Competition: Buzzword or Reality?
Posted by rbroberg 6 years, 5 months ago to Government
It is often noted that economic competition helps consumers. The context of this argument consists of the converse: That no competition is bad for consumers. Looking at this more closely, I have two questions. (1) Does competition help only consumers? (2) Does competition actually drive innovation?
In resolving the answers to these questions, let's establish contexts and definitions. The competition argument stems, at least partly, from a popular backlash against a perception of price fixing and collusion. The question is then was this perception correct? Underlying the perception is, of course, a backlash against the "bigger is better" argument. Corporations seeking to increase total revenues receive popular backlash from jealous "mom and pop shops". Jealousy and inefficiency are not legitimate arguments. The legitimate argument is that the bigger corporations received preferential treatment from government; this may well have happened, but the argument of preferential treatment generally does not precede the insidious legislation called the Sherman Anti-Trust Act.
The Sherman Anti-Trust Act was supposed to have addressed the "problem" of natural monopolies. The modern argument in favor is essentially that only under competition do consumers obtain the best product or service. This is a mistake. It assumes products are exactly the same as commodities. That is, it assumes an iPhone and a Samsung are identical simply because they compete for the same market share. It assumes that labor services are equal because each service person works 40 hours per week, give or take 10, 20, 30, or 40 hours. The existence of brand consciousness alone should convince us that different products are different, even if these products compete over the same market space, i.e. smartphones. The existence of salary differences alone should convince us that different services are different, even if these service providers use the same clock to measure time! When products are more advanced and sophisticated than our perceptions of them -- a common occurrence -- it is not guaranteed that products are equivalent! It is not guaranteed that the market spaces are equivalent, either!
Economic competition does not necessarily lead to consumer protection or consumer advantage. It may be that a single producer invents a new product for which the demand is huge. Or it may be that two producers create similar commodities in similar ways. In the first case, there is no competition, yet a benefit has been rendered to the consumer. In the second, perhaps both production facilities are inefficient and decrepit. The first case is obviously innovative, while the second isn't. Competition has nothing to do with it. Innovation has everything to do with it.
Innovation tends to happen in unregulated spaces. It is obvious that government will push any sum to innovators for a national advantage, purchasing military or other technologies that eventually are released to the consumer. This strategy allows technology control and market regulation; after all, the government purchased the technology first. That said, individual innovations are not made at the point of a gun, bomb, or financial threat. That is only how they are extorted after limitless cash can't do the trick.
The competition argument comes into play only after the government has declassified technologies for the consumer and created some equivalency in market space. The true driver for advancement though, unsurprisingly, is innovation.
In resolving the answers to these questions, let's establish contexts and definitions. The competition argument stems, at least partly, from a popular backlash against a perception of price fixing and collusion. The question is then was this perception correct? Underlying the perception is, of course, a backlash against the "bigger is better" argument. Corporations seeking to increase total revenues receive popular backlash from jealous "mom and pop shops". Jealousy and inefficiency are not legitimate arguments. The legitimate argument is that the bigger corporations received preferential treatment from government; this may well have happened, but the argument of preferential treatment generally does not precede the insidious legislation called the Sherman Anti-Trust Act.
The Sherman Anti-Trust Act was supposed to have addressed the "problem" of natural monopolies. The modern argument in favor is essentially that only under competition do consumers obtain the best product or service. This is a mistake. It assumes products are exactly the same as commodities. That is, it assumes an iPhone and a Samsung are identical simply because they compete for the same market share. It assumes that labor services are equal because each service person works 40 hours per week, give or take 10, 20, 30, or 40 hours. The existence of brand consciousness alone should convince us that different products are different, even if these products compete over the same market space, i.e. smartphones. The existence of salary differences alone should convince us that different services are different, even if these service providers use the same clock to measure time! When products are more advanced and sophisticated than our perceptions of them -- a common occurrence -- it is not guaranteed that products are equivalent! It is not guaranteed that the market spaces are equivalent, either!
Economic competition does not necessarily lead to consumer protection or consumer advantage. It may be that a single producer invents a new product for which the demand is huge. Or it may be that two producers create similar commodities in similar ways. In the first case, there is no competition, yet a benefit has been rendered to the consumer. In the second, perhaps both production facilities are inefficient and decrepit. The first case is obviously innovative, while the second isn't. Competition has nothing to do with it. Innovation has everything to do with it.
Innovation tends to happen in unregulated spaces. It is obvious that government will push any sum to innovators for a national advantage, purchasing military or other technologies that eventually are released to the consumer. This strategy allows technology control and market regulation; after all, the government purchased the technology first. That said, individual innovations are not made at the point of a gun, bomb, or financial threat. That is only how they are extorted after limitless cash can't do the trick.
The competition argument comes into play only after the government has declassified technologies for the consumer and created some equivalency in market space. The true driver for advancement though, unsurprisingly, is innovation.
You touch on a lot and in replying this this sentence or that paragrph it is pretty easy just to express sentiments. Getting to the truth requires empirical evidence and logic. And that is hard work.
As much as I agree with the sentiments, I can come up with an exception: the government monopolies granted by the British Crown to found the colonies as corporations.
And the situation with military technologies is that they can only draw on what has been created first. I understand the theory: if you give bright people a lot of resources, they invent and innovate. That was the theory behind Bell Labs, but also the State Science Institute. One of my professors wrote a book about weapons development at China Lake. It is pretty interesting all in all, but they just took stuff that already existed. And it is not clear that the consumer needs a Sidewinder missle.
Long ago, a friend of mine in a competitive business tried to get away from the word "competition" and stress "co-operation" because he once had to buy something from a competitor to meet a customer need. I have another friend now in a different line who also found it profitable to buy his competitor's products in quantity and put them in his retail catalog. My Macintosh runs MS-Office under Mac OS (High Sierra).
I also look to the highly personal motivation from novelty. In the old USSR, their theory was that you only need one kind of pen, one kind of pencil. On my desk, I have three cups of pens and pencils. They are different. They write differently. Some are mementos of social events. My pleasure in ownership is not completely explained by utilitarian economics.
We have much to discuss, and that is the reason why I return to the context of individual rights. It does not matter whether economic competition benefits you or "society" at all. You have the right to create. And, as a corollary, you have the right to offer your creations (products or services) to others in exchange for theirs.
Of course, reality is real, so the tremendous improvement in our lives is a natural consequence of the competition and co-operation that originate in the recognition of individual rights.
I think of Rearden Steel. Rearden the man was motivated to innovate and improve and compete. Innovation was in his case (and is in most cases) a prerequisite for competition and, in his case, technological advantage.
But I suppose my argument could be truncated by simply noting that the Left have twisted competition to be something bad and innovation (my obvious favorite) to mean nothing more than "progression" or any number of agenda-based definitions.
As a side note, I probably should include more empirical data to support the claim. Thanks again.
There's a lot of competition but just not in regulated markets - to state it tautologically. I just spent two months on a project with a window that faced a rail line. Regulation killed innovation in railroading, but, within that regulated market there is still some competition, as you noted. (I have a community college certificate in transportation management and believe me, it was painful.) Barcoding cars failed in the 70s, but intermodal - ship containers and truck tailers on rail - was more successful.
But, of course, we can look to computing for the opposite. AFIK there is no law that says what a computer is or who can program one.
Also, the Modification of Final Judgment that broke up AT&T in 1982 opened up faxes, modems, and cell phones. All of those existed but in primitive and expensive forms that few actually used. But that was a long time in the making, since 1958, according to this https://en.wikipedia.org/wiki/Modific...
Advocates of laissez faire would be quick to point out that AT&T's monopoly was a result of government regulation in the first place. When we lived in Michigan, Michigan Bell claimed that there were like 30 (or whatever) phone companies in the state. We knew one because the guy with the PBX in his basement served a village of 500 where my mother-in-law's family lived. State law required Michigan Bell to hook up with them, again, part of the quid pro quo of regulation. It was like that all over, Mountain Bell, Southern Bell, and so on. So, breaking up the monopoly was the right thing to do. And it did not take long for the new "Baby Bells" to reorganize into whatever it is they actually are today. ATT Labs splitting off Lucent, which was bought by Alcatel, whcih was bought by Nokia, sort of validates globalism as opportunity for increased competition.
Without competition (in other words, in a monopoly space), a business enjoys the trade version of a dictatorship, and will be incentivised to sell their offerings at the highest price and at the lowest levels of quality and service they can get away with.
One example of monopoly is the medical sector. In most or all jurisdictions, there is only one medical authority with the power to confer a license to practise. As such, they enjoy a government-granted monopoly. In otherwise economically permissive jurisdictions, this typically results in prices for medical services that (for most) border on the unaffordable, even with insurance. Competition in this space (as long as basic acceptable medical standards are upheld) would rapidly reduce prices to much more reasonable levels.
Technology is the best example. Hugely competitive, tight margins, millions and billions to be made. Machines today sell for about the same, and always do more, are faster, and have more memory/disk space, better components.
2 Farmers. One figures out by accident that planting peanuts between crop seasons increases his crop sizes. This increase the value of the land HE manages. Allows him to pay ABOVE market for his neighbors farm, and he grows. In the end, the same land feeds more people, and for less money.
Innovation is a factor. And protectionism is the problem. I have a huge problem with copyright being extended beyond the authors death. The reason for the LIMITED protection was to allow it to get absorbed and improved upon. Same with patents. They are being abused. Apple got a patent for ROUNDED corners on a glass screen. And a patent on swipe to open/unlock. The first has been an option on GLASS tables for eons, the second has existed physically on bathroom stalls since I can remember. Since when did making a wheel out of metal instead of wood garner you a new patent right on wheels?
Patents are needed, to encourage investment. But IBM, I believe, now collects more money from licensing its patent book than anything else they do. And they leverage that to force companies to sell to them, because they can garner more $ per patent that the little guy can.
So, we have problems. It aint perfect.
In the end: Necessity is the Mother of Innovation... Property Rights are a driver of Necessity! Not much Innovation in Venezuela right now, unless you count eating zoo animals!
At the height of government crony intervention and the retirement of original business owners/creators brought on what we call: The Professional CEO. These so called pros, knew nothing about product nor the people that made it...all they knew was connections and influence.
It has been my observation that besides these crony connection, competition became a farce. Products did get cheaper but was in the form of natural and beneficial resource replacement into more harmful products passed on as "New and Improved".
So, as you point out, true innovation and competition can only happen in unregulated industries.
I define competition as: One or more entities totally dependent upon each other to be the very best they can be...may the best entity win.
But from Sumer, to Greece and Rome, to the Renaissance, in Europe, China, and the Islamic lands, big business and government were historically intertwined, almost by necessity. It took a paradigm shift in the philosophy of economics to suggest otherwise.
Lot's of examples here like silverware, dishes, pots, pans, clothes, watches,...on and on.
BIG businesses threaten progressive, (includes kings/queens etc), governments power and wealth.
I say that even if it could be proved that the company's professional managers today do not even use pencils themselves or know how they are made, their ability to operate the business is all the justification they need.
OUC attempts to set some implicit single standard for "best" when he writes, "One or more entities totally dependent upon each other to be the very best they can be...may the best entity win." The Austin Energy Regional Science Festival gives out hundreds of pencils. They are not.a good as Dixon Ticonderoga. It takes a good pencil sharpener not to grind one down to sawdust. Almost anything will sharpen a Dixon. It is a better pencil But the other maker of the cheaper pencils found a market. Those pencils serve their purpose.
Or consider knives. My best knife is a Benchmade; but I also have Schrades; and my "everyday carry" is a Gerber.
A pencil is a pencil until the mechanical pencil is invented and people give it a try. Rearden steel is just scratch on paper until someone decides to make it into a bridge.
How many of us can remember a great product that worked, but it's replacement, touted as "New and Improved" doesn't work as well or not at all. And...I'm not blind to the reverse happening as well...that's applied awareness coupled with ethics and innovation.
Professional CEO's know not innovation... only cost cutting at the expense of the quality of the product to bolster the bottom line. (cheating to compete)(Farce), (or promoting crony regulations in their favor)... and YES, I am old school, not utopian, Mike. The original value creator of a business or service used to and should always mentor the best associates in the business to be the best they can be and perhaps take his place at retirement or death in an effort to continue a successful legacy...that used to be the way business was originally done.
Laughing...I'm sure you'll come up with exceptions to that unspoken rule.
Make a better product or a great product less expensive, concerning ourselves with the end users only and the bottom line will be just fine. That's my motto and I'm sticking to it.
"New! Improved!" in red letters sells laundry soap. So does placing it at eye-level on the supermarket shelt. That does not invalidate product placement. Would you argue that we are inundated with worse products and services today because marketing managers are success at placement with stuff that is just plain junk. If were selling rack systems for computer server farms, I would not advertise in a pet food magazine.
To support your point, though, I believe that we here are all pretty much in agreement that the Atari XL and Commodore Amiga were superior to the IBM-PC. The IBM-PC won the markets not because it was "New! Improved!" but because it was conservative. "You can't get fired for recommending IBM." That is a different problem. It is not that the producers cheated the buyers with labelling and placement, but that the buyers rationally chose to short-change themselves. Businesses - millions of them, in fact; small, large, and huge - minimized their risk with a new technology.
When I was learning to fly in the 90s, I was amazed and dismayed at the consequences of regulation. Mandatory 100-hour maintenance keeps old planes in the air. But nothing new comes along very often. The Beechcraft Starship and the Eclipse jet both failed to find markets, but the Honda Jet was certified and may sell well. The FAA opened up "sport aviation" with fewer requirements for pilots, but it has not had any observable effect in how people get to work in the morning.
I agree that we can look at the history of capitalism and say, "If this were different, that would be better." What I read from you is a complaint that nothing is any good any more.
First off: Many things are better, like cars, they last longer, rust less and don't require constant tuning, waxing or break changes, (most models anyway) However, they are immensely complex, expensive to fix and many are generic looking or ugly as hell...thanks to the collective of government regulations; some of which were good.
Second: Since we're talking about government regulations ruining a valued product leaving the companies to the ever changing "New and Improved" to compete...and much of these changes are just smoke and mirror.
1. Laundry Detergents; once environmentalist tripped over their own brains and condemned phosphates, (turns out phosphates was never a problem-long story)...really clean clothes was a thing of the past, not to mention interrupting the natural processes of our septic systems and the clothes?...wear out quicker.
2. shower heads...they just plain SUCK! these days unless you spend a lot of money of fancy units. Ole big brother decided too much water was being used, not realizing now we have to stay in the shower longer than before to get clean and rinsed).
3. Same goes for toilets TOO! I have replaced two in my house but my ole American standard just keeps a workin just fine.
4. Due to similar reasons plus the advent of complex,vulnerable electronics, Washing Machines SUCK TOO!..we sent back our new washer recently and replaced it with a commercial model...fills all the way up and not a computer chip in sight...twice as expensive as an already expensive regulation approved model.
In Fact, almost ALL appliances suck these days, and we can't blame big brother here...they just don't stand up and again...the electronics are the weak point, but, cheaply made motors, gears and plastic parts are to blame too.
Generally, as I have observed over my 66,000 years on earth, appliances from inception got better and better and stayed affordable, and lasted a very long time,...until progressive big brother got involved.
I built (literally) our home in 97 and before we'd been there 18 years, (20 now) we had to replace every single appliance, (and the new ones won't last as long-not to mention, 4 times as costly) and our dishwasher 3 times until I bought a Bosh with...you guessed it, No Electronics to degrade due to moisture.
Hell!...I just had to fix, myself, (by replacing the motor) my garage door opener...they wanted 426.00 for a new one and again!!!...wouldn't last as long. Seeing that the company still made parts...I just ordered a new part for 92.00 dollars. (I hope to work on that tomorrow)
And Lastly, a trend you may not have noticed: ever buy a truly new and innovative product before it went into full production?
didn't it work awesome?!!! but when it was mass produced...it just wasn't the same.
What's Up With THAT?!?!?
I could probably come up with more examples but you can see here why I say what I do, I have observed it and experienced it personally. Between my friends and I, the subject comes up often.
And you and I are on the same page with cars, pro and con. My personal happiness with computers peaked about 1991. I just paid $3200+ for a new MacBook Pro. Nice screen. Can't say much more for it. And I just lost all of the data from the hard drive because Apple has a Cloud policy that makes your computer a back-up. Don't want the Cloud? OK, we will erase your Documents.
On the other hand, if you read Death of a Salesman by Arthur Miller (1949), Willie Loman has the same complaint: the appliances break down before they are paid off. Back in 1976, when we saw The Seven Percent Solution in the theater, I was struck by how overstuffed the Watson apartment was with knickknacks. All of it was mass produced. Contrast that with the Japanese zen master of pottery. But how many people could afford what he made? Their homes had few fineries.
So, there is always a trade-off and it is not a new phenomenon, special to our time and place. Not happy with my MacBook Pro, I cannot go back to the IBM-PC/XT with CGA monitor, 1200 baud modem, and dot matrix printer. ... or the telegraph and messenger boys.