and avidly to reduce those burdens placed on US sugar manufacturers. Take a long, hard look at the maintenance of a nearly $2 trillion regulatory state, and the actions by the US government to drive up all manner of operating costs.

But, of course, we won’t do that in the United States. New rules from OSHA and the EPA are going to drive up those costs even more. The Obamacare mandate is going to run-up health care expenses for these businesses (like it is for everyone else), mandatory wage increases are going to drive up labor costs. All this while the price for sugar drops because of the Mexican government.

Other nations get this. They see what’s happening in the US—how we hobble our own economy, how we pretend to have a free marketplace when all they while it is heavy with negative interference from our government. Their response is to further tilt the field in their favor, to ensure that their regulatory costs are kept low, to work to keep operating costs low. And, most importantly, to massively subsidize their sugar industry to ensure that they can undercut more efficient US firms.

It is a base form of economic warfare, and we have done it to ourselves.

The only thing we can do is work to ensure that our firms are protected. We believe in markets. We believe that markets ought to be free. But so long as other nations do not, we have to make sure that we protect our interests.

That’s where the “Zero-for-Zero” sugar policy comes into play. It says that we will reduce the barriers to other nations to enter our sugar marketplace when they reduce their own barriers. When they stop massively subsidizing their firms in an effort to undercut our own.

It is a way of ensuring that the realities of governmental meddling are accounted for. We cannot confuse false markets with free markets, and right now, the international marketplace for sugar is anything but free.