Monday, March 20, 2006

Even Black Market Is Better Than Government

The common argument among government intervention advocates is that without government regulation and intervention, a free market would lead to chaos, people would exploit one another. Here is a personal story that will debunk that myth.

I remember the period in Communist Vietnam from the late 70s through early 80s and the economic condition back then. It was a time I cannot forget because of the food shortage and other shortage of essential goods.

The Communist Forces took over the South in April 1975 and soon after completely nationalized the economy – even small and pop business was illegal. And within a year of it, consumer goods disappeared from the market. I remember standing in line with my mother for half a day to shop at Cooperative stores and by the time we get to the store, there was nothing worth buying. And in the rare occasions when there are something to buy, it is substandard and inferior products. And when I say substandard, I mean standard of a third world country – which is almost no standard.

One maybe able to tolerate not having toothpaste or soaps, but the worst experience is not having food. The collectivization of agriculture result in the worst food shortage experienced since World War Two. Those were the years of food shortage. The food shortage was experience exclusively in urban area. It happened because of two reasons. The first problem was distribution, food was gathered at central locations; and because of government bureaucracy, and they rotted in centralized warehouses. Second, there was little economic incentive for farmers to product more rice that they need for themselves. So farmers would grow just enough for their family. Congee (rice soup), to increase the volume of food, was the common meal. And it was barely enough to fill one stomach. I remember going to bed hungry. The situation was so bad that on many occasions we had to eat cattle feeds as substitution for rice.*

As a natural reaction to the economic situation, the black market emerged. At first, it was simply people battering goods and services. A fisherman would give a fish to a barber in exchange for a haircut. Since farmers were not allowed to sell their agricultural goods. However they could exchange it for other things. Illiterate people would give my mother chicken in exchange for reading lesson. This form of battering would later evolved into the black market, as complex as any market.

During the war, my mother was an elementary school teacher. My father was a music professor and a city councilman. It did not matter to the victorious Communist that my father was a member of the opposition party. He was considered to be a member of the former regime. He was arrested, jailed for a couple of years and was forced out of the job (he would be arrested again later but it is another story). The salary of an elementary teacher was not enough to feed my family so my mother quit. She and my father entered the black market as fabric merchants.

At first they knew nothing about commerce but they learned quickly and adapted. Having witnessed my parent business and other businesses that evolved out the black market, I have a great appreciation for the agility and power of the market. As the black market evolved, the economic condition improved rapidly – especially my own economic condition. Whatever one could not buy at the government cooperatives, one could get it in the black market. It became the primary market in the South but it was nonetheless illegal – more so for the merchants than the consumers.

One would assume that in a market that is not regulated (it is an illegal market), there would be much exploitation and cheating. But that was not the cases. There were cheatings, but far and few in between. A merchant’s business depends on his or her reputation. Those who cheat do not survive in the market very long. Honesty is a selling point. Commercial transaction is illegal, money and good did not change hand at the same time. Consumer would pay merchant first. At the time of payment, there was no merchandise in sight. Merchant would go get the items and give to the consumer later. Trust was paramount to the transaction. All sort of items (good as well as services) were available in the black market to includes controlled items such as pharmaceuticals.

Despite the fact that we suppose to receive universal healthcare, there was no care or medicine. Doctors could not live on government salary so they quit. Those doctors that stayed on at the hospital are unqualified. They became doctors because they were loyal members of the Communist Party, not because they were competent healers. People learned to avoid government hospital and government doctors. One was more likely to get sicker, not better from the treatment. Competent doctors practiced medicine from their house, without license or government sanction. People always knew who the good doctors were. The bad ones worked for the government.

Essential medicine was also purchased at the black market. I was a sick child and often required medical care and medicine - medicine that would require regulation, control, and prescription in this country. I never experienced any adverse effect from the medicine purchased from the black market. They always worked, and I always gotten better from taking them. In fact, they saved my lives several occasions.

It was the black market that ended the starvation – starvation caused by government action. It was the black market that cured people and gave them a decent quality of life. It was the black market that sustained the entire country economy.

Liberal economic concepts such as invisible hand or spontaneous order are not abstract concepts. They are real and observable – and they are wonderful. They show the superiority of free market over government intervention. And even unregulated black market is proven to be superior to government.

*According to the Economist, in 2005, Vietnam was the second largest exporters of rice. Yet in the 70s and 80s, it could not feed it citizens. It is not coincident that the increase in production of rice began after the economic liberalization of the 90s.


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