Tuesday, July 28, 2009

Free market - success and failure

The free market works for certain products which are physical, transparent and easy to understand. It has produced better quality products at lower prices.

The free market has failed to work well for many services, such as financial, medical and legal services. The consumers require an expert to advise on these matters. If the experts are allowed to charge any fee and define their own standard, it is likely to lead to exploitation of consumers.

These services need to be regulated to protect the interest of consumers. It also needs a strong consumer association to help the consumers to understand and exercise their rights, and to ensure fair treatment of consumers.

In the past years, these professional services are regulated by the authority and self-regulated by the professional bodies.

The standards of regulation and self-regulation has dropped in recent years during the era of the free market. The authority believed that consumers can take care of themselves and choose the advisers who can serve them best. This view goes against empircal evidence. Many consumers are fleeced by some unscrupulous so-called experts.

The role of government is to govern. It cannot be delegated to the "free market". The government has to ensure honest and fair behaviour for the benefit of society. It has to set the example for businesses and the people to follow. It is time to re-think the role of the free market.

Tan Kin Lian


Concerned said...

There is too much conflict of interest on self-regulation by the professionl bodies, particularly the finanical advisers. The financial advisers depend on the commission for introducing investors to purchase those credit-linked products. Secondly, the credit-linked products are so complex and complicated that the some financial advisers do not even understand the structure and risks of these products before recommending them to investors. So, when in doubt and in their own self interest, they just push the products to the equally blur investors. Similarly, do not expect the insurance agents to act independently and professional as they are dependent on the commissions earned when customers buy insurance products

scheng said...

Free market will work only when producers and consumers have equal power.
In financial and banking sector, the producers (major banks and finance companies) hire and train the top brains. On the other hand, consumers are not as well trained.
If government wants the free market to work perfectly, government has to provide equally rigorous training to the consumers.
In reality, that will not work. Hardly any consumer wants to know all the technicalities of investment. That's why MAS has to actively protect the consumers. Hope MAS is up to the challenge of being consumers' protector.

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