In Desperate Need for Competition


May 16, 2012

In Desperate Need For Competition: An Opinion

by etheorist (05-02-12) @http://epolicy.blogspot.com/

Modern economics introduces the idea of competition as a route to fairness, so long as the judgement of the masses is free and informed with no one dominating opinion. Likewise, the idea of the Olympics where, instead of fighting in battle fields, the energies of the young are pitted one against the other in fair and open competition – provided that no external unnatural artifacts or substances are used to provide unfair advantage. This ideal is extended to politics where the views of all are aired and heard and then a consensus is arrived at, hopefully in as amiable and acceptable a position as can be hoped for.

In reality, the tendency is for a few to dominate. Domination is the harsh reality. It is the ability to hold domination by a few in check that is the hallmark of a fair society. The obverse is domination by the majority which in itself is also a form of tyranny in itself. Universal fairness or consensus is therefore a special case which is hard to come by in reality.

In this imperfect world, how do we arrive at a second-best form of  fairness where the views of society is taken into consideration?

In economics, the common approach is to prevent the rise of a dominant economic force or monopoly and promoting competition or smaller harmless units. This anti-trust approach runs into problem when there are foreign monopolies which the domestic government cannot control, and where the local competitors are too small to have a fighting chance.

One response is to prevent the entry of foreign monopolies – but this has the problem of not being able to enjoy the fruit of foreign innovation. The theory of comparative advantages teaches that one should allow in foreign monopolies while trying to establish our own local monopolies which we can try to dominate in foreign markets. (This is interesting as the theory of international trade seems to run counter to the theory of perfect competition.)

It is in trying to dealing with the reality of monopolies or large economic forces that government has to regulate the market. The failure of the government to regulate when the market is allowed to compete freely among itself in the hope that the “invisible hand” will somehow takes care of everything has led to disastrous results in recent years in the global financial sector. (What the policymakers have failed to realise is that when the “invisible hand” works, it forces those who are incompetent to fail and this is not allowed for financial institutions because they hold in trust deposits of the public!)

In Malaysian economics, the attempt to destroy Chinese monopoly has not led to the break up of Chinese businesses into smaller units, but the creation of Bumiputra monopoly which unsurprisingly work in collusion. While the monopolies stay, the only transformation is the ownership.

The major problem with the political solution to an economic problem is that the solution concentrates on power – both political and economic. It is the abuse of political and economic power that leads to the corruption of the proper functioning of the national economy and society and the major victims in this game is the ordinary men and women for they have to be deprived of their basic means to survival and livelihood so that the elite can enjoy opulence in the midst of economic stagnation.

In other words, low interest rates, low currency, persistent inflation and the inability to create sufficient decent jobs for new highly trained job seekers. There is no proper investment in technology and productivity gains.

In Malaysian politics, the domination of one coalition (as well as one man in that party) is now being fought by one coalition opposition (which is being dominated by one man). What is interesting is that a supposedly racist coalition is being challenged by a supposedly socialist-justice-religious coalition.

The racist argument is now proven to be a convenient straw man for the elite to share and consolidate their grip on the economy. The general public has now become wiser after three decades of abuse. The socialist-justice-religious coalition jumps in to ride the current in the hope of taking over the power.

The call for clean elections is another way of expressing the feeling that change is imminent, “if only things are fair.” The attempt by the Opposition coalition (which is dominated by one person) to capitalise on that call by creating social disturbance is an indication of how healthy competition can quickly degenerate into a desperado act. Who ever says politicians are ethical people?

The current political problem is purely an economic problem which has its seed in a misguided policy of disenfranchising the whole working population by giving special privileges to one group (thus giving them the signal that they can take and do not have to work) and by telling the rest that they do not have to work so hard because not all that you work hard for will not be yours – in addition to the cut that the government (and civil servants) will take from you in the form of the income tax.

Malaysia has undergone the great economic experiment of how to destroy the incentives to investment and innovation while inculcating a national culture of grab and run away.

The Opposition idea of how to do the same things with “transparency and no corruption” is to work on the assumption that the current economic model with its domination by monopolies is still correct.

The old guards have all gone, the intermediate generation has gone off to other countries, and the only ones that are left are those who have decided to stay back and pick up the pieces from the economic debris. Malaysia needs new political and economic leaders to provide a new and clear vision of how to stay competitive in the new global economy.

The newly imposed minimum wage may be the best first step yet. It will have problems because it will make uncompetitive businesses unprofitable. It will also say that low skilled workers may not be the path to high income.

With an economy which the central bank and economic planners still think that low skilled labour intensive plantations and assembly lines is the mainstay, we may have a long and treacherous journey ahead. However it is, do not be fooled by the promises of desperate people.

Note:  Robert Frank, New York Times economics columnist and best-selling author of The Economic Naturalist, predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics.

The reason, Frank argues, is that Darwin’s understanding of competition describes economic reality far more accurately than Smith’s. And the consequences of this fact are profound. Indeed, the failure to recognize that we live in Darwin’s world rather than Smith’s is putting us all at risk by preventing us from seeing that competition alone will not solve our problems.

Smith’s theory of the invisible hand, which says that competition channels self-interest for the common good, is probably the most widely cited argument today in favor of unbridled competition–and against regulation, taxation, and even government itself. But what if Smith’s idea was almost an exception to the general rule of competition?

That’s what Frank argues, resting his case on Darwin’s insight that individual and group interests often diverge sharply. Far from creating a perfect world, economic competition often leads to “arms races,” encouraging behaviors that not only cause enormous harm to the group but also provide no lasting advantages for individuals, since any gains tend to be relative and mutually offsetting.

____________________________________________________________

A Tribute to Milton Friedman

Peter Robinson On Milton Friedman

A Capital Thinker

Milton Friedman’s ideas about free markets changed minds, economies and nations.

by Peter Robinson

Milton Friedman was an unlikely candidate to become a great man. He was born in 1912 to obscurity and poverty, his parents Jewish immigrants from Central Europe. Only a couple of inches over 5 feet, he was physically unimpressive. He never accumulated great wealth or held elective office. His name never became a household word. Yet by the time of his death in November (2007) at 94, Friedman had transformed the world.

Ronald Reagan may have deployed the principles of free markets and individual responsibility in the realm of practical politics, just as William F. Buckley Jr. introduced them into public discourse. Yet Milton Friedman gave those principles clarity, definition and unassailable intellectual rigor. Without the decades of analysis that he had performed, the tax cuts, deregulation and limits on the money supply of the 1980s—policies that revived the economy and restored American morale—might have been swept away with the first change in political tides. Friedman showed why liberty still matters.

Today, China, India and countries in Eastern Europe have embraced Friedman’s principles—the Prime Minister of Estonia once remarked that Friedman’s Capitalism and Freedom was one of the few economics books he had ever read—lifting several hundred million people out of poverty. His work led to so much good for so many.

How did Friedman achieve so much, producing critical breakthroughs in economics—empirical and theoretical demonstrations of the importance of money, a compelling theory of consumer savings, the concept of a “natural” rate of unemployment—then go on to achieve such extensive influence outside the academy?

I knew Friedman for 18 years. When, leaving my job as a White House speechwriter, I told President Reagan I would be moving to Stanford, he replied, “Get in touch with my friend Milton. He’ll keep you on the straight-and-narrow.” Now I find myself calling to mind three of Friedman’s attributes.

His capacity for work proved incredible. Although by the time I met him Friedman had had nothing to prove to anybody for decades, he remained as hard-working as an assistant professor struggling to attain tenure. He gave lectures, sat for interviews, wrote papers, and published often in the Wall Street Journal—and kept up that pace even after turning 90. Friedman’s last published work was an article in the Wall Street Journal the day after he died. He had adapted the article from a major academic paper on which he was working.

The second attribute: utter intellectual honesty. Milton Friedman was no respecter of persons. If you had a good idea, it made no difference if you were a mere undergraduate. Friedman would take your idea, discuss it with you, embellish it, and make you feel you had taught something to him. But if you had a bad idea, it made no difference if you were president of the United States. In advising Richard Nixon, Friedman proved particularly merciless. “I don’t give a good goddamn what Milton Friedman says,” Nixon once famously barked to John Ehrlichman. “He’s not running for re-election.”

Friedman rejected jargon, imprecision or obfuscation of any kind, refusing to hedge or qualify his views. Interviewing Friedman a couple of years ago, I pressed him on his support for Bush’s tax cuts, noting that the administration’s rationale—that the tax cuts would stimulate the economy—sounded suspiciously Keynesian. Friedman agreed, roundly rejecting the administration’s position. But as for himself, “I . . . favor . . . any tax cut, under any circumstances, in any form whatsoever.” Clear enough?

The final attribute is the one on which I find myself lingering now that Friedman is gone: his relationship with his wife of 68 years, Rose. Throughout his career, Friedman often pointed out, he never published any work that Rose hadn’t read, marked up and improved.

Rose was his best friend—and sharpest critic. She kept him grounded. The last time I saw them together, I called Friedman the most important economist of the 20th century.

Rose nodded, enjoying the compliment. But when Friedman himself looked her way, she rolled her eyes. Friedman threw back his head and laughed. The great man loved his wife.

PETER ROBINSON, MBA ’90, is a research fellow at the Hoover Institution. From 1983 to 1988, he was special assistant and speechwriter for President Ronald Reagan.

16 thoughts on “In Desperate Need for Competition

  1. Apa pulak ini, Dato?
    This etheorist is schizo or what? He’s criticizing everyone under the sun, but offers no solutions to solve the problem. Deluded and hallucinating. The opposition is pragmatic and populist. Nothing wrong with that. The Establishment is worse!

    Since my economic sense is zero (maybe negative), i’ll just use common sense on where we should start (not in order of priotity), but it ain’t an orange:

    1. Get rid of monopolies – especially one’s like the Bukhari type where there’s control over almost every thing above, on and under the earth. The GLCs should be downsized or broken up with ‘friendly’ competition as per Frank’s hypothesis. Chase all carpetbaggers back to Afghanistan or the Pamirs, at least. Deregulate, but keep a strong staying hand on the speculators cojones.

    2. We are too dependent on external trade. I read somewhere that we were the 4th country in the world that is most dependent on ext trade. We need to promote a healthy (not medical) service industry based on best practices, not on tempe, botox, tongkat ali, kacip fatimah or gamat.

    3. Stop begging for FDIs, like what Lembek is supposedly doing in NY. Instead, we lure back the diaspora to reinvest and give excellent terms back to our locals – with a real push for honest, corruption free, environmentally friendly high tech industries. Enuff of all that 10% crap for approval.

    4. Deal with corporate and public corruption in an unyielding fashion. A bullet in the mid-brain will be nice, painless and efficacious. Train MACC macha’s to shoot their own foot, becuz that’s what they are good at.

    5. Rule of Law. Bosan lah nak cakap lagi.. The Bersih kind. Not the Goonies kind. Revamp the judiciary, A-G, Polis, ad infinitum.

    6. Education especially in technical streams. In fact all levels. Enuff of artistic-contortionist celebrities mouthing sweet lullabies with horny old magnates mounting them. Learn English, Chinese, Hindi or whatever properly.

    7. Change the Government. Simple, ain’t it?

    Okay, since i reached the Godly number of 7, you guys carry on.
    Btw, in Frank’s world the Bull fights the Bear, and both die. And i’m off to bury the carcasses.

  2. When you eliminate meritocracy and competition and reveal the hidden hand that controls the price mechanisim even entrepreneurs who are losers can end up as winners.

    The NEP willl not be able to build a viable, strong, and sustainable economy but a strong economy will be more than able to build a viable, strong and sustainable NEP.

  3. The intellectual victory of the neoliberal/conservative intellectuals and right-wing activists of the Mont Pelerin Society over the Keynesians and those who support the Welfare State has led to the present mania for privatisation worldwide.

    We can see the fruits of privatisation in Third World kleptocracies such as Malaysia where privatised entities take full advantage of their monopolistic situation and extract economic rents from helpless consumers

  4. http://www.guardian.co.uk/commentisfree/2007/aug/28/comment.businesscomment

    “For the first time the UK’s consumer debt exceeds the total of its gross national product: a new report shows that we owe £1.35 trillion. Inspectors in the United States have discovered that 77,000 road bridges are in the same perilous state as the one which collapsed into the Mississippi. Two years after Hurricane Katrina struck, 120,000 people from New Orleans are still living in trailer homes and temporary lodgings. As runaway climate change approaches, governments refuse to take the necessary action. Booming inequality threatens to create the most divided societies the world has seen since before the first world war. Now a financial crisis caused by unregulated lending could turf hundreds of thousands out of their homes and trigger a cascade of economic troubles.

    These problems appear unrelated, but they all have something in common. They arise in large part from a meeting that took place 60 years ago in a Swiss spa resort. It laid the foundations for a philosophy of government that is responsible for many, perhaps most, of our contemporary crises.

    When the Mont Pelerin Society first met, in 1947, its political project did not have a name. But it knew where it was going. The society’s founder, Friedrich von Hayek, remarked that the battle for ideas would take at least a generation to win, but he knew that his intellectual army would attract powerful backers. Its philosophy, which later came to be known as neoliberalism, accorded with the interests of the ultra-rich, so the ultra-rich would pay for it.

    Neoliberalism claims that we are best served by maximum market freedom and minimum intervention by the state. The role of government should be confined to creating and defending markets, protecting private property and defending the realm. All other functions are better discharged by private enterprise, which will be prompted by the profit motive to supply essential services. By this means, enterprise is liberated, rational decisions are made and citizens are freed from the dehumanising hand of the state.

    This, at any rate, is the theory. But as David Harvey proposes in his book A Brief History of Neoliberalism, wherever the neoliberal programme has been implemented, it has caused a massive shift of wealth not just to the top 1%, but to the top tenth of the top 1%. In the US, for instance, the upper 0.1% has already regained the position it held at the beginning of the 1920s. The conditions that neoliberalism demands in order to free human beings from the slavery of the state – minimal taxes, the dismantling of public services and social security, deregulation, the breaking of the unions – just happen to be the conditions required to make the elite even richer, while leaving everyone else to sink or swim. In practice the philosophy developed at Mont Pelerin is little but an elaborate disguise for a wealth grab.

    So the question is this: given that the crises I have listed are predictable effects of the dismantling of public services and the deregulation of business and financial markets, given that it damages the interests of nearly everyone, how has neoliberalism come to dominate public life?

    Richard Nixon was once forced to concede that “we are all Keynesians now”. Even the Republicans supported the interventionist doctrines of John Maynard Keynes. But we are all neoliberals now. Margaret Thatcher kept telling us that “there is no alternative”, and by implementing her programmes Clinton, Blair, Brown and the other leaders of what were once progressive parties appear to prove her right.

    The first great advantage the neoliberals possessed was an unceasing fountain of money. US oligarchs and their foundations – Coors, Olin, Scaife, Pew and others – have poured hundreds of millions into setting up thinktanks, founding business schools and transforming university economics departments into bastions of almost totalitarian neoliberal thinking. The Heritage Foundation, the Hoover Institute, the American Enterprise Institute and many others in the US, the Institute of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute in the UK, were all established to promote this project. Their purpose was to develop the ideas and the language which would mask the real intent of the programme – the restoration of the power of the elite – and package it as a proposal for the betterment of humankind.

    Their project was assisted by ideas which arose in a very different quarter. The revolutionary movements of 1968 also sought greater individual liberties, and many of the soixante-huitards saw the state as their oppressor. As Harvey shows, the neoliberals coopted their language and ideas. Some of the anarchists I know still voice notions almost identical to those of the neoliberals: the intent is different, but the consequences very similar.

    Hayek’s disciples were also able to make use of economic crises. An early experiment took place in New York City, which was hit by budgetary disaster in 1975. Its bankers demanded that the city follow their prescriptions – huge cuts in public services, smashing of the unions, public subsidies for business. In the UK, stagflation, strikes and budgetary breakdown allowed Thatcher, whose ideas were framed by her neoliberal adviser Keith Joseph, to come to the rescue. Her programme worked, but created a new set of crises.

    If these opportunities were insufficient, the neoliberals and their backers would use bribery or force. In the US, the Democrats were neutered by new laws on campaign finance. To compete successfully for funding with the Republicans, they would have to give big business what it wanted. The first neoliberal programme of all was implemented in Chile following Pinochet’s coup, with the backing of the US government and economists taught by Milton Friedman, one of the founding members of the Mont Pelerin Society. Drumming up support for the project was easy: if you disagreed, you got shot. The International Monetary Fund and the World Bank used their power over developing nations to demand the same policies.

    But the most powerful promoter of this programme was the media. Most of it is owned by multimillionaires who use it to project the ideas that support their interests. Those ideas which threaten their interests are either ignored or ridiculed. It is through the newspapers and TV channels that the socially destructive notions of a small group of extremists have come to look like common sense. The corporations’ tame thinkers sell the project by reframing our political language (for an account of how this happens, see George Lakoff’s book, Don’t Think of an Elephant!). Nowadays I hear even my progressive friends using terms like wealth creators, tax relief, big government, consumer democracy, red tape, compensation culture, job seekers and benefit cheats. These terms, all invented or promoted by neoliberals, have become so commonplace that they now seem almost neutral.

    Neoliberalism, if unchecked, will catalyse crisis after crisis, all of which can be solved only by greater intervention on the part of the state. In confronting it, we must recognise that we will never be able to mobilise the resources its exponents have been given. But as the disasters they have caused unfold, the public will need ever less persuading that it has been misled.”

    Monbiot.com

  5. True CLF, your Seven expletory ” Aphorisms ” are some basic things with which we have been ingrained throughout our lives right to our Varsity days – the adherence to which are a basic ‘must’ for Survival of any nation.
    Funny that its not working or not seem to be working, and that is not Excuseable giving rise to a sense of grief & Uncertainties….

    Why are they not Working, is something we have to grapple with, before we spiral into deeper mess…. ?

    Its no more a question of how, but more to find out Why ?

    i venture to think that we are applying the Wrong evolutionary principles of SURVIVAL OF THE FITTEST in this so-called Competitive world. All out of Fear for Self-Preservation . But the Flaw is that this Doctrine is only applicable as ‘ The Law of the Jungle ‘ , of sheer Brute Force of the Strongest devourvering the lesser or weaker species….

    We are in the human world, wherein Kindness, Empathy, Conscience. and Care for the downtrodden & the weak, that should be the Norm for our general well-being…..Not on principles related to the Animal Kingdom !

    Do i sound weird ?

  6. We, human have been twisting and turning around nature for too long. We destroyed every principles and fundamentals we get our hands on. One day, these principles and fundamentals will crash on us and it’s the end of mankind. Truth and lie does not matter. Right or wrong don’t carries weight. No difference between a policeman and a crook.

    It is all about self, ego, acquire, me and nothing but me. We listen what is soothing to our ears. We only associate with those who carries our balls. This writer is not too far from the truth. As for those who seek solutions, you will never find them for the reasons just mentioned within.

  7. The problem with a pseudo-science like economics is that they often apply Darwinian concepts on micro timescales. That is why Frank’s hypothesis may be said to be flawed. Natural convergence of whatever form of politics, capitalism and socialism takes time and the dog-eat-dog rule does not apply whether in politics, economics or whatever human field of endeavor, unless whole nations and societies are willing to suffer cataclysms. They do not have a concept of ‘deep time’ for proper evolution. Feed-back control mechanisms are organic, while the economists prefer mechanistic ‘gearings’ of their own Newtonian thoughts.

    Modern day theorists unfortunately subscribe to hard numbers and statistical ‘significance’, without understanding the human condition. The author’s worldview (positivism) or negativism, also has colors his thesis. What it essentially boils down to is the essential human conundrum of Existence:

    “What is Eudaimonia (a favored or, flourishing Life)” or “The Pursuit of Happiness”.Instead of mere theories whether Smithian, Keynesian, Hayekian, Marginalist (Carl Menger and William Stanley Jevons and Leon Walras), Neumann and Nash, etc, work – i think the fundamental need is to ensure efficient distributism of basic human needs and address the vast gaps in yearning, be it materially or spiritually. The Western model is ‘evidence-based’ as opposed to the Eastern model of ‘values-based’. Can the twain meet? Not in my lifetime.

    To me a practicing economist needs to address his lack of insight into the human condition. He needs to experience first hand – sorrow, suffering and death – before he opens his mouth with grandiose claims of what is right or wrong.

  8. Oops, Forgive my bad English, i’ve caught a ‘crimp’, but the meaning is clear.

  9. Dato’,

    Competition is good…and the NEP as it was intended to close the gap between the “haves” and “have nots” was good. To quote Ku Li, “The discrepancy between vision and reality has taken an alarming turn. It has gone far beyond economics into the realm of ethics and morality. In numerous instances it has taken the form of corruption and decadence which has pushed the economy further down the drain,” he said. Why was this allowed to happen is the question!

  10. Well, it again voice down to corruptions. I mean, everyone. All, whether you realise or not. Many may disagreed, don’t blame them for they do not know they are already corrupted by the systems implemented by the BN, especially comes election. For Malaysia, it is a culture now, a way of live. Everybody does it so why not I.

  11. Competition produces winners and losers. But we must look after the losers and the disadvantaged. The way forward, in my view, is capitalism with a human face. We need trustworthy and accountable government, an impeccable judiciary and an honest corporate management. So we can say our economic system is a work in progress. I would not be as bold as Robert Frank to say “that within the next century Darwin will unseat Smith as the intellectual founder of economics”.–Din Merican

  12. Din
    First I want to make one basic point. I do not see any conflict between the concept of comparative advantage in international trade and competition as expounded by Adam Smith. To say otherwise is flawed logic.
    The purpose of NEP was to provide a level playing field for ALL in Malaya and subsequently in Malaysia, including eliminating poverty irresoective of race or creed, in order that all can compete with our own comparative advantages !
    But we know that NEP became a slogan for the usurpation of first political and then economic power for the few who control the levers of power.
    The new generation is I believe more mature and more clued in into exploitation. That is what the “Arab Spring” is all about.
    I believe we may be at the beginning of a new cycle of events. They need to be played out!!

  13. Good one Dr Phua.
    J.K. Galbraith’s, like his dad, is one of the few economists who can see day from night. He might be Keynesian, but is malleable unlike other die-hards. The Predatory state is not a new phenomenon, as evidence in history of the Great Empires of the past. I would rather call it a Cannibalistic state. Why? The Law of diminishing returns. Ultimately the Predator end up eating themselves as their prey (the middle class) becomes extinct. The Eastern equivalent is the “Mandate of Heaven”, with it’s cyclical violence.

    Control, as i said must be organically inclined with in-built feed-back loops, based on the environment – be it geographical, natural resources, culture or some other unidentified human characteristic. Artificially imposed conditions are like unmitigated prolonged use of synthetic steroids – all muscle but no brain and decreased immunity to disease. Eg. Euro-zone FUBAR, which will sooner rather than later, extinguish all pretense of sustained ‘growth’.

    So is the deleterious effect of the never ending NEP>NEM>1Whatever. Same old stuff. Positivist policies can only be as good as it’s implementation. Rent-seeking, monopoly, inefficiency, corruption, lassitude and moral decay is the result.

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