I’ve found a bug in the economic system that explains why most of us have such a crappy experience of it.
One of the great challenges western economies face is the concentration of market power.
Australia actually has one of the worst track records on this front. Try to think of an industry that isn’t controlled by a small group of companies – many are controlled by just two: Coles and Woolies, Bunnings and Mitre 10, Virgin and Jetstar/Qantas, Optus and Telstra, MacDonald’s and Hungry Jacks, the big banks, the energy sector… it goes on.
Now, economic theory tells us that this is bad. The concentration of market power leads to consumers being gouged and rent-seeking behaviour.
(I think I just described the Australian economic model right there.)
So we have “competition policy” and the ACCC – to make sure that our markets stay competitive.
But there’s a bit of a bug in this theory.
The idea that competition is good seems to come out of Darwin’s theory of evolution. Species in competition with each other push each other to be bigger, better, faster or simply just smarter.
(I didn’t get this brain by accident).
The fastest animal on earth is the cheetah. The second fastest animal on earth is cheetah food – gazelles.
The competition between cheetahs and gazelles creates faster and faster animals.
And so this theory of competition has given us the two party political system, and a judicial system based on competition between prosecutor and defence, for example.
And it has given us the modern economic orthodoxy that says so long as there is genuine competition, even if it’s only between two companies, then the economy and the consumer is better off.
So where’s the bug?
The bug is with where we place the perspective. Competition between cheetahs and gazelles creates faster species, and that’s kind of cool, but what about for the individual animals? For them it kind of sucks. They’re in a system where they’ve got to constantly work harder and harder just to survive.
The species evolve, but only by keeping individual members of those species under pressure.
Or what about companies? Say a company develops some new tech and increases it’s market dominance. That’s good for the company and good for its shareholders. But it’s not good for the economy, and the ideal economy would see that market dominance quickly eroded, and shareholder returns fall.
Same story with the labour market. A competitive labour market is good for employers and the economy, but it’s hard work for the individuals inside it. Any surplus they capture – any wage premiums they’re able to secure to make their life a little easier – again, ideally these advantages are quickly taken away.
In competitive economies, individuals are locked in constant, grinding competition.
This is the restlessness that lies at the heart of the modern economy.
Either you go towards the concentration of market power, and accept the evils that come with that, or you keep everyone in the economy toiling away on their hamster wheels, in endless competition with each other.
And they’re the only two possible outcomes.
Do you see how both outcomes kind of just suck for the individuals?
And so we’ve created a system that is good for our abstract ‘economy’ but sucks for the individuals who have to exist within it.
Does that sound like a good design to you?
We need a new system (he says, stating the obvious). I don’t know what that system looks like, but until then, we need to be developing strategies that bust us right out of the system and the tyranny of competition. You need something that puts you in a different game altogether.
For me it was property and a knowledge company. But whatever it is for you, you’ve got to find it.
You can’t run a hamster wheel forever.