The Choice Illusion

In the mainstream debate both for and against a free market, one notion that seems ubiquitous is that the free market is predicated upon individual choice. Consequently, those in favour of such a market are likely to argue that the more choice there is the greater the competition between firms, leading to increased economic efficiency as those firms seek to meet their customers’ needs for the lowest possible cost. On the other hand, opponents will counter that choice can be wasteful, costly, inefficient and overwhelming, particularly when it concerns supply of provisions as basic as water. They might suggest further that choice is often an illusion conjured up by private companies that basically operate in a profit-maximising cartel.

Wading into this debate as an Austro-libertarian we can see that the basic statements on each side are not entirely incorrect. However they each misunderstand the true nature of choice in a free society.

The kernel of truth in the pro-choice argument is that voluntary behaviour, in the form of choice and action, leads to market outcomes that provide the most benefit to the consumer. However, pro-choice advocates tend to take a very narrow view of choice: that, for every single industry there must, necessarily, be several suppliers from which a consumer can choose, however basic the product and however costly the splintered operations.

In fact, choice is responsible for the entire economic landscape; people choose voluntarily not only which suppliers, in a given industry, they are willing to patronise, but also the extent of choice itself in a particular industry. In some industries – especially those that are growing and innovative – consumers may be willing to support multiple suppliers offering a large range of different, but roughly interchangeable products. We might say that smartphone manufacturing, in which there are quite a few brands available, is representative of this kind of industry. However, in industries which are, perhaps, maturing or otherwise reaching the culmination of their innovative stage, the benefits to be gained from scaling up the production of simple, straightforward products with little distinction might be what consumers desire. This is particularly true where the only differentiation between one firm and another is price, i.e. the only benefit that one company can offer the consumer ahead of another is reduced costs. This kind of industry naturally lends itself to one or only a bare handful of suppliers. For instance, if one, consolidated firm can manufacture a widget for £4 each whereas two, separate and smaller firms can only do so for £5 each, it clearly makes sense for the players in that industry to merge their operations. On the other hand, insisting on the maintenance of a choice of different firms in such an environment would end up being wasteful and unnecessary. 

Such consolidation does not mean that the combined firm ends up being “uncompetitive”. For competition, like choice, pervades the entire market. If I happen to run the only cinema in town, then, true enough, I won’t have to compete with any other cinemas. But I will still have to compete with everything else that consumers could choose to spend their finite amounts of money on – e.g. bowling allies, restaurants, swimming pools, night clubs, etc. I might even have to compete with travel agents if people decide to save money for a holiday by foregoing weekly trips to my cinema. Anything offered for sale in the market is always in competition with everything else that is offered for sale, however apparently disconnected they may seem.

The misguided focus on a narrow, substantive understanding of choice can also be a dangerous ruse for the reason that it allows states to grant their citizens a nominal degree of “choice” while preserving what is essentially an overarching state monopoly over a given industry. By exploiting the illusion of choice in this way, the state can parcel out the operations of what is essentially a state owned industry to private companies, while at the same time allowing all of the blame for any waste and inefficiency to be directed to the "free market" vestige of the industry in question.

For instance, the privatisation frenzy under the UK’s Thatcher and Major governments was often justified by the need to give "choice" and "competition" to the consumer. One of these official “privatisations” was of Britain's railways, and, indeed, whenever you board a train today you will see a private company's logo emblazoned on both the carriages and the uniforms of front line members of staff. However, the track, stations and signalling are wholly owned by Network Rail, a statutory company that has no shareholders, and is under the de facto control of the government. The train operations themselves are not subject to the forces of natural competition but are parcelled out by the government into geographical monopoly franchises, the private operators of which will be chosen by the government for a set number of years before they must re-tender.

This cauldron of public and private activity blended together led to the UK's railways being judged the worst in Europe from the point of view of cost and efficiency in early 2012. Yet it is "privatisation" and "competition" – represented by those fancy, public-facing corporate logos on the timetables and uniforms – that are lumbered with the blame, rather than the state’s string-pulling.

The presently topical energy industry is just as bad, if not worse. The electricity infrastructure is owned by National Grid, with six dominant, government-licensed suppliers sending their product through the same wires in what is a ridiculously regulated and cost-heavy sector. Indeed the Soviet-style description of the regulatory framework by Energy UK, the industry's trade association, scratches only the surface but is a succinct summary:

In addition to these examples, need we even mention the odious and destructive high street banking cartel?

Given all of this is, is it any surprise that people lay the blame for poor service, for high costs, for inefficiency, for waste, and for private companies lining their pockets not at at the door of state interference but at free marketers' obsession with choice and competition? Is it any surprise that, not realising that it is the underlying control and forcing of substantive choice to the benefit of its favoured friends in "private" industry, that there are calls for renationalisation of public communications networks and utilities? In fact, on could argue that a situation in which private companies operate government controlled services is worse than explicit and outright nationalisation, in regards to both the level of service offered to consumers and the reputation of the free market.

As libertarians who cherish the free market, our devotion to choice is encapsulated by our commitment to voluntary behaviour and interaction, which is itself based on the right to private property. As such, our advocacy for choice is only a derivative of these more fundamental concepts. We do not mean a controlled and enforced, substantive choice in every industry, nor do we mean the illusion of choice created by the state that rips off consumers while leaving the free market to bear the brunt of their ire. Choice must mean that consumers are left alone entirely to express their preferences through voluntary action with their own private property. Only then will we see industries that are genuinely able to meet the needs of consumers by offering ranges of quality products at prices they are able to afford.

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Notes
[1] Emphasis added.