Isn’t that always the case, though?
Free market evangelists claim that, absent regulatory pressure, a business will make a rational decision not to cut its own legs out from under itself by engaging in harmful practices. If the business injures or kills the consumer today, it will be frozen out of the marketplace tomorrow — not because a government shuts it down but because free consumers choose not to buy its goods.
The problem with this is that businesses don’t make decisions: people do. And it’s entirely rational for a person to say, “I don’t care if I injure or kill a consumer today, because I got their money today, and tomorrow I will have retired to a tropical country without extradition.” Further, it’s entirely rational for a consumer to say, “I know there’s a one-in-fifty chance I’ll get sick from this product but I will choose to accept the relatively small risk as a tradeoff for saving a few coins. And I neither know nor care about that guy a hundred miles away who died, so I will not make an emotional decision to punish the company for its wrongdoing. Give me the cheap goods and let me deal with the risk.” And that’s assuming the consumer actually has information about the business’s practices, and has sufficient data on which to base a rational decision.
Free market evangelists will argue that all of this is true, but that, counterintuitively, these apparent negative effects really aren’t all that bad in the long term — because, in the current system, government regulation is distorting the assignment of responsibility, and short-circuiting what should be the market’s rational analysis. If consumers were forced to bear the risk of poor decision making, they would become much more involved with evaluating the wisdom of their purchases, and they would avoid business that do not freely make disclosures about their practices. When government steps in as a protector, the marketplace is blanketed with an artificial sense of safety, and there’s a feeling that goods can be purchased without any concern or personal responsibility.
The problem there is the same as in the previous paragraph: Just as businesses don’t make decisions, neither does the marketplace, collectively. In both cases, individual people are making choices, and if we’ve learned anything in the last couple of hundred years it’s that most people are really bad at weighing short-term interests against long-term needs. And what we’re seeing in China, I think, is a pretty overwhelming argument against the unregulated-market model, for exactly those reasons. That the Chinese government is now being forced to execute officials for corruption demonstrates a failure of analysis and decision-making, and speaks strongly for an official oversight role somewhere along the line.
(The cold-blooded among us might argue that a system in which people are punished for bad analysis is actually desirable, and would gradually cause the crummy thinkers to be weeded out, thereby strengthening the civilization in the long term. I recognize the intellectual basis of that position but I will not advocate it.)