The world has witnessed rapid development in technology which has come as a result of innovation that has risen in the past few years. As the business competition increases and more firms emerge, the need to innovate and maintain the competitive advantage has increased. Over the past years, the arguments over the free market versus nonmarket forces and the effects on innovation have risen. The free market is a situation where the market forces determine the trends in the market without the existence of external interference. In the free markets, the forces of demand and supply play a key role in determining the market situation and creating equilibrium. The nonmarket free forces, on the other hand, refer to the internal and external organizing and correcting factors that provide the order to the market and the institutions in the society so that they can function effectively and efficiently to repair the market failures. While the advocates for free-market economies argue that market economies provide the best and efficient environment for promoting economic, social and technological innovation, the proponents of the non-market forces are for the regulation of the economy to enhance innovation and correct any market failures. Steve Johnson in his book, “How We Got to Now,” provides the history of innovation and supports the need to have the non-market forces provide regulations to the market to enhance innovation. However, the free market promotes competition amongst the firms as well as other aspects which then lead to development and innovation to gain a competitive advantage.
The existence of the free market economy has proved to enhance innovation amongst the individual firms thus promoting the need for innovation. In a free market, firms tend to be in a competitive market where the forces of demand and supply drive the prices. In such a situation, every firm has to remain competitive, and only those firms that innovate can survive the competition and gain competitive advantage. Previous studies have shown that in a free market economy, firms compete to gain a competitive advantage and attract more customers ( Kates, 2017 ). For this to take place, these firms have to remain creative and innovative by constantly producing new products and services to attract and keep more customers. A free market enhances healthy business competition which then tends to make firms and individuals aggressive. As the world experiences improvement in technology and increased globalization, only those firms that remain competitive can survive. The most common way that the firms remain competitive is to constantly innovate and introduce new products and services that keep customers attracted. In fact, recent studies have shown that most firms have resorted to innovation as the only means to outdo competitors and remain competitive. The firms focus on the introduction of new products, services and other areas that can help attract customers. As competition increases in a free market economy, firms have to work hard to attract customers through innovation and developing better products and services which offers a variety of choice.
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In a free market system where the government has limited or no role at all in the running of the economy, firms have to remain competitive to survive. The firms that tend to be inefficient can lose their customers, and this can then create the incentive to innovate new ideas and products that attract customers. The rising levels of competition have enhanced new areas of innovation, especially in technology due to the free market system where the inefficient firms are pushed out of the market ( Stilz, 2014 ). This creates an incentive to innovate and come up with new products as well as ideas that can attract people. Free markets make better investments and create new ideas that can help enhance development and growth.
While the proponent of the free market system argue that it promotes innovation, the proponents of the non-market forces such as Steve Johnson argue that the free market system is anti-innovation and that the best way to promote creativity is to have the market system regulated by the non-market forces. According to Johnston in his book, “How We Got To Now,” innovations can create an environment for more change, rather than just a change on their own. He further states that one innovation can act as a springboard for another, which can lead to more changes. Various innovations depend on a person creating them. As a result, Johnson argues that the nature of innovation requires regulation from the non-market forces to ensure that it gets successful ( Fischer, 2017). Johnson supports the view that the non-market forces such as the government should engage in the regulation of the market system and control what firms do. This according to Johnson, will create the motive to innovate and create new ideas as compared to when the market system is free from any regulations.
In conclusion, the free market system has proved to be the most effective in enhancing innovation and promoting development. A free market promotes competition which then calls for the need to have increased creativity and innovation. Those firms that fail to innovate and remain creative tend to be at risks of being removed, and this creates the motive to innovate more. Compared to the non-market forces, the free market enhances the ability of all firms to compete on fairgrounds fairly. The free market system is, therefore, more effective in promoting innovation.
References
Kates, S. (2017). Free market economics: An introduction for the general reader . Edward Elgar Publishing.
Stilz, A. (2014). Is the free market fair?. Critical Review , 26 (3-4), 423-438.
Fischer, M., Kauder, B., Potrafke, N., & Ursprung, H. W. (2017). Support for free-market policies and reforms: Does the field of study influence students' political attitudes?. European Journal of Political Economy , 48 , 180-197.
