Living in an age of remarkable technological change is now forcing us to think very hard about the linkages between technology and economic development. The harder we think about it, the more we realize that technological development is almost certainly the key driver of long-term economic growth, Bai C, Yuen C (2002). Recent advances in our ability to communicate and process information in digital form - a series of developments sometimes described as an “IT revolution” are reshaping the economies and societies of many countries around the world. Technology is now a driving factor in the process of globalization in the free market economy. Technological innovation is the one of the most fundamental impulses that set and keep the free market economy in motion Wang (2007). It incessantly transforms production and consumption as well as organisation of firms and industries, destroying old ones and creating new ones – a process that Schumpeter named creative destruction which leads to innovation and value both for consumers and for shareholders of companies.
Free market refers to a market system in which the prices for goods and services are set freely by consent between sellers and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority.
Free market contrasts with a controlled market or regulated market, in which government intervenes in supply and demand through non-market methods such as laws creating barriers to market entry or directly setting prices. Free market is the concept in which price is regulated by the corresponding demand and supply.
According Betz F (2011) technology refers to as knowledge of manipulation of nature for human purpose.
The power of choice which comes with the free market structure makes best use of individual entrepreneurial abilities which encourages technology development. Competition in the market place provides the best possible product to the customer at the best price. When a new product is invented, it usually starts out at a high price, once it is in the market for a period of time, and other companies begin to copy it, the price goes down as new, similar products emerge. In a competitive market, the poor versions of the product or the overpriced will be pushed out of the market because consumers will reject them. Free market structure aids technology development through intense competition which pressures firms to produce ever-better goods and services at lower cost and more efficiently through the adoption and application of new technology.
The key feature of a free market economy is that market forces dictate what is produced, in what quantities, at what price, and for which consumers. Resources are privately owned by individuals and companies. Profit and return on investment are the main drivers of businesses.
Under a free market structure prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy, and it typically entails support for highly competitive markets and private ownership of productive enterprises. Although free markets are commonly associated with capitalism in contemporary usage and popular culture, free markets have been advocated by market anarchists, market socialists, proponents of cooperatives, and advocates of profit sharing.
The case for trade liberalization is that it brings out the best use of technology and other resources, the theory of comparative advantage. When countries specialise in producing goods and services in which they are efficient, they can produce these at a lower cost than other countries. Trade liberalisation thus leads to increased prosperity which can benefit the poor as well as the rich; developing countries can gain more from trading than not trading.
Many of the characteristics of free market structure are associated with the perfect competition economies which are conducive to technological advance. The large size of firms operating under free markets enables them to finance the often large Research and Development (R&D) costs associated with major product or process innovation. In particular, the typical free market economy realizes an ongoing economic profit, a part of which is retained. This undistributed profit serves as a major source of readily available, relatively low-cost funding for R&D. Moreover, the existence of barriers to entry gives the free enterprise some assurance that it can maintain any economic profit it gains from innovation. Then, too, the large sales volume of the free market and oligopolistic enables it to spread the cost of specialized R&D equipment and teams of specialized researchers over a great many units of output. The broad scope of R&D activity within free market firms helps them offset the inevitable R&D misses with more-than-compensating R&D hits. Thus, free market structure clearly has the means and incentive to innovate. Demand for better goods and service has resulted in increase technology and skills transfer as more human capital it trained to handle new machinery to increase production and efficiency.
Goods such as automobiles, televisions, and computers were not very useful when they were first invented, but subsequent refinement through R&D led them to be better, cheaper, and more useful, and those subsequent refinements are what have produced really large improvements in welfare. For example, Baumol claims that 99 percent of today’s computing power is due to incremental improvements in the technology rather than major breakthroughs. According Baumol (2002) free-market innovation machine routinizes the process that produces 99 percent of that innovation.
A free market economy is driven by individual innovation and the notion that hard work and ingenuity will be rewarded by success. All businesses exist to make a profit. Therefore, in the free market system, a successful business makes a consistent profit in a field of competitors. The concept of competition is an important component of a free market system. Advances in web technology have made markets more competitive. It has reduced barriers to entry for firms wanting to compete with well-established businesses for example specialist television retailers are better able to battle for market share with the dominant retailers such as Hi-fi and Game. Economists have become more interested in free market structure partly because of the growth of e-commerce as a means of buying and selling goods and services over the internet. And also because of the popularity of auctions as a device for allocating scarce resources among competing ends. Through e-commerce consumers now have all readily available information about prices and products from competing suppliers and can access this at zero cost – in other words, there are few transactions costs involved in searching for the required information about prices. Likewise sellers have perfect knowledge about their competitors. Through the internet can now manage to order goods and get delivered to their door steps cutting on transport and logistics cost. For example one of the advantages brought about by technology development in free market structures is the creation online auctions sites like Amazon and Ebay and introduction of mobile money payment systems like Paypal has also improved payments online. Modern technologies especially computers, create new forms of intellectual property that, unlike other types of property, can be copied and consumed by a number of different individuals at once. According to Locke mental labor that creates the property creates the property rights over that product. As technology advances in the free market most notably the rise of the internet and advances in telecommunication infrastructure have made it easier for people to travel, communicate and do business internationally.
Competition in the free economy marketplace provides the best possible product and service to the customer at the best price. When a new product is invented, it usually starts out at a high price, once it is in the market for a period of time, and other companies begin to copy it, the price goes down as new, similar products emerge. In a competitive market, the poor versions of the product or the overpriced will be pushed out of the market because consumers will reject them. Supply and demand according to this view will help allocate resources efficiently. When the supply of a certain product is not enough to meet the demand, buyers bid the price of the commodity upward until it rises above what Smith called the natural price as much of the price information will be readily available. Producers of that commodity then reap profits higher than those available to producers of other products. The higher profits induce producers of those other products to switch their resources into the production of the more profitable commodities. The fluctuating prices of commodities in a system of free markets then forces producers to allocate their resources to those industries where they are most in demand and to withdraw resources from industries where there is relative over supply of commodities.
The free market system determines the winners and losers in each industry based on the demands of the customer, whether industrial, business customers, or consumers, people who buy for personal use. In a free market system, the entrepreneur takes a great risk to launch a business, putting up capital, with the hope that the product or service will succeed. If the risk is considered a disadvantage, when the business succeeds, the profit and control of the businesses future is determined by the owner, not the government.
One of the biggest benefits of competition in free markets is innovation: new, better and cheaper products and services, or better and cheaper ways of providing them. Only companies faced with constant competition are pushed to innovate for example cellphone service providers. Those that are protected from competition and strangulated by government regulation will become less innovative.
Free market structure promotes innovation because along with goods and services, the flow of trade circulates new ideas. Consumers can benefit because companies in a freely competing market must either keep up with the leader in order to retain customers or innovate to create their own niche.