This is part one of a series of articles I'm working on. Actually, I've been writing them mainly for myself, to collect my thoughts, but when I discovered this site I decided this would be the best way to express my ideas.
Rules of the Game
A theory of economics
Edit: I get the picture! I need more links. Pity me, for I am new...I also fixed a couple mistakes I saw along the way.
Business is the means through which our modern society allows individuals to most effectively exchange goods and services. At one time, people had to do everything themselves. But even our primitive ancestors quickly learned the value of working together and they formed tribes of hunters and gatherers which functioned together as a society. As technology advanced and people were able to form nations far larger than any tribe, subdivisions formed within these units among people who specialized in certain skills. No longer was it necessary to know how to do everything, as the advent of trade allowed people to focus their energy on doing one thing well and trade with others for everything else.
The industrial revolution took this concept even further. New technological advances meant that it was far more efficient to produce things in bulk using large factories, rather than relying on local workers in every town. This led to the creation of large businesses and the current economic model we have today. While it can be argued that Adam Smith's concept of the "invisible hand" actually functions better when the market consists of numerous small producers, the effects of economies of scale seems to outweigh the efficiency of a competitive market by introducing and entirely different type of efficiency. For this reason we are increasingly living in a society dominated by a relatively small number of big businesses, each with tremendous market power. Some might argue that they have too much power, and a new economic model is needed to deal with them.
I'm inclined to agree. For now at least. Honestly, I tend to flip-flop from one side of the argument to the other. If you ask me, the biggest problem with extremely large businesses is not so much their market power, but their political power. We are living in what is supposed to be a democratic society, in which everyone has an equal voice. Supposably. Unfortunately, any person running for office needs money for their campaign. There are many businesses out there with more than enough money to donate, but they all want something in return. As a result, our democratic society is far from it. The interests of big business always seem to take precedent over the interests of the people.
Even worse than problems with fundraising are the abuses of large media companies. Media companies are in a very interesting position. They have the ability to control everything the average person will see and hear in current events. By stressing those issues and points of view which happen to favor the interests of big business, they can effectively control nations. Very people actually put their own research into their voting decisions. They base their decisions on what they see or hear about in the news. Now, if only one side of an issue is ever presented in the mainstream media, or if an important issue is never even presented at all (such as the passing of the DMCA without a single voice or protest), how can people possibly make a fair and rational voting decision. The answer is they can't.
This is why I fear the political power of big business far more than their market power. The free market is an interesting concept, but it doesn't truly exist. Sure, there are aspects of the market in every economy in the world, even one's we consider to be non-free markets, such as Communist China. But that does not mean that there is every really such a thing as a true free market. All markets functions within certain boundaries set by society. These boundaries can take many forms. The most obvious are government laws and regulations, but even these are often misunderstood. When I say that laws are market boundaries, I don't refer only to regulations placed specifically on businesses or anti-trust laws. ANY law can be a market boundary. Making murder illegal is a market boundary. It prevents a business from literally killing its competition if it finds itself unable to match price, quality, whatever. Absurd, you say? Why? Certainly, this is not something that one would really expect any business to do in this day and age, but if there were no law against it, would it really seem so absurd?
Of course, laws are not the only kind of market boundary. Even if murder were a legal market tactic, it still may not be the best course of action. There are cultural boundaries placed on businesses as well. A business ultimately exists to make money, and it is difficult to make money if you insult your customers. Would you feel comfortable buying from a business which attempts to kill its competitors? Or would you try to avoid buying from that company at all costs? Of course, if the business in question is capable of killing all of its competitors effectively, and probably in the process scaring off anyone thinking about becoming involved in that industry, then you may not have a choice. If you really need the product in question, you might buy from them anyway. Thankfully, we have laws to stop the business in question from killing everyone.
This is why I say there is no such thing as a truly free market. And, as you can see from my hypothetical example involving murder, this is a good thing. If there were no boundaries we would have total anarchy. There are probably some people out there who would support such a society, but I would hope that most people can see why this would be a bad thing. Yet, although the market is never truly free, it is at the same time always in existence. There has never been and never will be a society which has not experienced the market in some shape or form. Truly, the market is simply a product of human psychology and it will always be with us. This too is a good thing, because while a truly free market leads to anarchy, a ]properly focussed market] leads to greater efficiency, innovation, and an improved standard of living for everyone in a society.
What do I mean by a properly focussed market? I talked before about the boundaries placed on a market. The market will always exist, only it will be confined within these boundaries. In order to create the best society possible, we should shape these boundaries so that we tap into the creative energies of the market. There will always be competition, but we want to make it take the form that will most benefit society. Think of a race. Imagine that we have a fixed length that has to be run. This length is the resources that society has to work with. Now imagine that we, as a society, want to do everything possible to get somebody, anybody from the perspective of society as a whole, to run this distance in the shortest possible time. To do this, we are allowed to create rules that the runners must follow. We cannot directly control the actions of the runners. The runners also have a goal, but it is not the same goal as society. Society wants somebody to run the race in the shortest possible time. The runners simply want to reach the end first. They don't care how long it takes, so long as they get there before the other runners. Now, you must make the rules. What rules do you create?
The competitive instinct will exist regardless of the rules, but the rules shape what direction that instinct will be turned. In the case of our race, if there were no rules a slow runner might decide that his best bet is to buy a gun and shoot all the other runners. He does just that, and then leisurely walks to the end of the course, secure in the knowledge that he is the winner. From his perspective, he won. His goal was to reach the end of the course before anyone else. However, society's goal was to have somebody reach that end in a very short amount of time. Society's goal was not met.
So we create rules that direct the competitive forces of the runners along a course that will meet society's goal. In this case, the best rules would restrict the runners' ability to hurt or otherwise impede each other and ensure that they only way they can compete is to get themselves to run faster. Market boundaries serve the same purpose.
There are many people, quite a large number of them in business themselves, who claim that competition is good, and therefore the government should not in any way restrict the ability of companies to compete. There are certainly some forms of competition which are good, and some marvelous results can arise out of competing in such an manner. But this does not mean, by any stretch of the imagination, that all competition is good. When the runner decided to shoot all the other runners, he was competing in his own way. He had a goal, and he did his best to reach that goal. In the process, society's goal was not met. We should realize that the goals of society and the goals of individuals rarely, if ever, coincide.
What are the "goals of society", you ask? Afterall, isn't society nothing more than a large number of individuals? Indeed it is. But imagine now, that you and everyone else in the world is involved in this race. There is no society looking over you, simply a very large number of people in a very big race. Let's say that you and many others realize the danger of letting people do anything to win this race. You realize that a large number of you may end up dead. You want to win the race, but that is not your only goal. You also want to live, even if it means losing the race. So does everyone else. So let's say that a large number of you get together and acknowledge the fact that even though you are all competing with each other, it would be in everyone's best interests to establish some rules. Even though you all may not agree with all the rules, you acknowledge the fact that everyone in your organization must obey all the rules or be punished, or else the rules would have no power. You call this organization a "government" and you call the rules "laws". See where I'm going with this?