May 16, 2012
In Desperate Need For Competition: An Opinion
by etheorist (05-02-12) @http://epolicy.blogspot.com/
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 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
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.