The Market Is Not Omnipotent
In the initial stage of reform some thirty years ago, we seemed to have a sudden realization of the benefits of the market, believing it was a recipe to clear up all flaws from a past that did not follow market forces.
Indeed, China’s economic reform has had tremendous achievements from the market economy, and has stunned the world. However, serious problems have also occurred. The fundamental cause is, apart from anything else, precisely we have put too much trust in the market.
The core of market mechanism is competition, which motivates individuals to allocate resources rationally, optimize investment and so on, operating ruthlessly according to the law of the jungle. The market can stimulate production, entrepreneurship and innovation, and at the same time polarize society, distort structures or even cause crises. In a sense, the market is indeed multifunctional, if not omnipotent.
It has been proved that market forces are not applicable to every sector in our society, including public health, education, public transportation, public housing, as well as some research projects. The law of the jungle, if imported to these areas, will distort their nature and functions and inevitably result in complete failure. There is indeed such a thing as market failure.
Therefore, either no market at all or everything as market believed before or after the reform is only part of the truth. In a healthy society, both the invisible hands of market forces and the visible role of government are needed. The key question is how to let them function appropriately and effectively based on the objective laws.