Competition Shall Not Set You Free: The Mirage of Competition and Freedom

One of the fundamental dogmas of laissez-faire capitalism is that the presence or absence of competition in any given industry is a sure indicator of whether that industry is efficient or inefficient: by lowering costs and increasing efficiency, competition makes things better, while the absence of competition makes things worse. So ingrained is this belief that the advocates of laissez-faire capitalism react, like Pavlov’s salivating dog, in a hostile, knee-jerk manner to all government programs, policies, initiatives, restrictions, and regulations that overstep the narrow boundaries set by economic fundamentalists and other government bigots, who limit the legitimate sphere of government activity to national defense, the police, and the law courts. In their dogmatic opinion, all such well-intentioned programs and regulations are necessarily bad, regardless of their actual effects, which they do not bother to examine since they know in advance what the outcome will be. But human behaviour is much more complex – and much less predictable – than is supposed by these naive advocates of laissez-faire economic principles.

Economists have made a fundamental mistake about competition. They have assumed that its beneficial effects – greater efficiency and lower costs – operate independently of human cultures and traditions, that is, that it has the same effects regardless of the culture, history, religion, and traditions of any given people. In other words, they assume that, like physical and chemical reactions, these effects are independent of both time and place. But this assumption is completely wrong, as the abject failure of the application of laissez-faire economic policies to non-Western societies has demonstrated in recent decades. The one constant that we find in all these countries – whether in Africa, the former Soviet Union, Latin America, or elsewhere, where economists, in seeking to westernize these countries’ economic systems by allowing competition to perform its miraculous effects, confidently predicted the improvement of the material well-being of the inhabitants – is the harmful effects of unrestrained human greed, which in many cases was allowed free rein during the attempt to “liberalize” their economies. This was especially evident in Russia, where former state-owned monopolies such as gas and oil ended up in the hands of a few greedy and opportunistic individuals.

In addition, many free-market economists are misled by the examples of industries and economic sectors where competition works well, by ensuring efficiency, honesty, safety, reliability, low prices, and good products and services, into believing that competition will have the same effects in other areas such as health care, education, social services, the provision of basic necessities like water and sewage treatment, and so on.[1] But this naive generalization is not at all justified. As we have seen in “The Need for Regulations,” there are many other ways to increase profits besides providing better services and products at the lowest possible price. Furthermore, the primordial emphasis on a product’s price, and most consumers’ desire to purchase the product at the lowest possible price, can have detrimental effects on workers, animals, innocent people, and the environment. In other words, unbridled price competition can compromise or corrupt people’s safety, honesty, decency, and even their humanity.

Those economists who place undue emphasis on the virtues of competition fail to understand that competition is only one of many different models of behaviour that determine people’s actions. Good or efficient models of behaviour can exist in both the public and private sector. Moreover, bad models of behaviour can also exist in both sectors. Competition is not some miraculous force whose presence makes everything better, while its absence means that everything will be inefficient, overpriced, dishonest, corrupt, bloated, or bad in some other way. Similarly, although both rain and sunlight are necessary in agriculture, too much of either will have harmful effects, in the first case by encouraging the growth of rot, and in the second, by causing plants to wither and die from dehydration.

Here is an example of this extremely naive, free-market belief in the virtues of competition:

In a number of fields, the [U.S.] government prevents competition outright. Sometimes it runs an enterprise itself (e.g., Amtrak [the national passenger train service]). Other times it allows a nominally private business to operate without competition (e.g., utilities). Either way, buyers have no alternative. And when buyers are forced to submit, sellers won’t go out of their way to provide. The Postal Service, anyone?

It’s not simply that government monopolies attract mediocrities who don’t care about customers. It’s that even if a state-sanctioned monopoly wants to provide good service, the lack of competition provides an almost insurmountable barrier. We noted earlier, for instance, that learning is central to competition. When Apple showed that there was a market for tablets, many other companies noticed and created their own tablets. That doesn’t happen when government bars competition. There is no Apple Airport to show LAX [Los Angeles Airport] or LaGuardia [in New York City] how to make air travel more pleasant, safe, and efficient.[2]

So, according to these two authors, both of whom are government bigots and Randian retards, since health care and public education are government monopolies in many countries, they “attract mediocrities who don’t care about their customers” – that is, their patients or students – and “even if a state-sanctioned monopoly wants to provide good service, the lack of competition provides an almost insurmountable barrier.” In other words, where there is no competition, there is no incentive for people to make improvements. But this view is very clearly wrong. Anyone who has lived in countries like Sweden, Finland, Australia, New Zealand, or Canada knows from personal experience that this is nothing more than free-market capitalist nonsense and propaganda. Doctors and teachers who care about their patients and students – and these comprise the majority of individuals in these countries who work in these professions – will seek to make improvements in the services they offer to their “customers.” The fact that, at the present time, Finland has one of the best systems of elementary school education in the world, a system that is financed and operated by the government, is clear evidence that the simplistic assumptions made by many economists about competition are wrong. In “The Due but Difficult Death of a Dangerous Dogma: The Folly of All Utopias,” we will see that the U.S. postal service was repeatedly improved by government employees until, by the 1870s, “American postal service was the largest and among the most efficient in the world.” To give another example, the many accomplishments of the NASA space program, which is run by a monopolistic government agency, should put to rest the silly and completely false laissez-faire belief that government programs and agencies are necessarily bad, inefficient, useless, unproductive, or corrupt.

The false assumption made by many economists and other writers, including the authors of the last excerpt, is that money is the sole reason why people work and the sole determinant of their behaviour. But this myopic view of human behaviour is not at all correct, for it fails to consider other important motivations and determinants of our behaviour.

To consider the example cited in the excerpt about airports, despite the fact that many airports are government-run monopolies, they nevertheless have extremely high safety standards because those who work at airports are conscientious human beings who do not want to make mistakes or allow a fatal accident to occur, and therefore they do everything they can to ensure that these kinds of accidents do not occur. In fact, it could be argued that in such economic sectors, where people’s safety is paramount, the introduction of the profit motive is actually detrimental rather than beneficial, since it will motivate the owners or managers to seek to lower costs, such as by reducing staff or by paying their employees the lowest possible amount to perform that job, which obviously could have harmful consequences.

Also, in order to increase competitiveness, corporations are increasingly undertaking cost-cutting measures that include reducing, often drastically, the number of their employees. This can significantly increase environmental accidents. A case in point is the Exxon Valdez disaster, which would probably not have occurred if Exxon had not eliminated eighty thousand jobs, including reducing the crews of its supertankers by one-third. In addition, before the days of “competitiveness,” the supertanker would normally have navigated in a safe but slow shipping lane. Instead, it moved to a much faster though more dangerous lane, passing through ice floes from the Columbia glacier. The Bhopal disaster [in India] also probably would not have occurred if Union Carbide had not indulged in cost-cutting measures at the risk of safety.[3]

We’ve known for many years that America was a target of terrorists. And every expert warned that the most likely terrorist plots would involve commercial airlines.

Yet airports throughout the United States rely on security personnel who are paid about $6 an hour, less than they could earn serving fast food. These guardians of our lives receive only a few hours of training, and more than 90 percent of the people screening bags have been on the job for less than six months.

It didn’t have to be that way. Last year [2000] a report by the General Accounting Office castigated the state of U.S. airport security, comparing it unfavorably with the systems of other advanced nations. In Europe, the people screening your bags are paid about $15 an hour plus benefits, and they get extensive training. Why didn’t the United States take equal care?

The answer is that in Europe, airport security is treated as a law-enforcement issue and paid for by either the airport or the national government. In the United States, however, airport security is paid for by the airlines; not surprisingly, they spend as little as possible. Don’t blame them—the fault lies in ourselves, for depending on private companies to do a job that properly belongs in the public domain.[4]

Moreover, although government-run airports do not always compete with other airports in their vicinity, the fact that most air travellers have visited other airports around the world means that they will compare the facilities and efficiency of any given airport with those of other airports, meaning that there is a sort of international competition, which motivates governments to improve the service provided by their domestic airports, since many of those who work in this government sector also fly to and use the facilities of other airports. The fact is that many government employees pay attention to what others in their sector or field are doing around the world, and can learn from their practices and innovations.[5]

There exist bureaucratic inhibitions and restrictions in all industries, regardless of whether they are subject to competition or not. This is due to the Law of Inhibition, which states that human beings don’t do things which they haven’t seen others doing before. This law explains why those who propose new ideas often encounter resistance or hostility from others. It is this innate tendency in human nature that explains the existence of bureaucratic inertia. Of course, in industries that are subject to competition, those companies that are beset by bureaucratic inertia and fail to innovate either go bankrupt or are forced to change their ways by the greater success of their competitors. This is the basic argument presented in favour of competition. But things do not always happen as is predicted by this overly simplistic model of the beneficial effects of competition, which shows that there are other important factors involved – factors which the advocates of laissez-faire fail to recognize because of their blind faith in the virtues of competition. Similarly, corruption, cronyism, and profligate spending are not limited to governments and the services they provide, for these undesirable practices can also exist in the private sector. This fact has been amply demonstrated in recent decades in the case of some large corporations, whose greedy executives have abused their corporate power to enrich themselves at the expense of the company’s workers, shareholders, and other members of society, such as by reducing the taxes paid by their companies, in some cases by vast amounts, measured in billions of dollars per year, some of which “savings” contribute to increasing their own compensation.

Another important point that is often overlooked by free-market advocates is that, in wealthy industrialized countries, there are no government employees who are paid anywhere near the very large sums that are awarded to executives and others in the corporate sector. This is because, being a monopoly, the government does not need to offer such exorbitant salaries and bonuses in order to compete with other companies for workers. Although competition can reduce the cost of many of the products and services that are made or offered by companies, it can also have the opposite effect of increasing costs, such as in the case of executives’ salaries and bonuses, a trend that is clearly visible in recent decades. This same effect is also evident in professional sports, where the salaries paid to top athletes continually increase, with the result that tickets to see these athletic contests have become more, rather than less, expensive over time.

An important feature of the Capitalism Myth is its extremely critical view of labour unions. Because, in the opinion of laissez-faire advocates, unions artificially raise wages, or the price of labour, they argue that unions create distortions that prevent the free market from operating efficiently, and thus they prevent competition from producing its beneficial effects.

There is no question that unions, when they become powerful, can abuse their power in order to promote and protect the selfish interests of their members. But historically, labour unions were necessary to protect workers from, and counteract the selfishness of, the owners of capital, most of whom were not willing voluntarily to provide better working conditions, higher wages, shorter working hours, increased safety to prevent injuries and deaths, paid holidays and other benefits, and stop using child labour, because all of these policies would have increased their costs and therefore reduced their profits.

The factories, although relatively primitive, were a savior to many. It was not simply that the factories rescued them from the farm. The harsh fact was that, were it not for capitalist industrialization, many of those who made a living in the factories would not have been able to make a living at all. An agricultural society simply could not have sustained the growing population that capitalism fostered.

It was capitalism, not government, that slowly improved life for workers. With new equipment and technology making workers more productive than ever, businessmen could afford to offer higher wages, better hours, and better working conditions. In fact, because businessmen had to compete for productive employees, they couldn’t afford not to. (Recall [Henry] Ford and the five-dollar-a-day starting wage.)[6]

These rising standards were often fought for by workers. In general, they were not granted voluntarily by owners and employers but were demanded by subjugated, overworked, and often ill-treated employees. It is incredible the point to which the many Randophiles and other apologists of free-market capitalism engage in revisionist reinterpretations of history in order to make it support their pro-capitalist views, in large part because they cannot help viewing all events through their reality-distorting laissez-faire spectacles. This is due to their belief that capitalism is the greatest economic and social system ever devised. A blatant example, illustrated by the last passage, is how the authors completely gloss over the hardships caused by the displacement produced when formerly labour-intensive industries like agriculture and textiles were taken over by factories or by mechanized means of production that made human labour obsolete. It was this displacement that produced the large numbers of unemployed poor people, who had no choice but to work in factories, or face starvation.

The advocates of laissez-faire who engage in this kind of historical revisionism would do well to remember that historical revisionism was a favourite tool employed by the communists to support their political and economic theories. In addition, they are interpreting the past from their modern perspective, when there is significant labour mobility, which did not exist to anywhere near the same extent back then at the beginning of the industrialization of society. Often, those who worked in a factory had no idea – because they had no contact with – those who worked in other factories and economic sectors, and the wages, working conditions, and so on that were offered or existed in those sectors. Back then, this kind of information was more scarce than it is today.

Besides being ignorant, human beings are subjected to pressures to conform and behave like those who are in their realm of influence, which explains why it is possible for a selfish or unscrupulous individual to exploit or oppress one’s workers and why many workers are afraid to complain or quit their job. Other practices that unscrupulous owners used to coerce their workers was to blacklist any worker who complained about low pay or bad working conditions, or attempted to organize the workers by urging them to strike in order to improve their economic situation or their working conditions.

The advocates of laissez-faire capitalism place great emphasis on freedom, both because it is necessary for competition to produce its beneficial effects, and because they regard it as a fundamental – if not the most important – human right. This is not simply a feature of free-market capitalism, for it is due to the assumptions made by economists about competition and the operations of markets in general. In order for markets to operate efficiently, all the participants in the economy, whether they are workers, consumers, or the owners of capital, must be free to do as they want or believe is best. It is this simple fact that accounts for the hostility of free-market economists to government regulations and programs that limit people’s freedom, as well as the coercive actions of governments and labour unions.

But in emphasizing individual freedom above all else, economists, and especially free-market economists, have overlooked the existence of innate restraints on people’s behaviour, namely, our tendency to imitate and conform to the behaviour of others. To give an example, according to free-market economists, government regulations are not needed to protect workers from their employers because the rational workers are free to quit their jobs and work elsewhere; the rational owner or manager, realizing this fact, would never abuse, exploit, cheat, or underpay one’s workers, force them to do things they do not want to do, such as in the case of sex workers, or otherwise mistreat them.[7] But the fact that these kinds of abuses are quite common in some countries shows that there is something fundamentally wrong with the economists’ belief in the existence of perfect labour mobility and the freedom of workers to choose the kind of work they do.

‘I remember when kiboko [the local term for sundried coffee cherry] sold for 69 cents/kg. We slept without worries. We could support our families. For me [a coffee farmer in Uganda], I’d need to see a price of at least 34 cents/kg. Even at 29 cents/kg we can’t look after the land.’ The price at the moment is around 14 cents per kilo.

The laws of supply and demand would suggest that coffee-growers would move out of the market and do something else. This would presuppose that there is something else they can do. Too often, there isn’t. The immediate result of low farm income – and this is a law to which anyone living on the breadline can attest – is a panicked self-exploitation. Rather than throwing in the towel and moving to the cities, or trying to grow something else, farmers grow more coffee, working themselves to exhaustion and scraping together whatever they can to be able to maintain some sort of standard of living, and sometimes, reluctantly, hurting the natural environment in a desperate bid to survive. This has resulted in a global coffee surplus of 900 million kilos.[8]

There exist many countries in the world, especially those that are poor, where many workers have little or no choice in the kind of work they can get. Because they must work and earn money in order to survive, they must do whatever work they are able to find, no matter how low the pay, how harsh or dangerous the working conditions, how long the hours, or how difficult or hazardous it may be. And it is precisely these workers who are most vulnerable to being exploited by greedy, uncaring, or brutal owners or managers. In their case – and their number worldwide is in the hundreds of millions or more – it is a bald-faced lie to say that they are free to work elsewhere, and therefore they do not need to be protected by the government, as the free-market zealots would have you believe.

What an examination of working conditions in the past and in poorer countries today demonstrates is that, in different periods and industries, there can develop dominant models of behaviour that we would find unacceptable, shocking, outrageous, and even criminally wrong. And when such models become established, they become more and more difficult to change. Injury and mortality rates which those who are fortunate to live in modern industrialized countries would find unacceptable still prevail in some industries in poorer countries, as was the case formerly even in industrialized countries in the past. For example, the coal miner who suffered from silicosis because of all the coal dust he had inhaled during the years he worked in the coal mine often received no compensation from the company he worked for, despite the fact that this work had ruined his health and almost invariably shortened his life.

Human beings are not as free as the economists suppose because, besides our ignorance of both wages in other sectors and our ignorance of how to perform many kinds of specialized work, which limits the kinds of jobs we can perform, our behaviour is influenced both by the models we have observed and our tendency to conform, and is restricted by the force of inhibition, meaning the models of behaviour that we haven’t observed before. This is one of the main reasons why free-market economists have overestimated the virtues of competition and the so-called “free” market. In other words, there are innate human forces or tendencies – which, until now, have generally been overlooked – that make the free market much less free than is assumed by these economists. Human behaviour is determined by the dominant models of behaviour that exist in a society, sector, industry, or company. The model of competition is only one such model that, although it does to an extent operate independently of these other factors, is also limited and constrained by them. This fact has often been overlooked by some economists, who consider only the theoretical, or abstract, effects of competition when considering the effects of measures like increasing or abolishing the minimum wage, eliminating government programs like health care, education, transportation, and so on.

Another way to regard the fanatical faith of laissez-faire advocates in the virtues of the free market is that they are worshipping the famous “invisible hand” that Adam Smith presented as a metaphor for the beneficial operations of the free market. In essence, these idolaters are saying that, provided that we work industriously, we should have complete faith in Smith’s “invisible hand,” trusting that it will ensure that we have enough to eat, a shelter over our heads, access to medical services when we require them, education for our children, and to protect us from harm and from greedy, selfish, unscrupulous, and manipulative individuals who want to enrich themselves at our expense.

But, unlike the advocates of laissez-faire, Adam Smith was well aware of the harmful effects of selfishness. In another, less cited work on moral philosophy, The Theory of Moral Sentiments, he wrote about the importance of the human emotion of what today we would call empathy, and that people will be more happy if, rather than focusing narrowly on their own immediate and selfish concerns, they expand these concerns to include the welfare and well-being of their fellow human beings. Thus, although Smith is often cited by the advocates of laissez-faire capitalism to justify their beliefs, he most certainly would not have supported the extreme positions they maintain, especially in regard to the so-called economic virtue of selfishness.

The many advocates of laissez-faire capitalism are idolaters who worship an often irrational, whimsical, and unconcerned god that presides over the free market. But what these idolaters are actually worshipping and are so solicitous to protect from government interference is an inanimate and largely undirected – all the more undirected if they have their way – pattern of human behaviour. This is the god to which they have prostrated themselves, and want the rest of us to prostrate ourselves, in the belief that it will always produce the best of all possible outcomes. Like the pagan gods of the Incas and Aztecs, who were believed by their worshippers to require human sacrifices in order to placate them and appease their anger, the many idolaters of the free market would have us sacrifice human victims to their god; for whether they realize it or not, this is the consequence of following their naive and foolhardy beliefs.

It is an outright lie to say that this inanimate pattern of behaviour always produces the best outcome, or that it does so even in the majority of cases; for the truth is that sometimes it does, and sometimes it doesn’t. And the fact – for it is indeed a fact, despite what these deluded idolaters would have you believe – that this inanimate pattern of behaviour can sometimes produce destructive and highly undesirable outcomes, or situations that harm a large number of people, is a truth to which they are blind because of their uncritical faith in, prostration towards, and idolatrous worship of the Idol of the Free Market.

[1] Competition has also led to a vertiginous increase in executive compensation. In turn, this has led to a reduction in other workers’ salaries and the elimination of large numbers of jobs, which clearly represents a transfer of wealth from the lower and middle classes to the wealthy.

[2] Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government by Yaron Brook and Don Watkins, p. 155. Palgrave Macmillan, New York, 2012.

[3] The Case Against the Global Economy: And for a Turn Toward the Local, pp. 87-88 (“Global Trade and the Environment” by Edward Goldsmith). Edited by Jerry Mander and Edward Goldsmith. Sierra Club Books, San Francisco, 1996.

[4] The Great Unravelling by Paul Krugman, pp. 229-230. W. W. Norton & Company, New York, 2003.

[5] Another important point that these advocates of laissez-faire fail to realize is that their views are inconsistent. If competition is so universally wonderful, then why should it not be permitted in the sectors of national defense, the police, and law courts? In other words, why should the government be allowed to have monopolistic control over these areas? There is a clear inconsistency in saying that competition must be allowed in all other sectors of the economy except in these three areas, which must remain government monopolies. According to their arguments, if competition is good in other sectors, then surely it must also be good in the sectors of national defence, the police, and law courts. Thus, we can see, despite their repeated claims of rationality and logical consistency, their views are logically inconsistent and irrational. On the other hand, if it is bad for competition to be permitted in these areas, then perhaps it is also a bad idea to allow unbridled competition to exist in other economic sectors, such as health care and education.

[6] Free Market Revolution, p. 170.

[7] Economists have completely overlooked the existence of contempt and the effects it has on the way we treat others. When an owner or manager scorns one’s workers, customers, or clients, one is more likely to mistreat or swindle them and be indifferent to their condition, fate, or plight. Besides greed, it is contempt that leads people to treat others unfairly, disrespectfully, callously, harshly, brutally, or oppressively.

[8] Stuffed and Starved: Markets, Power and the Hidden Battle for the World’s Food System by Raj Patel, Introduction. Harper Perennial, 2010.