February 2016        

When competition is king

Eoghan O’Neill

Within the European Union and the United States and other advanced capitalist regions they say competition is king. Competition is what gives the modern market economy its legitimacy. It’s taught in second-level and third-level educational institutions, in departments of economics, business, and law. It’s nearly so ingrained that competition equates to common sense. When you have a market in which to sell goods and services, we are told, competition between firms guarantees the most efficient and most equitable system of distribution. The needs of the whole society are therefore determined by the market system functioning as an unbiased facilitator.
     The more a person wants something, the more they are willing to pay for it; and the more people are willing to pay for something, the more of that item will be supplied, and so competition ensues between firms trying to meet a demand. The more competition there is the more the price gets driven down, as each competitor in the market will undercut the others to get a slice of the action.
     This will only go on until a break-even point is reached, where the cost of supply equals that of the income gained. It will no longer be viable for further competitors to enter the market, as any price above or below this point will see a firm out of business. This whole process is the pinnacle for the economist and is known as “perfect competition.”
     Perfect competition, however, is now an illusory concept. It possibly had some form of relevance in the 1800s, when the factory system was in its infancy; but in today’s economy, with the dominance of monopolies, oligopolies, cartels, collusion, mergers, acquisitions, and unequal wealth distribution, this type of theory is for the fairy-tale series of Hans Christian Andersen.
     Amazingly, despite the reality, this remains the foundation stone of modern economic theory. It is the normative that economists use to justify their continued belief in the capitalist market system.
     Economists know that perfect competition in any industry is as rare as a summer snowfall, yet despite this they hold it as the bar to be reached in every industry. The problem is that no company or firm—which, by law, must be a profit-maximising firm—will want a large number of competitors in their industry, because of the forcing down of prices and therefore profits, to potentially a point of no long-term economic profit.
     Firms will therefore use aggressive tactics to see other competitors out of business and create huge barriers to stop other competitors entering the market. This has happened in virtually all types of industry, from tobacco to retailers, from motors to aviation, from oil to pharmaceuticals, and everything in between.
     A contradiction ensues, in that competition drives firms towards monopoly, yet economists strive towards “perfect competition.” There is only going to be one winner here, and it isn’t the economist. In the long run the only way to secure large or super-profits is to monopolise or take a position of monopoly power (that is, all or a large portion of the market share). If it’s impossible to get rid of all the competition, then an “understanding” will be reached by the competitors. This, known generally as “game theory,” gives an incentive for price-fixing, collusion, and cartels.
     Coca-Cola and Pepsi, as a historical example, were involved, and continue to be involved, in a marketing war to win over the market share; but they didn’t engage in an all-out price war, because they knew that that would lower profits in the soft-drinks industry generally. Industry leaders, even those within the same industry, know that competition can be healthy, but not at the expense of potential profit, and so won’t engage in an all-out price war with each other, as it does not benefit the owners, the shareholders, and the whole array of capitalist beneficiaries.
     This is a fundamental aspect of the capitalist system. It is not one individual capitalist, one that might favour fair trade or pay above-average wages, that drives the system; but the system as a whole runs on profit maximisation.
     So what makes being in a monopoly or oligopoly industry so desirable?
     1. They are price-makers. They set the price or the quantity supplied that, through their calculations, will maximise profits. So in an industry such as pharmaceuticals the need or demand for a certain drug or vaccine will not trump the price or quantity that will maximise profit, with obvious negative consequences.
     2. They are the only show in town. If a company, or companies that are colluding, are the only one producing or providing a product or service, they are the ones that dictate what amount gets sold. They can restrict supply, creating a false demand, driving up prices. They dictate what is to be produced, when, and where. For example, the energy companies will continue to hold back cheap, renewable energy sources so long as they can make huge profits from our dependence on fossil fuels.
     3. Long-term profits. Moving towards a monopolised industry is the only way to guarantee profits in the long run, as large-scale competition drives down prices and profits.
     So how do we make sense of all this? There is an all-embracing agenda of the capitalist class forces that, since the dismantling of the socialist governments and economic systems, has really been unleashed. The drive of competition has been used as a veil to disguise the privatisation agenda.
     Competition no longer benefits the prices of goods and services for ordinary working people but serves the interest of the industrial and financial owners: the capitalist class. It serves as a means of justification for capitalism, without which it would be impossible to convince people that private health, education, housing, infrastructure and industry in general is the best way to organise society. There is a long-term strategic goal to see all publicly owned industries, services and resources sold, stripped, and opened to competition to the private sector.
     Once these are opened to competition, the wheels of monopolisation will already be turning. When you don’t have competition driving down prices in essential services, then with falling incomes, debt, and growing inequality, demand won’t count so much as one’s ability and willingness to pay. The needs of the people in health, education, housing, services, jobs and recreation are in fact the real prize, the cash cow, that capitalists are seeking to own in developed economies.
     It is essential that working people grasp this and begin joining the dots between Irish Water, refuse collection, gas and electricity supply, and other public industries and services that have been sold and privatised, or that the state will try to sell and privatise in the future. There is no doubt that this is happening at the national and the international level. How we defeat it is another matter and can’t be dealt with here.
     They say competition is king; but the king has no clothes, and what lurks beneath is naked capitalism. All it wants, all it ever wants, is to own the wealth of nations.

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