Wednesday, 21 November 2012

'Free' market myths no. 5: competition works

Competition is an essential part of  our economy. The fact that companies compete with each other to provide us with better goods and services means that the goods and services on offer constantly improve and we get better value for money. It means that companies that don't perform well go to the wall and the best run companies thrive, and it also means that individuals work harder to do better and achieve higher rewards right? Wrong!

The idea that much vaunted 'free' market competition does all these things and is essential to the well-being of our economy just happens to be nonsense. Of course this is hard for many people to accept because we have been told this is the case all our lives, and most of us believe it. But the idea of competition that most of us have is based on real competition of the kind that you find in the Olympics where individuals and teams do battle to win prizes. This kind of striving for ever greater excellence is not the same thing as competition in a capitalist economy. In fact its possible to make a case that in some sectors there is little or no competition at all. Mature markets are where particular markets are dominated by a few major players, all the smaller operators having been squeezed out, usually by acquisition rather than competition. An obvious example of this which has been making the headlines recently is the energy sector, which has been accused of making excessive profits at the expense of hard pressed bill payers. And we have witnessed the neoliberal Coalition government's feeble attempts to 'regulate' energy prices for consumers. As the Guardian editorial said:
"But all Mr Davey is proposing is a change in billing, not pricing. And he is certainly not proposing to change the mechanics that place 85% of the retail market in the hands of the big six suppliers, and which mean that when one raises prices the rest follow soon afterwards. If it looks like an oligopoly, and acts like an oligopoly, then it probably is an oligopoly"

It was accepted, until fairly recently, by economists, that such 'mature markets' were examples of monopoly capitalism, until neoliberal 'free' market dogma came to dominate in the 1980's, and monopoly capitalism was conveniently 'forgotten'. Its well worth reading this article by Bellamy Foster, McChesney and Jamil Jonna, which describes how monopoly - not oligopoly by the way - is increasing and competition is decreasing, on a global scale. here is a telling quote:
"The desirability of monopoly, from the perspective of a capitalist, is self-evident: it lowers risk and increases profits. No sane owner or business wishes more competition; the rational move is always to seek as much monopoly power as possible and carefully avoid the nightmare world of the powerless competitive firm of economics textbooks. Once a firm achieves economic concentration and monopoly power, it is maintained through barriers to entry that make it prohibitively costly and risky for would-be competitors successfully to invade an oligopolistic or monopolistic industry—though such barriers to entry remain relative rather than absolute. Creating and maintaining barriers to entry is essential work for any corporation."
The reality is that competition in the capitalist global economy is just another 'free' market myth, slavishly maintained and adhered to by the capitalist media we all know and love so well.

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