This is an excerpt from my article originally posted on the Standford Social Innovation Review on 03/30/16

We live with an illusion so powerful that we endlessly mistake it for reality. Merriam-Webster defines “free market” as “an economic market or system in which prices are based on competition among private businesses and not controlled by a government.”

Consumers always wondered why Seventh Generation, the company I co-founded in 1988, sold its bath tissue—made from 100 percent recycled fiber—at a higher price than traditional, nonrecycled brands. Was it because we were small and lacked the leverage to ensure the lowest costs? Was our supply chain inefficient? Was it because we paid our staff higher wages?

The answer had everything to do with the supposed free market, specifically US government subsidies to the virgin fiber industry. A 1999 report calculated that Congress—by assigning capital gains status to timber sales, which allowed forest service sales of timber at below its cost of operation, and free or below-cost road construction—gave the virgin fiber industry $4 billion in government subsidies over a five-year period.

What did that do? It made every roll of Seventh Generation bath tissue more expensive than our competitors’, which used virgin fiber and reaped those benefits. That’s when I knew the game was fixed, and we weren’t operating in a free market.

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