When the concept of a completely free enterprise is floated in financial discussion, a widely accepted review of such a concept is frequently associated to the problem of how products and services might be ensured safe for consumption. After all, without a government sending inspectors and decreeing requirements of security for products, it is often assumed companies, in their everlasting mission for earnings without grace, would have no incentive against offering whatever generates the most cash.
This, however, is well understood by the Austrian school to be untrue, and I do not want to beat a dead horse by describing why. Instead, I want to focus on how a real free market would enact policy in a natural and decentralized style and how it might emerge in a real-world scenario. So let’s leap out of our Orwellian contemporary world into a world where laissez-faire reigns supreme.
Let us expect our thought of free enterprise has survived up until this point with no requirement for guideline from a centralized power. And now trouble in paradise has actually arisen, and a business, to keep itself profitable, has actually turned to selling a foodstuff inflicting bad stomachaches upon some of its consumers. How could we perhaps get out of this mess without conjuring a centralized power to manage the marketplace in a way not like our federal governments here in the real world do it?
Well, first we ought to presume that in a free enterprise at least some forms of media business exist; after all, they aren’t an item of the government, and there has been a consistent demand for information throughout history. We can likewise presume that a minimum of some of these media business would pick up a story about a business that sells goods unsuited for intake, especially if no such thing has actually ever happened prior to.
In our hypothetical free market, a business working in an unethical and harmful method would be an entirely novel thing, and such a story would garner considerable quantities of public attention, therefore bringing huge quantities of viewership to the media covering it. This in and of itself would act as a controling system given that the bad promotion would bring the consumer viewpoint of a business acting with inadequate requirements down, minimizing its revenues. Also, if the food manufacturer acted in a deceitful method to save itself from bankruptcy, the drop in demand from bad publicity alone would more than likely put the last nail in the casket for the specific organization entity.
At this moment in a society where a central authority (the state) exists, guidelines would be drawn up to try to prevent anything similar from ever occurring once again. This could happen through the enaction of universal security standards for food, such as needing packaging or an expiration date on the plan to prevent ruined food from being offered, or a flat out restriction on an additive or a chemical utilized in production that is believed to have triggered the stomachaches. The possibilities are unlimited as revealed by this page from the Fda (FDA).
What I want to mention is there are enormous amounts of tax dollars that go into all the administrative functions of regulatory firms like the FDA, not to mention the user costs from the very industries they regulate, a mechanism predestined to produce disputes of interest. It is safe to assume, in my opinion, that government policy is at finest inefficient and wasteful.
But let’s return to our real free enterprise, where a newspaper article has shaken the general public to its really core and has actually left everybody considering whether they can rely on any food producer in the future. From a financial perspective, this story has produced public attention, and thus, in impact, media companies covering the story have sold their products to voluntary consumers, creating earnings. If the general public thinks about the violation of the food manufacturer to be extreme enough, they will stop buying products from said manufacturer, removing it from the market. By extension, this will also disincentivize other manufacturers from acting in a similar fashion in the future.
If the act is forgiven or forgotten by customers, then it needs to be safe to presume that the stomachaches were not serious sufficient to stop individuals from continuing to consume the item. If the insufficiencies of the item were serious sufficient to cause serious damage, such as death or extended injury, then consumers would probably abstain from utilizing the item and have the producers held as an unlawful entity, since it has actually stopped working to adhere to the concept of not starting damage on other individuals. The food manufacturer would thus most likely have to stop its operations and state insolvency.
In any case of a company producing malfunctioning items and knowledge of this being provided by the media to the public, need for info about the quality of foodstuff would arise. This would create a market for such details, and business would exploit this opening to offer supply for this need. In practice, supply would emerge as independent entities that would offer, for instance, their stamp of approval for other businesses and permit competition in the regulative market. Customers could decide on according to their choices the items that have been examined by managing entities, or pick products that have actually not been inspected, as they would more than likely be a cheaper alternative given that the companies producing them would not have to pay for any inspection and research on the security of their product.
As with all government functions, policy has simply provided supply to a need for regulation. And as with all government functions, due to their blind universality, absence of a rate system, and an elitist way of thinking, the regulative state has constantly been and always will be an ineffective system.