The Competition Hoax

(c) Copyright 1998: Graham L. Strachan

The fundamental lie underpinning economic rationalism is that oligopoly is a competitive market, and can deliver all the theoretical benefits of a competitive market (1). Building on that false premise, economic rationalism then employs free market principles and terms, but they produce quite different results from those originally intended. One such principle is ‘deregulation’.

Genuine free market theory held that to be competitive, a market had to be free from government regulation. The reason for that has been obscured: such regulation distorted the PRICE MECHANISM, the means by which information is carried to the market, and which is therefore crucial to the operation of the competitive forces. Milton Friedman says: ‘Anything that prevents prices from expressing freely the conditions of demand or supply interferes with the transmission of accurate information’, thereby negativing the competitive forces of the market (2).

What the economic rationalist does not tell you is that government regulation is not the only thing that can distort the price mechanism. Big business, through its ability to control markets and manipulate prices does precisely that (which is why oligopoly was not, is not, and can never be a competitive market).

Governments at the turn of the century were aware of this, and reasoned that if an unregulated market led to oligopoly, which distorted the price mechanism anyway, there was no point in outlawing government regulation. Quite the contrary: government regulation could be used to counteract the effects of oligopoly. The result would be a mixture of market forces, oligopoly, and government controls, but it would operate for the public benefit. And it did. This was the principle underlying the Mixed Economy, which built the wealth of the developed world. As Noam Chomsky has pointed out, no developed economy has ever been built on an unregulated market. Those that have tried have ended up ‘basket cases’ (3).

The Mixed Economy was a mixture of controls on big business which curbed the effects of oligopoly and outright monopoly, and measures that helped small/medium sized businesses compete with big business. Those measures included tariffs and subsidies, and exemptions under anti-monopoly legislation which enabled small businesses to form buying and selling cooperatives, and to build up what J.K.Galbraith called COUNTERVAILING POWER, power which countervailed (counterbalanced) that of the oligopolists. Writing in 1958 Galbraith went so far as to say, ‘....the support of countervailing power has become in modern times perhaps the major domestic peace time function of the federal government’ (4).

Come the early 1980s, governments now heavily in debt to international finance (which also finances big business) were instructed to implement economic rationalism, a major component of which was ‘deregulation’. This involved not only the removal of the government controls on big business, but also of the measures that helped smaller businesses build up countervailing power and compete. The alleged purpose was to reintroduce ‘market forces’ and re-establish ‘competition’. In fact it abolished those things by eliminating the ability of smaller businesses to build up countervailing power. The result was NOT a competitive market, but unregulated oligopoly, a state of affairs which can serve only to CONSOLIDATE THE HOLD BIG BUSINESS HAS OVER THE MARKETPLACE.

All this was deliberate. The Hilmer Report, recommending the abolition of exemptions for small business under Australia’s Trade Practices Act said [p.74]: ‘The Committee does not believe that it is the role of the competitive conduct rules to protect any particular sector of society....’. And again [p.79]: ‘The committee does not consider that competition policy should be distorted to provide special protection to any interest group, including small business....’ In fact the competitive conduct rules and ‘deregulation’ do provide special protection to an interest group: big business.

Having abolised the government’s assistance to the competitive (small) business sector, big business then began demanding the protection and subsidies, confirming that all the talk of the ‘free’ market and ‘competition’ was a lie. Only small business will be subject to ‘market forces’. Here are a few recent examples:

January 21, 1998: Cabinet agreed to provide $300 million in taxpayer funds to underwrite Australian trade contracts with Korea, after exporters warned that trade....may stall as a result of the Asian currency crisis (6). [The currency ‘crisis’ was caused by the free market in currencies. Big business wants government protection against its effects].

January 22, 1998: Representatives of the tourism industry emerged from meetings with the Federal Tourism Minister, Mr Thomson, yesterday confident the Howard Government would consider extra funding in the May Budget to help the industry deal with the Asian currency crisis (7).

August 1997: the Howard government announced a $600 million taxpayer-funded package to help the Australian private health funds which were faced with membership defections (9).

August 1997: ‘The chemical giant Du Pont was paid almost $60 million in government aid to keep manufacturing textiles as tariffs were reduced (8).

Late 1997: The government announced a $1.26 billion ‘Investing for Growth’ package which includes a $556 million increase (sic) in government support for private sector (big business) research and development.

Australia’s ‘competition policy’ is a fraud, intended to remove government protection from small/medium sized Australian-owned business, and to transfer it to the foreign multinationals who now own more than 90% of the country’s big business. Furthermore, this regime is about to be made legally enforceable by the Multilateral Agreement on Investment (MAI), a secret agreement which the Australian government is due to sign in May. More on that later.

REFERENCES: (1) See “The New ‘Free Market’: Oligopoly”, Article 4 in this series.
(2) Milton Friedman, ‘Free To Choose’ (1980) p.35.
(3) Noam Chomsky, ‘Prospects for Democracy’, the Chomsky archive on the Internet.
(4) J.K.Galbraith, ‘The Affluent Society’ (1958), p.150.
(5) The Hilmer Report: National Competition Policy (1993).
(6) Sydney Morning Herald Online, 21/1/98.
(7) Sydney Morning Herald Online, 22/1/98.
(8) The Australian Online, 28/8/97.
(9) The Australian Online, 26/8/97.

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