Recent disasters in the world-wide financial system have highlighted the fact that free markets (i.e., markets with minimal regulation) are unstable and by themselves neglect important social concerns.
Benjamin R. Barber in Jihad vs. McWorld gives a rather succinct example that makes this point in a very clear way:
When I choose to buy a car, I choose to get from here to there efficiently and perhaps pleasantly; however, among the consequences of my choice may be air pollution, resource depletion, the disadvantaging of public transportation, pressure on hospital facilities, and the despoilation of the natural environment by a highway system. As a consumer, the only way I can avoid these consequences is to refuse to buy a car -- an irrational act from the narrow economic perspective and one that throws a wrench into the market economy. So I play the consumer and buy the car. Capitalism is served and so am I -- as a consumer. But in a democratic society, I am not just a consumer, I am a citizen. And as a citizen, I can act in common with others to modify the untoward public consequences of my private choice. As a citizen, I can join with others and redress the ill effects of my car purchase: we can outlaw leaded gas, fund electric engine research, subsidize public transportation, mandate hospital insurance for drivers, and limit highway construction in scenic regions. These civic activities do not curb our market freedom, they facilitate it. Democracy makes markets work by allowing us the freedom of our consumer choices in the knowledge that we can counteract their accompanying vices. To do so, however, we must have alternative nonmarket institutions, and in the international arena such democratic tools are entirely absent.
The key point is in the last sentence, which I will augment slightly -- there must be alternative institutions that have the mandate and the resources to contain and control the excesses of free markets. Such institutions are not inimical to free markets. Rather, they preserve the long term viability of free markets that otherwise eventually would implode.
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