Free trade not always free

Firstly the idea of a free market stems from the idea of personal freedom. That no-one should be able to decide for you what you do, how you make a living and to demand that you pay them any part of your income. Obviously this is qualified by the facts that the rights of other people prevent you from doing anything which impinges on their rights, that there are certain ethical standards which apply to all professions and businesses (for the protection of the integrity of the profession and the public) and that if people (or the state) provides any services to you that you are bound to pay for these services.

In the case of taxation, the state provides not just the enabling environment in which you trade but also the guarantee of peace and security which allows you to trade. The state should also ensure that the judicial system is independent and fair and that the rule of law is always upheld to ensure the removal of arbitrary or, worse, biased decision making.

Arbitrary and biased decision making results in decisions being made in favour of the strong against the weak, in favour of the connected against the unknown, in favour of those who engage in corrupt activities against those who don’t. The rule of law and an independent judiciary provides for the eradication of all forms of corruption at all levels and in all spheres of life and economic activity.

In considering these services, the state is entitled to be paid but the means of taxation is debatable. Liberals will rarely agree with a situation that sees a few funding the many and further liberals are more likely to demand taxation in relation to the cost of the services actually provided to the individual taxpayer at a market-related and competitive rate.

Sales tax is also a contentious issue because income tax should remove the need for sales tax altogether, but where the taxpayer base is a fraction of the citizen base, it is obvious why sales tax is needed. In such a situation, choosing sales tax alone and removing income tax would place an undue and unfair burden on the lowest wage earners and make economic survival impossible for unemployed people.

In considering the other taxes and charges levied by the state, these are usually directly related to services provided by the state and the greater the economic freedom in a market the lower these charges will be.

For instance in a completely free market, there are no customs, excise, import and export duties. There are also no registration fees for businesses and no trading licence fees. In a completely free market, informal traders are allowed to trade without hindrance provided they are not creating a disturbance or polluting the environment where they trade. In a completely free market start-up entrepreneurs are able to take their products, services and most importantly their ideas and innovations to market without having costs imposed upon them before they begin trading.

Competition is vitally important to stimulate growth and development, but competition must be between actual service providers not between service providers and other people who are envious of the service provider’s latent prosperity.

This is the reality on the ground, that the greatest threat to start-up entrepreneurs is not the lack of innovation or even the lack of capital, but rather the obstacles placed in the path of the budding businesspeople by other people who haven’t contributed anything and aren’t able to contribute anything.

Organised crime works on the basis of centralised protection — where everyone who is part of the syndicate pays the people above them for the right to trade in an illegal activity without fear. Similarly mafia-type activities revolve around the “head of the family” that provides this protection to the “members of the family”. Extortion by any other name is still extortion and whether it’s someone demanding that informal traders pay them “protection money” or crooked civil servants demanding that prospective service providers pay “bribes” to win tenders, it’s still extortion.

So liberals reject these impediments to free trade, as they might well grease the wheels of short-term transactions, but in the medium and long terms, they saddle the entrepreneur with costs that are unrelated to the production and therefore the revenue of the business. Put very simply, every person who has to be “paid off” is another “silent partner” who adds no value. And if the system was ethical, this silent partner would have no purpose.

By establishing a market economy that is driven by the rule of law, what happens is that the enterprises in the market get judged based on their integrity, quality and merit. Not on their ability to wine, dine and schmooze the people representing their prospective customers.

People who are neck-deep in “backhandology” will argue that it simplifies the sales process. But what happens when that “contact” leaves or retires and is replaced by an ethical person? Will your products still sell? And if the answer is yes, then why did you have to bribe the bent and broken moocher in the first place?

For young entrepreneurs entering the market, it’s easy to see the allure of having powerful friends but bear in mind that these powerful friends have no loyalty to you, their loyalty is to their “kickback” and your product or service is entirely dispensable.

Have no fear when exposing corruption and have no fear when refusing to pay inducements, focus on making great products, on having first-class services and constantly being the best you can be. Innovation will always win out over inducement and those that rely on “inside trading” will always be caught out and removed.

“Not the spear but the sceptre straight, that brings success to a monarch’s might.”
(Thiru Kural 546 Chapter 2.1.17 Thirukkural by Thiru Valluvar on just government)