After months of deliberation, the Canadian government has finally approved the $15 billion takeover of the Canadian-based oil and gas producer Nexen Inc. by CNOOC, one of the state-owned oil companies of China. While I applaud the government for the approval, it concerns me that Prime Minister Harper seems to want to increase government control of markets instead of freeing them. He said: “When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments.” But you cannot have it both ways: you cannot be open for business in the sense of having a free market—which means no government interference in the economy—and at the same time control how and with whom companies do business. If we want the benefits of a free market, we should embrace it on principle (the only exception being cases of threats to national security. You can read about it in an earlier post here).

Many people think that a free market is not ideal but should be tempered with government controls, lest greedy profit maximizers exploit customers, employees, and investors through trickery and fraud. To these people, Prime Minister Harper seemingly included, a mixed economy is the ideal system because it combines freedom and controls: openness to business but only to the extent the government deems it to be in the “national interest.” In contrast to mixed economy advocates, I argue that a free market is the ideal economic system—because it is the only system consistent with the requirements of human survival and flourishing; because it is good for our well-being—because it is moral.

How do free markets foster our survival and flourishing? Free markets mean free competition, without government interference. Competition pushes companies to innovate in order to attract buyers for their products and services, produced efficiently and thus offered at competitive prices: better smart phones, more powerful laptops, more effective treatments for cancer and diabetes, convenient online services such as electronic banking and retailing, cheaper oil from previously undiscovered sources.

To the extent markets are free they foster productivity that brings about innovative new products and services, from electric lighting to smartphones to electronic retailing, that enhance our material well-being. (No life-enhancing product or service innovation ever has come out of Cuba, North-Korea, or the Soviet Union.) But it is not only through providing material values that free markets make our lives better. Free markets allow and encourage everyone to pursue their self-interest—seek their own happiness—the best they can, voluntarily trading with others with no exploitation. (Anyone bent on exploiting others through coercion or fraud is pushed out of markets by competitors who create value for customers and shareholders instead of exploiting them.)

Achievement of long-term self-interest in competitive free markets requires moral virtues—virtues that free markets make possible. In order to be a successful trader in a free market, we need to cultivate rationality: use of reason to recognize facts (e.g., for which products and services is there existing or potential demand? Which knowledge and skills are required to meet such demand? How could I fill the demand?) A virtue closely related to rationality is independent thinking, needed to come up with innovations in competitive markets. Free markets also require productivity: creating material values to be traded. Free markets also encourage the virtues of honesty and justice: deceiving or otherwise mistreating others will quickly undermine your chances of successful trading, as other honest, just traders will squeeze you out of the market.

When the government interferes with the operation of a free market, it removes the powerful influence of competition on moral behavior and virtue. When competition is curtailed, use of reason and independent thinking are not rewarded, and better products and lower prices are not achieved—witness the Canadian telecom or health care industries. When prices and wages are controlled, productivity is not rewarded—witness the shortages of gasoline during the oil crisis in the 1970s, or the shoddy quality and inferior volume of products in centrally controlled economies. When government bails out companies, justice and accountability are not rewarded—witness much of the banking industry the United States prior to the 2008 financial crisis.

Even if government creates “just a few” controls, free markets are no more, and important incentives for acting morally disappear, diminishing our ability to survive and flourish—to achieve self-interest and to be happy. Therefore we should urge Stephen Harper and government leaders everywhere to not control markets but make them free.

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