••• The International Writers Magazine: Economics
The Three C’s
The three C’s I have in mind stand for capitalism, competition and corporation, or more correctly, corporatism. They are presumed by some to be complementary and generally beneficial to the extent that any criticism of the system is seen as based either on ignorance, envy or political ideology. Yet, in the real world as opposed to economic theory the three are often in conflict.
Having frequently been accused of being anti-capitalist by those who think the system beyond criticism let me emphasise that I believe capitalism to be the best system yet devised for the creation of wealth and its distribution. It has the capacity to encourage competition and entrepreneurship as well as innovation and technological development. Its superiority over the command economy is surely beyond question except to some committed ideologues. Nevertheless, it is a system that can be corrupted, and often has been. It does not follow from the advantages I have mentioned that it can be left to self-regulate, as some would argue.
There are many who regard capitalism as synonymous with the so-called ‘free-market’ and claim that any form of state intervention in the workings of the system is illegitimate and damaging. History shows them to be wrong. ‘Capitalism’ and ‘free-market’ are not synonyms, and anyone who has studied the workings of a capitalist economy or has been involved in its operation knows that attempts within the system to control markets are common. I am old enough to recall the age of Retail Price Maintenance in Britain, when established retailers employed private detectives to identify which producers or wholesalers were providing the price-cutters who were ‘stealing’ their customers. Thankfully, RPM was abolished many years ago, but the instinct to control remains within the system.
Some commentators appear to believe that competition is an inherent element in a capitalist system, but any detached observer knows that the suppression of competition is integral to a capitalist economy. Power is not evenly distributed among those involved, and it is common for those with most power to use it in the suppression of any competition that threatens their position. The techniques employed range from loss leadership on specific goods or services to collusion between nominally competing organisations, the latter occurring particularly in an oligopoly.
Those who argue that the state has no legitimate role in economic management present us with an idealised model in which imaginative entrepreneurs rise from obscurity on the basis of some innovation and grow to challenge established organisations in the marketplace. That undoubtedly happens and we can name companies that exemplify the process, Dyson for instance, but how typical are such cases?
The capitalist system contains winners and losers, and one cannot assume that the latter will benignly accept competition from upstarts. We hear much of the successful innovators, but little of those who are blocked or bought off by established corporations, sometimes for the innovation to be suppressed. A major corporation that has invested heavily in an established technology or technique is unlikely to take a benign approach to a small, innovative intruder into their market. More probably, they will use every trick available to protect themselves and their market share.
It is not anti-capitalist or anti-competition to question the wisdom of allowing free reign to major corporations. On the contrary, left unchecked, corporate power will often be used against small entrepreneurs, either to deny them entry to a market, or to exploit them. Take the example of Tesco, a major British retailer, and its treatment of its much smaller suppliers. Is Tesco unique in this respect? Almost certainly not. Corporate behaviour and use of power has little to do with service to the end-user, or even its shareholders on occasion. Powerful corporations are managed by powerful individuals who sometimes act in self-interest even when doing so does not benefit the company. I recall an occasion when a company for which I acted as a consultant was presented with a technological breakthrough by its small R&D department. The company had numerous competitors across Europe and was concerned to keep the breakthrough secret. However, the small R&D department accounted for a fraction of the company’s costs, while 80% of costs were found in its ‘tin-bashing’ manufacturing operation where it had no competitive edge. I suggested a change of focus whereby the firm would allow competitors access to the technology under licence, while reducing its own manufacturing activity. It didn’t happen, simply because the most powerful man on the Board was the Manufacturing Director.
What those who argue the case for the elimination of state ‘interference’ in the market process overlook is that we do not live in a theoretical model, but in a real-world system in which individuals and organisations protect their self-interest by using power irrespective of its negative effects on that system or others within it. Consequently, the ‘free market’ is a myth because powerful interests work very hard to ensure that markets are managed to their benefit. To those interests the idea of a free market is anathema.
The state has a legitimate role to play in preventing those corporate interests from managing the markets to their own, narrow self-interests. Sadly, that potential is not always fulfilled because the politicians all too frequently, either as individuals or parties, stand to gain from collaborating with corporate power, and corporations invest massively in maintaining that position. This is why in Washington, London and elsewhere lobbying has become a major industry. In recent years we have witnessed the emergence of the Transpacific Trade Partnership (TTP) from which China’s state capitalism is specifically excluded, and the present negotiations of a Transatlantic Trade and Investment Partnership (TTIP) designed to enhance corporate power in relation to the states.
(See link for the dangers posed about TTIP)
It should be remembered that most corporations are international with only token attachment to a state. I wrote a futuristic short story some years ago in which corporations had become the new medieval fiefdoms, their directors being the equivalent to monarchs and nobility. National boundaries had become irrelevant, as had elected politicians. Fiction of course, but is that the ultimate destiny of a globalised world?
What is required is not a ‘hands-off’ approach from elected governments, but hands-on intervention from democratically elected representatives uncorrupted by direct association with corporate interests. If that doesn’t come about we are destined to see more power in corporate hands while the population at large continue to believe that our economic system accords with an idealised academic theory.
© Tom Kilcourse March 21 2016
Who Can You Trust?
Why is it that in today’s society there is so much mistrust, of politicians, the media, businesses, you name it?