by Per Bylund
by Per Bylund
Everybody knows what competition is: it is that "cut-throat" market process where some profit-seekers try to get ahead of other such in order to maximize their profits. Some say competition is good and that it effectuates an evolution in product design as well as distribution and marketing processes where better ideas beat inferior ones. Others say competition is a hostile state of affairs where everybody is forced to "beat others" — the market's competitive and violent condition should be replaced by peaceful and superior cooperation.
Theoretically, any of these descriptions can be true. The sole goal of engaging in acts of competition, defined as "a business relation in which two [or more] parties compete to gain customers" according to the Princeton Wordnet, is to get ahead of one's competitors. What is important in a competitive market, at least when leaving out the fact that producers aim primarily to satisfy customers' needs in order to make profit, is to achieve advancement relative existing (and future) competitors.
This relative advancement can be done two different ways: either one advances one's own position, or one makes sure all others' positions are decreased. The alternatives are thus to work hard to move myself only into a better situation or to move everybody else into worse. Moving only some of my competitors into a worse situation than their current wouldn't quite do it — there would still be competitors at status quo. So the alternatives have to be moving myself only or moving everybody but myself.
The costs for doing the latter should, economically speaking, be enormously higher than the costs of making me better (not to mention the benefits of actually getting better at what I do). It would thus be rational to assume competitors in the market place would choose to invest time, skill, and money into making themselves better rather than trying to undermine competitors' businesses. Investing more than others in the game of competition would be a clear disadvantage, presumably an economic loss, and so there would be no actors in the market place, at least in the long run, trying to destroy others' enterprises rather than build their own. This is one sound, rational argument for a free market — it is extremely productive and creates enormous wealth for everybody.
However, this is not exactly true in the contemporary markets — companies do invest both labor and capital into moving competitors into worse situations rather than making own advancements. The critics of the market do have a point here, companies tend to act in ways that, free market theoretically speaking, seems irrational and counter-productive. Not only do companies outrun by others try to bring down the more successful firms as a last attempt to survive as market players — market leaders invest their rightfully earned profits into keeping competitors far (or further) behind.
Now, why would actors in the market place do such a thing if it is utterly irrational and much more costly than investing in development? The answer is: free market thinking isn't applicable. It isn't possible to use free market logic to say such acts are rational or not in a market that isn't free. The rationale for destroying competitors rather than advancement of self enters the market the same moment the State does.
We know a market that isn't free is less efficient and less wealth-creating and less innovative than a free market. In a market under the weight of a regulatory, interventionist State the conditions fundamentally change and the logic is necessarily different from the logic of the free market. The not-so-free market logic includes parameters free market logic does not have to consider: coercive restrictions, favors and political pull, taxes, etc.
In the contemporary market it may not be rational to invest in and strive for advancement in order to create a distance to competitors simply because the cost of keeping competitors at bay is internalized in the State. The huge costs of moving competitors into a worse situation are kept artificially low through the State offering the "service" of crippling competition mainly at taxpayers' expense. The costs of the coercive framework have already been covered — the coercive apparatus can be used for but a small fee (be it bribe, campaign contribution, patent fee…).
This not-so-free market logic isn't applicable only in markets where the huge welfare-warfare state is a player; it is applicable in any market with a power monopoly. The reason for this is that it is not the State per se that changes the logic of the market — it is the very nature of power. Any power, even if somehow limited, has this kind of destructive influence on the market: even if the existing power doesn't currently have the power or infrastructure to forcefully stifle competition, it may seize it and thus creates an artificial opportunity to use power as a means of competition.
Power, as we know, can be lobbied, bribed, bought and in many other ways used if one has the knowledge how to do it. A strictly limited power might not be used directly, but it is quite possible to successfully invest in the project to create a slight alleviation of these limits in order to gain return favors. Even if power is tightly leashed, and thus the cost of making use of it high, power itself necessarily attracts attention from those willing to use it. A market where such a power exists will thus never function as a free market.
Competition often tends to be ugly in contemporary markets simply because it is "cut-throat" in a very real sense. Companies act rationally in a profit-maximizing sense, and thus make use of State coercion where it exists in order to "cut the throats" of competitors with the State's sword. So long as there is a State-like power directly or indirectly affecting the market there will be political favors, destruction, and fiddling in the market place rather than open, honorable business exchanges for mutual benefit.
April 16, 2007
Copyright © 2007 LewRockwell.com