Sunday, January 17, 2010

The Free Market

One more article from the back issues of the Socialist Standard that explores another aspect of the capitalist system . ( As we have stated previously occasionally events fail to pan out as writers predict but that does not lessen the accuracy of the whole article) .


Some comedian once asked "If it's true that all the world loves a lover, why are there so many policemen in Hyde Park ?" A good question but a better one for workers to ask themselves is "If competition is such a wonderful and desirable thing, why does every­body try so hard to avoid it ?". For example, when solicitors lose their monopoly in house conveyancing, opticians lose theirs in selling spectacles, or shopkeepers hear that a super­market is to be built nearby, do they say "Good! Just what we need: the icy blast of competition" ? They do not, instead they pro­test bitterly and do everything they can to preserve the status quo.

This dislike of competition is shared by all business, big and small. In 1980 the world's largest corporation, American Telephone and Telegraph Company (AT T) lost an anti-trust action brought against it by a much smaller rival, MCI, who were awarded 1,800 million dollars. AT T have a near monopoly in the manufacture of vital equip­ment which MCI needed but they refused to sell them any. In Britain the giant British Oxy­gen Company, which had a turnover of £ 1,700 million in 1983, was exposed for try­ing to close down a small competitor whose turnover was only £150,000 - less than a third of the salary of BOC's chief executive. The competition of even such a minnow was more than BOC could tolerate.

The big three in the British drugs industry, ICI, Glaxo and Beecham's, are putting every obstacle in the way of small competitors who want to market half price, unbranded ver­sions of some of the big three's most profita­ble drugs. Although these drugs are patented the law provides for “licences of right” to be available to other companies but does not specify what royalties are to be paid. The big three use this loophole to ensure that would be competitors have to sell for little less than themselves.

The airline industry is notorious for ­eliminating competition. Remember how big Atlantic carriers, including British Airways, forced Freddie Laker out of business? Now they have a new target in their sights. Richard Branson's one-aircraft Virgin Atlantic airline. Branson's attempt to take over where Laker left off by providing cut-price fares between Britain and America was countered by BA, Pan-Am and TWA who all reduced their fares to equal Virgin's. Predictably Bran­son howled "unfair" but why should the game be played by his rules ? If he really believes in free market competition then he cannot complain if the big airlines slash their fares too. Branson's problem is that his rivals have much greater resources than he has and can easily outlast him in a protracted fares battle.[ postscript: even some well-informed socialists cannot predict the future 100% ]

Dislike of competition has also been shown by the cross channel ferry com­panies. They are trying to persuade the gov­ernment and potential investors that the channel tunnel will be unsafe to use and unprofitable. If the tunnel scheme goes through then these champions of the free market want to remove competition between themselves by integrating their ser­vices in order to offset the expected loss of business. If this is not allowed then they will seek compensation from the government. Whatever happened to "standing on your own two feet" ?

Although governments try to encourage competition within their own frontiers they assist their own industries to avoid it in inter­national trade by loading the dice in their favour. The governments of the EEC protect their own farmers from competition from abroad by erecting tariff barriers and sub­sidising their production. These subsidies produce such mountains of food that the EEC can sell it on world markets at rock-bottom prices­---butter sales to Russia are an obvious case. The American government denounces these subsidies because they keep inefficient EEC farmers in business whereas American farming is extremely efficient and could easily undercut EEC farming if only it were given the chance. In 1983 the American government played the EEC at it’s own game by using subsidies to sell flour to Egypt which had been an EEC market. Did the EEC say “fair enough” ? It did not, instead it threatened to retaliate by dumping farm produce in American markets in Latin America. Does this mean that the United States is all for free trade ? Only in those industries where it can win, such as farming. It is a different story when it comes to steel and textiles so they protect those industries with barriers against Imports. Most serious is the penetration by Japan of American home markets in cars, electronics and consumer goods. The United States’ trade deficit with Japan was over 50 billion dollars last year and members of Congress, business leaders and trade unions are demanding legislation aimed at reducing Japan’s exports to the United States.

Needless to say the Japanese are not in favour of this but they want to have it both ways - free trade for their exports but every obstacle placed in the way of imports from other countries. For example, Scotch whisky is subject to a level of taxation which makes it much more expensive than home pro­duced spirits. Why don't these other coun­tries simply keep out Japan's exports ? They are afraid that such a move would spark off worldwide tit-for-tat protectionism with the resulting collapse in world trade. The cure would be worse than the ailment and the Japanese government is taking advantage of this fear.

Groups of governments sometimes band together into a cartel or price-fixing ring to avoid competition among themselves. For years the Organisation of Petroleum Exporting Countries (OPEC) shared out most of the world oil market. Each member-nation was allocated an agreed production quota of oil and no more. This year there has been a drastic fall in oil prices caused by the world slump, resulting in a sharp fall in demand, plus the entry of North Sea oil which is not controlled by OPEC. This fall in price has meant less income for OPEC members and some of them have been breaking the agreement by increasing production to try make good the lost revenue.

This is what usually happens with governments or companies which organise themselves into a cartel. They are all for cartel when trade is booming and they can carve up the market but when trade is bad they will break ranks and look after themselves. OPEC has just reached a temporary agreement and the price of oil has started to rise again but no one knows what will happen in 1987.

Nevertheless, western governments do try to avoid monopolies within their own countries. As the executive committee of the national capitalist class a government must look after the interests of that class as a whole and not just one section of it. If a monopoly was allowed in an industry then the other capitalists will feel that they may be held to ransom when they purchase from the monopoly. But surely the soon-to-be­ privatised British Gas is a monopoly, the very thing the government wants to avoid ? There are two reasons for this contradiction. The first is that the gas industry cannot really be split up into several competing companies for practical reasons, among them the cost of setting up alternative nationwide installa­tions. The second is the political factor which is that the government sees wide share own­ership as a vote catcher at the next general election end the privatisation of British Gas gives it the opportunity to achieve this aim. [ Again, the outcome was not as the article author foresee ]

This episode has provided an example of the double standards used by politicians. Tory MP Michael Forsyth, a free market zealot. argued that privatised gas would not be a monopoly as it would have to compete with electrcity, oil and nuclear power. This is like arguing that if some company owned the entire meat industry it wouldn't be a monopoly because it would have to compete with fish and chicken.

Both the American and British govern­ments think they have a method of reversing what they see as the drift towards monopoly by stimulating competition. This is called de-regulation and is aimed at providing the incentive and opportunity for new com­panies to come into the market by removing whatever obstacles stand in their way. This has happened in the American airline indus­try since 1978 and the initial effect was an explosion of new, small companies and a drop in internal air fares. But the drift towards what is actually fewer and bigger economic units cannot be permanently reversed. Since 1978 sixty-three American airlines have gone bust and the big airlines are swallowing up the small fry in order to add the busy and profitable internal routes to their shakier international operations. The result is that air­fares in America are on the increase again. This is what happens with cut-throat com­petition. It cuts profits to the bone so that when business drops off companies get into trouble and the conditions are created for the very thing de-regulation is supposed to curb - mergers and the drive towards bigger and fewer companies.

Companies sometimes need to grow if they are to survive. How could a company meet its competitors if it merely stands still while they grow? This need partly explains the recent merger-mania which saw huge companies being taken over by others. Guin­ness, the British drinks giant [ now Diageo ] , justified its plan to take over Distillers in order to meet the challenge of American and Japanese rivals like Seagram's and Suntory with full-page newspaper adverts which said "It will take our combined strength to defeat adversaries such as these"

This is also why Britain's biggest elec­tronic engineering company, GEC, wants to take over its main British rival, Plessey. James Prior, GEC's chairman, explained that although GEC is Britain's biggest private employer with 180,000 workers, it is dwarfed by the likes of General Electric in America and Siemens in West Germany. Plessey rejected GEC's bid and instead offered to buy GEC's interest in the System X digital telephone exchange system. Their chairman pointed out that neither company had won any worthwhile export orders for the system and since 10 per cent of the world market is required to be profitable it would, he added, make sense to merge the two interests - under Plessey, naturally - to meet international competition.

How does this fact of life in capitalism square with the government's obsession with promoting small businesses and its fre­quent use of the Monopolies Commission to prevent the mega-mergers which are neces­sary to enable British capitalism to compete internationally ? The simple truth is that many of those who are heavily into capitalism, like some of the free marketeers, don‘t under-­stand the basic laws of the system, one of which is that while small may be beautiful in business, big is infinitely more successful.

The supporters of competition claim that it is of benefit to society because it eliminates wastefulness. In fact it is the cause of mas­sive waste of humanity's time and energy. For example, thanks to the elimination of their competitors, there are now only three makers of large jet aircraft engines in the world outside of the so-called communist bloc. They are Rolls-Royce and the two American companies, Pratt and Whitney and General Electric. All three employ numerous scientists and technicians in the competition to produce an engine for a particular type of aircraft. Of the three engines produced one may be a little cheaper in price, the second may use a little less fuel and the third may need a little less maintenance but really all three engines are practically identical. So true is this that the one which wins the orders is probably chosen more for political reasons than any other and this is why British Airways have recently chosen Rolls-Royce engines for its new aircraft.

And just look at the hordes of companies eagerly competing to supply us all with dou­ble glazing, fitted kitchens, and the like, with armies of salespeople chasing after the same order and all of them selling exactly the sarne product. This spectacle is repeated all over the world as millions of useful human beings engage in this wasteful duplication of effort. just how does this benefit society?

So competition isn't what it's cracked up to be. Even the capitalists and politicians only regard it as a necessary evil in the scramble for profit and avoid it whenever they can. Certainly it has nothing to offer the workers except the opportunity to become one another’ s enemies over their exploiters' quarrels and which have nothing to do with them. Socialists work for a society in which the watchword will be co-operation and where capitalism’s competition will seem as strange and awful as we regard cannibalism today.

Socialist Standard January 1987

No comments: