Democratic Underground nicely sums up where the “free market” approach works and doesn’t work. Here’s where it works:
The Republican belief in privatization is based largely or totally on their faith in “free market” ideology. That ideology says that everything or almost everything works better, is more efficient, and is fairer when it is driven by a free market than when it is “dictated” by government. The rationale for this ideology is that in their quest for profits corporations are simultaneously motivated to produce quality products, and everyone benefits as a result. In other words, the corporate quest for profits happens to be a good thing for everyone. Under some circumstances they are correct. For example, the entertainment industry is a good example of an activity where free market principles work well. The more entertaining the product produced by the industry, the more people will want to purchase it and the more money they will be willing to pay. The industry produces a quality product, they make a big profit, the people get what they pay for, and everyone is happy.
Here’s where it doesn’t work:
- Activities that are an intrinsic function of government
- Activities where pertinent third parties are totally unrepresented in the transaction
- Monopolies
- Scarce resources which are essential to American citizens
- Situations where free market principles cannot operate because of lack of essential information
- Services which are required for the public’s welfare
