The Bicomponent Free Market

Ha-Joon Chang has pointed out many fallacies of free market capitalism in his book "23 Things They Don't Tell You About Capitalism". You can watch his summary lecture here.
He paraphrases Winston Churchill's comment about democracy, "capitalism is the worst economic system except for all the others" and he points out that no markets are entirely free: they are all limited by politics, laws and social norms.
Yet we feel free to choose how to spend or invest our money. The market alocates resources and makes choices by a process of individual choice and approval, punishing bad choices with loss and supporting good choices with gain. It's survival of the fittest. The best products and best investments win.
I suggest that the second layer of free market capitalism is how we 'spend' our votes. And I suggest that if we can choose policies freely, from a wide range of 'suppliers', then the best ideas will emerge. These ideas may define the boundaries of capitalism, moulding it in ways that best suit the common good. Furthermore, if the ideas are only produced by a small political oligopoly, the major parties, it is unlikely that society will evolve and adapt as quickly and as effectively as the entrepreneaurial politics that Interactive Democracy fosters. Oligopolies may be as retarding to politics as they are to markets!

The Limits of Control and Selfishness

Ha-Joon Chang paraphrases a Kobe Steel senior manager in his book 23 Things They Don't Tell You About Capitalism:
"I have a PhD in metallurgy and have been working in Kobe Steel for nearly three decades, so I know a thing or two about steel making. However, my company is now so large and complex even I don't understand more than half of what is going on within it. As for the other managers... they really don't have a clue. Despite this, our board of directors routinely approves the majority of projects submitted by employees, because we believe that our employees work for the good of the company. If we assumed that everyone is out to promote his own interests and questioned the motivations of our employees all the time, the company would grind to a halt, as we would spend all our time going through proposals that we really don't understand. You simply cannot run a large bureaucratic organisation, be it Kobe Steel or your government, if you assume that everyone is out for himself."
I find this an interesting perspective. I don't see that senior people can ever be held responsible for every detail of their organisations and I don't think that people are always selfish. But I do think that a balance of power, transparency, systems that try and identify the truth and sanctions against cheats are important aspects of organisation and democracy. These mechanisms go beyond cultural mores.