REE RIDER: the problem and contradiction for a free marketeer to resolve while wheeling and dealing in a theoretically perfectly balanced, privately funded and operated market economy.
Government involvement in business is anathema to free marketeers (unless that involvement involves a subsidy or a contract to provide services for the government). As a rule, the perspective of business is the smaller the government's footprint, the better. But in the real world, there are classes of expenditures, services and goods necessary to meet society's needs that extend beyond the reach of virtually all private pocketbooks. Consider for example the work of national defense and public education, fire and police departments, public health and safety services, and associated regulatory agencies. These are services (so-called 'public goods') that as a society we have come to expect, for the well-being of everyone, but they are not services that can be sold freely to individuals in the marketplace, like a pound of chocolate or a building lot.
"It simply doesn't work to sell defense services to those who want them and then not protect the people who refuse to help pay for them. And if they can get the protection without paying for it, why would they choose to pay? "
Those who take advantage of the service without paying, are the so-called Free Riders. Michael Watts
A Free Rider Fairy Tale
(in case the notion of a Free Rider is not clear)
Once upon a time, before the free market, there was a king named Morgan who kept a food taster to check his food, a body guard to protect him from assassins and a tutor for his daughter (whose name was Altamira). Morgan paid his staff handsomely, because their work kept him feeling well cared for and safe. The king also kept a palace crew on hand in case of fire, and they too were paid for their troubles from the Royal Treasury. The king was happy, well fed, and safe. Altamira was studying Algebra II and at the top of her class.
When the king's cousin Jacaranda came to visit, the food taster checked her food as well, and the bodyguard also protected Jacaranda and Jacaranda's daughter Lucinda (who spent her time in the classroom with Altamira and the tutor). It wasn't really any more work.
In time, Jacaranda asked some friends to come stay at the palace, and after a while, they invited their friends and families, and it wasn't long before the palace population had swelled enormously. The food taster called for an assistant, as did the bodyguard, and the tutor had to go to a split day, with some children coming just in the mornings, and others just in the afternoon.
The Royal Treasury began to run a deficit. The king began to frown and wonder why he was paying for services Jacaranda and all her friends and their families were getting for free.
"What a bunch of free loaders," muttered King Morgan under his breath. An economist, whose name was Smith, happened to overhear the king's complaint. Smith explained that in the science of economics the term for these free loaders is Free Riders.
"I don't care what you call them," said the king. "How do I get rid of them?"
Smith pointed out how much Altamira liked the company she now had in school, and that the palace was a much more stimulating and lively place than it had been before all the Free Riders had descended upon them. Smith whispered into the king's ear a single word. The king stopped frowning.
A proclamation was issued. It read:
Once a year on the King's Birthday (which everyone knew was April 15), everyone will bring to the Royal Treasury TAXES. The TAXES will be used to cover the expense of food tasters, bodyguards, tutors and fire putter-outers, but since everyone will only be responsible for a small part of the cost, it won't seem like a lot. You will hardly notice it and you will get the benefit of it.
Morgan, the King.
William Greider writing in The Nation in January, 2007 provides a less Disneyesque example:
Free riders. As American companies move more and more of their manufacturing offshore, many take on the status of 'free riders.' They enjoy all the benefits of being 'American'-- government services and subsidies, the protection of the US military -- while discarding reciprocal obligations to the country: jobs, economic investment and paying a fair share of the tax burden. The new Democratic majority proposes to repeal some of the tax incentives for moving jobs overseas, but that doesn't begin to address the scope of the deteriorating loyalty.
FREE TRADE -- free for whom?
"First, let us dispense with the marketing term 'free trade,' which is completely deceptive. The WTO, for example, has lowered some barriers to trade but increased others -- such as protectionism for the patent monopolies held by pharmaceutical companies. It is not even clear, in a strictly economic calculation, that American consumers have gained more from the WTO's lowering of other trade barriers than they have lost from the higher price of goods due to its protectionism. " Marc Weisbrot, Center for Economic and Policy Research, 2007.