CHAPTER 1

THE FREE ENTERPRISESYSTEM (FES) EXPOSED

The Free Enterprise System (FES) started about the time of theIndustrial Revolution, a couple of hundred years ago. Prior tothis people lived a subsistence lifestyle based around agriculture,small-scale manufacturing and trade. The Industrial Revolutiongave them a means of mass-producing consistent-quality productsthat vastly increased their profit potential. Capitalism quicklygrew as individual wealth increased. Countries that were earlyadopters of mechanisation soon came to dominate world trade.

The world needed a way of deciding the relative price of goods,and the FES was the answer. Market forces set the price of goodsbased on supply and demand for a product or service. In theory itis a good system provided there is a healthy level of competitionand consumers, at the time of buying, have a good knowledgeof all the competing prices, at the time they are buying, butthis is rarely the case in reality. This system was based on a fewbasic assumptions—consumers can distinguish between thevarious quality of goods; competition leads to cheaper prices;competition will result in an improvement in the quality ofgoods and services; the best companies will survive. Originally,in small communities, where everyone bought locally, and knewthe farmers, shopkeepers, and factory owners, and there wereonly a few stable brands of each product, this system probablyworked well.

In today's world, the FES falls far short of its original ideals.It is not perfect because people are not perfect, there willalways be greedy people who are keen to exploit a system totheir advantage, and innocent victims who will suffer as aconsequence. For all its good the FES has a dark side, it is basedon competition and winning at the expense of others. It makespeople very self-centred and selfish. The last 50 years have seenthe rapid growth of global companies; these companies havebecome tremendously powerful, and that power is too oftenabused to build their own empires and returns to shareholders,at the expense of the greater community. We have seen manyof these large multinational conglomerates buying up theircompetition to eventually dominate the market. They oftenbecome the only significant buyer for many of their componentsand raw materials, and this is an extremely dangerous situationas it exposes the market to exploitation where buyers can forceraw material prices below what is sustainable. This can lead tothe downfall of their suppliers. We have seen this happeningin all markets; in agriculture (e.g. sugar, wheat, wool, dairying,meat, vegetables, and fruit), mining (e.g. coal, nickel, and ironore); textiles; printing and manufacturing. What we have alsoseen is companies downsizing local operations, and relocatingoverseas even though they are making record profits. Inunderdeveloped countries, we see struggling families working forlarge multinational corporations for a few dollars per week, andcountries selling their precious resources or produce for a fewpercent profit while their people live in poverty.

On 20th February 2013, the ANZ bank in Australia (one ofthe largest) announced it was cutting 70 jobs from its wealthmanagement operations and outsourcing the work to India;this came the week after announcing a quarterly profit of$ 1.36 billion, and being on track for a record annual profit.The next day Telstra (Australia's largest telecommunicationscompany) announced it would sack 648 jobs from its YellowPages Division; 257 of these were due to a drop in advertisingin its print business, but 391 were jobs which were outsourced toThe Philippines and India. This came shortly after announcinga record half-year profit of $1.6 billion.... and more jobs cutsare expected!

The growth in international trade in the middle of the 20thCentury started to hurt local industries in Developed Countries.They cried out for their governments to act to protect theirmarkets. This resulted in the introduction of a high level oftrade-restrictions such as tariffs, quotas, and embargoes as wellas a number of government subsidies to local producers. Startingin the 1980s, governments of Developed Countries yieldedto external pressure, and started to open up their markets tofree trade; this became known as "Globalisation". Over thelast 30 years, this policy has caused a lot of damage to themanufacturing and agricultural sectors in these countries. Theyare now faced with a critical problem—how do they stop thedamage to their economy and the decline in their standard ofliving. All countries have now become so dependent on worldtrade that Developed Countries are not game to return to thedays of protectionism, for fear it will have a fatal effect on theWorld's economies.

During the second half of the 20th Century, we saw a number ofcompanies eliminating competition to the extent that they cameto dominate their market. Some of these companies exploitedtheir position by driving down the price they pay their suppliers,and inflating the price they charge their customers. It was soonobvious that private industry could not be trusted to self-regulate,and that the forces of demand and supply could not control theprice in such circumstances, so governments had to intervene.This resulted in the introduction of anti-monopoly legislationdesigned to stop one, or a few large companies, from dominatinga market segment. Today the term "Free Enterprise" has becomea misnomer; companies have had to accept many restrictions overvarious aspects of their business. Various restrictive trade practicelaws have been passed to stop monopolies from forming, toprevent companies colluding to fix prices, to outlaw misleadingadvertising, and to protect other companies and the publicagainst insolvent trading (i.e. businesses continuing to operatewhen they knew that they could not pay their debts). In additionto this many other pieces of legislation were passed governingsafety standards, environmental controls and employmentregulations. Unfortunately, there was always some businessmanquick to exploit any shortcomings in the legislation. Each timegovernments moved to block an abused loophole, someonewould...