A free-market economy is a market that is not regulated by the government and international policies and these policies only ensure that property rights and contracts are observed. Various arguments are made in favor of a free-market economy. To start with, it ensures that resources are allocated efficiently. In a free-market economy, Supply and demand match and this levels the playing field because everyone is free to maximize their welfare, creating economic equality. Secondly, the free market utilizes information in the society to the maximum, capturing everyday knowledge about product demand and supply which distributes cognition. Free markets also promote creativity and innovation leading to increased production of high-quality goods available at a lower cost. Free markets also limit discretion and power because they create a competitive environment where all the players have equal power and what matters is their ability to generate tools and strategies of creating a competitive advantage. In this environment, no player has more power over the other and no player can manipulate prices and other market forces.
A free market is therefore a self-controlled system that prevents a build-up of power among an elite few. In a free market, price is determined by a plethora of voluntary transactions meaning that it is not imposed or enforced by a regulatory authority. The flow of products in a free economy is also unregulated and this implies that quality products can be available at reduced prices because competition in such a market is free.
However, there are critics of free-market economies who maintain that governments should have a bigger regulatory role, claiming that the entire economy should be under the control of the government. These critics claim that free markets undermine economic productivity by facilitating overconsumption of merit goods and under consumption of demerit goods. They also compromise economic growth by facilitating unemployment and inflation which can be monitored if the government was totally in charge of the economy.
Free markets also lead to unequal distribution of income in the society which creates disturbing economic inequalities. If the government was totally in charge of the economy, it would prevent the growth of a bullish corporate sector that has created monopolies that affect the availability of public goods. Free market monopolies also dominate the industry due to the absence of government regulation and this dominance affects economic productivity because small players are usually driven out of business by the bigger player. The big players also create conditions that discourage the entry of competitors. The absence of competition in an unregulated market can affect the quality of products and quality of service which means that the final victim is the customer who will be exploited by these free-market monopolies. The overall implication is that government regulation and control are very important because, in the absence of such regulations, the players in the free market can become even manipulate the government and the market itself.
The criticism of the absence of government regulation in the market economy can be supported by the scandals that have hit Wall Street lately. The root of the Wall Street scandals is greed and strategic missteps facilitated by the unregulated nature of the United States market economy and these scandals which cost the taxpayer billions of shillings would have been avoided if the government was in total control of the markets.