Free market economies are not necessarily all that free. An inevitable consequence of the survival of the fittest businesses, is that those with the biggest financial resources, overcome smaller rivals with far less money in the bank.
Economists would argue that the many little firms that are driven out of business by larger, better-heeled competitors, deserved to fail. This is however to overlook the essential unfairness of the process, and the fact that among businessmen that have to abandon, sometimes years of hard work and, for their owners, substantial investment, there are some perfectly viable enterprises. The only thing that they did not have were the financial resources to compete with larger, wealthier firms. It is a circumstance that occurs daily all over the world. And we are seeing it here in the Kingdom at the moment, with owners of small seaside kiosks in Jeddah, apparently being priced out of the market by larger businesses, prepared to pay the municipality more for the sites.
The hard-nosed economic argument is that it is right for the authorities to seek to maximize the income they can earn from their properties. But what is the other side of this balance sheet argument? Many of the small traders, who look as if they are going to be forced to abandon their stalls, have been there for years. They have provided a personal service to visitors to the seaside and some have built up a loyal and contented customer base.
Now, maybe larger businesses will be able to offer a wider range of goods and perhaps even, more efficient service. But the fact remains that the big debit entry is that the original stall owners are going to become jobless. They will lose an income with which they have been able to support themselves and their families.
At a time when the government is seeking, not only to boost Saudi employment but foster the growth of small and medium size enterprises, which actually make up the bulk of all businesses in the Kingdom, what is supposed to be happening to Jeddah’s seaside stall holders, does not make sense.
The economic and social cost of destroying one business, in favor of another has to be taken into consideration. Larger businesses may be able to expand at the expense of the former kiosk tenants, but the benefit to the Saudi, and the local Jeddah economy, is surely negated by the loss and disruption inflicted on the small traders. The power of free market thinking, is that it forces a society to look transparently at the real cost of doing business. If a product or service can be bought more efficiently and cheaply somewhere else, then there is a strong argument for whoever is doing the buying, to abandon an existing commercial arrangement in favor of the cheaper option.
But, of course, it is not all about dollars and cents. Supposing there is a business here in the Kingdom which has long supplied a government agency. That agency then discovers that the same good can be purchased more cheaply abroad. The decision to switch suppliers simply has to take into account the impact the change will have on the local supplier.
The text books say outside competition will force the local business to become more efficient, to cut costs, streamline processes and make itself able to compete effectively. Well yes. Maybe. But in the meantime, there are jobs and incomes, maybe even the very survival of the local company, to take into consideration.
Europeans and North American boast of their free market credentials. Yet time and again, even they implement subtle protectionist measures, which actually short-circuit the tough realities of free markets. Brussels and Washington indeed are currently in dispute in the World Trade Organization, claiming that each has circumvented free trade rules, in favor of some of their own challenged industries. The Japanese, though nominally signed up to no-holds-barred business, have in reality, for years been protecting Japan Inc. from outside rivals. The French have also long operated a clever, low-profile barrier to foreign ownership of French assets.
The answer surely is that rather than sticking to the hokum of absolutely free markets, governments ought to be sufficiently grown-up to admit that there are circumstances in which intervention and a degree of protectionism, have more economic benefit than letting the law of the commercial jungle rain untamed.
The only commercial failure of the little kiosk traders on Jeddah’s water front, is that they cannot earn enough to pay the new rents demanded for their sites. The municipality should think again.
Editorial: The hidden cost of free markets
