Every economics textbook begins with the same comfortable story: a marketplace where buyers and sellers trade under the gentle guidance of supply and demand, entirely separate from the messy business of politics. If only governments would get out of the way, the theory goes, the market would naturally balance itself and lift everyone up. It is a compelling fantasy, but it has never actually existed.
In 1944, the political economist Karl Polanyi pulled back the curtain on this mythology, calling the idea of a self-regulating market a "stark utopia". The state did not step in to corrupt a naturally free market; the state actually created the market in the first place. Before industrial factories changed the way we live, people did not organize their entire existence around price signals. Instead, they relied on community obligations, local customs, and mutual support. Turning human beings into "labor" and nature into "real estate"—commodities to be bought and sold at will—required the heavy, often coercive hand of the law. Laissez-faire, as Polanyi famously observed, was planned.
The Cambridge economist Ha-Joon Chang points out that "market freedom" is not a scientific measurement. It is a political definition. Every market operates within boundaries we take for granted. We do not complain that the labor market is restricted because we outlaw child labor, slavery, and the physical purchase of political votes. Yet when the British parliament debated banning factory work for children under nine in 1819, wealthy business owners screamed that the state was violating the sacred freedom of contract. Even the stock market, often called the purest example of laissez-faire, is wrapped in strict rules. You cannot just walk onto the floor of the London Stock Exchange with a bag of shares and start trading.
Private corporations do not actually want free competition. In a textbook free market, perfect competition pushes economic profits down to zero. Real businesses hate this, which is why they use patents, state regulations, and endless lawsuits to keep competitors out. Coca-Cola, for instance, secured a regulatory monopoly on importing real coca leaves, which meant rivals like Pepsi could never truly replicate their formula.
The rules we choose not to see
Beyond domestic regulations, rich nations have always relied on active state planning to build the very industries they now celebrate as products of the free market. The economic rise of Great Britain, the United States, and Germany happened not through free trade, but through high tariff protection, state subsidies, and national planning. South Korea and Japan followed this exact blueprint in the 20th century. The South Korean government did not leave its economy to spontaneous market forces. It directed credit to strategic infant industries and protected domestic manufacturing for decades until firms like Hyundai could compete globally.
Once these Western and East Asian nations reached the top, they did what the German economist Friedrich List called "kicking away the ladder". Through international bodies like the International Monetary Fund and the World Trade Organization, they forced developing nations to adopt radical free trade, capital deregulation, and strict patent laws. This selective application of laissez-faire principles wipes out infant industries in the Global South before they can grow, keeping them locked in the role of exporters of cheap raw materials.
The Cantillon trap: why money creation favors the status quo
The second force keeping the global market biased is the centralized creation of money. Modern textbooks treat printed currency as a neutral tool that affects everyone equally, but this is a convenient fiction. In the 18th century, the Irish-French banker Richard Cantillon observed that when new money enters an economy, the path it travels matters. Cash does not fall from the sky like rain. It enters the system through central banks, commercial banks, and elite financial institutions.
These early recipients get a massive head start. They spend the new money on real estate, stocks, and other assets while prices are still low. By the time that cash trickles down to ordinary workers and pensioners, prices have already gone up. The cost of living rises, but wages stay flat. This Cantillon effect acts as a regressive, unlegislated tax on the poor, transferring wealth directly to the very top.
The numbers match the theory. In the United States, the wealthiest 10% of households own 93% of the stock market. When central banks flood the market with cheap credit, they inflate asset prices, making the rich even richer while working-class families absorb the rising costs of food and rent. In 2024, the top 20% of US households brought home 52% of all income, while the bottom 20% got just 3%. The poorest half of the population holds less than 3% of the nation's total wealth. Because financial assets are distributed unevenly along demographic lines, active monetary manipulation directly widens racial economic inequalities.
The Great Divergence and the industrial trap
This domestic polarization matches a deep global division that economic historians call the "Great Divergence". Before the late 18th century, living standards in northwestern Europe and advanced parts of China or India were remarkably similar. The wealth gap that opened afterward was not a victory for laissez-faire. It was driven by state-backed imperial expansion, colonial resource extraction, and the luck of having domestic coal reserves.
While the West transitioned to high-value manufacturing, developing countries were pressured into specializing in cheap primary agricultural goods and raw materials. This specialization created a demographic trap. While Western economies relied on skilled, high-wage labor, the Global South faced deteriorating terms of trade and high population growth, making it nearly impossible to build competitive domestic industries. Although global consumption inequality has experienced a modest decline in recent decades due to the rise of China, the underlying structure remains intact for much of sub-Saharan Africa and Latin America.
AI and the new digital extraction
Today, the rapid rise of artificial intelligence threatens to widen this gap into an unbridgeable chasm. Rather than democratizing productivity, AI is currently being developed in a way that concentrates wealth in a tiny handful of Silicon Valley boardrooms. Building AI requires huge amounts of data, computing power, electricity, and elite engineering talent. All these inputs are heavily concentrated in the Global North. Only 32 countries host specialized AI data centers, while Africa and Latin America combined hold a mere 3% of global computing capacity.
This digital divide allows tech giants to treat the Global South as a source of cheap data labeling work while selling the expensive finished software back to them. This matches the classic colonial trade patterns of the industrial era. In 2025, reports showed that nearly a quarter of the working population in the Global North used AI tools, compared to just 14% in the Global South.
We often overestimate the economic impact of communication revolutions. Ha-Joon Chang famously argued that the domestic washing machine was more revolutionary than the internet. The washing machine freed up half the population from hours of backbreaking household labor, allowing women to enter the workforce, a shift that changed the entire social structure. The internet, and now generative AI, mostly speeds up how we process information. But as the psychologist Herbert Simon pointed out, our bottleneck is not a lack of information—it is our limited cognitive capacity to make decisions. A deluge of AI-generated content does not make us more productive; it just allows tech monopolies to build cognitive filters and capture the value of entire industries, creating trillionaire oligarchs who lobby political systems to protect their interests.
Sharing the machinery of the future
To counter this, some politicians have suggested a "compute tax" on AI hardware and data centers. But taxing the tools of productivity is a mistake. It raises costs across the whole economy, lowering wages and driving investment offshore. The solution is to share the tools of the future rather than taxing them. We should treat computing power as digital public infrastructure. A concrete way to do this is to build a "CERN for AI"—a massive, publicly funded international research hub.
Pooling global resources to build public supercomputers and open-source models would bypass the private tech monopolies. A €35 billion public investment, with €24.5 billion dedicated to computing chips, could give researchers and startups from both the Global North and Global South equal access to the state-of-the-art tools of our era. This would transform the Global South from a passive consumer of Western technology into an active co-creator of the digital future.
We also need to protect workers from being discarded by automation. We can look to Denmark's active labor market support and Norway's sovereign wealth fund for inspiration. By applying a 2% to 5% levy on corporate revenue gains directly attributable to AI, countries could fund a "Workfare 2.0" system. Displaced workers would receive up to 80% of their previous wages, provided they participate in digital training and education programs.
The "free market" has always been a convenient myth. If we continue to let tech oligarchs and central bankers dictate the rules of the game under the guise of objective economics, AI will simply solidify the inequalities that have defined the world since the Industrial Revolution. We need to move toward what Karl Polanyi called a "functional democracy," where economic decisions are brought back under public, democratic control. It is time to stop pretending the market is a force of nature. It is an institution we built, and we have the power to change its rules to benefit the entire planet, rather than restricting these gains to a handful of Western nations.