Tuesday, May 26, 2015

What Can We Learn About Free Competitive Markets From Corporate America

Most Americans work for corporations.  Corporations don't operate the way that free market advocates believe that all organizations should operate.  They are essentially command and control systems which look a lot like government bureaucracies.  In particular, corporate labor markets look nothing like commodity markets are supposed to operate.  Some labor markets do look like commodity markets but they are outliers.  In fact, most Americans are repelled by them.  Perhaps that is because people who are managed like commodities are less productive.  Moreover, investor behavior provides a similar message about competitive markets.  Investors vote with their dollars.  They invest in businesses which have been successful in limiting price competition in their markets.  Warren Buffet, for example, invests in firms which have succeeded in "building a moat" around their enterprise.  They are less subject to competitors who attempt to capture their customers through price competition.  Building moats around one's business is the primary topic of the business strategy courses that are taught to MBA students.  Of course, it is always a good idea to be cost competitive, but corporations often use government to limit price competition.  The most important asset in many corporations is their intellectual property.  Without government enforcement of intellectual property rights most corporations would be subject to intense price competition.  In fact, our current form of capitalism, which is based upon the ways in which corporations function, is totally dependent upon the services provided by government bureaucracies.  Even the social welfare programs provided by governments are beneficial to corporations.  For example,  government subsidies to low wage earners enables corporations to more easily retain low wage earners.  Taxpayers are supplementing the wages provided by low wage paying industries.  Free competitive markets are a utopian ideal that provide a very distorted picture of the ways in which markets and governments operate in the real world. 

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