Dear Friends,
It seems to me, no company on Earth wants perfect competition in its own industry, but every company seeks perfect competition in the job market. Why? It’s self-serving. Companies want cheap labor and expensive products. That paradigm allows for maximum profit with minimum effort. Profits are squeezed from both workers and customers, then funneled to executives. As seen with Wells Fargo, every few years, the executives get bonuses while the shareholders get fined. Why? Because the executives decide what the lobbyists will lobby for… not the shareholders. Government then becomes the tool of executives to keep competition at bay, while ensuring the competition for labor is ruthless. This is done by exporting industry and importing workers.
Perfect competition in economics is a state where no firm has an advantage over any other. Milk is near perfect competition, so to get an extra markup on your milk, how do you claim your milk is better than another dairy’s? Milk is milk, no matter who bottles it. It can be purchased by anyone, anywhere, from any number of dairies. So the price is just above the cost of production… and often dips below the cost of production. Ask a dairy farmer. Markets that are at or near perfect competition squeeze out extra profits from the company, in favor of the consumer. This wouldn’t be possible without the assistance of the state. Due to the logic of collective action, regulation undermines perfect competition, even as it ensures perfect competition in the job market.
Olsen’s Logic Of Collective Action is an economic theory. In it, people act in rational but pragmatic self-interested ways. The example often used is sugar. In the US there is a sugar tariff. This increases the price of imported sugar, so beet sugar and the small sugar-producing areas of the US can get extra profit. Most people prefer cane sugar for cooking, to beet sugar, though they are nearly identical. This amounts to a few pennies per bag of sugar for the consumer, but millions to the industry. So the industry lobbies heavily for the tariff, while the consumer could care less. This same logic drives firms to lobby for regulations. They lobby to increase barriers to entry by calling them safety requirements, licensing, and oversight by the courts. Each adds a barrier to entry that protects markets.
Even as regulation is exploited to keep markets tight, they are used to keep the labor market loose. By exporting industry to cheaper nations, corporations drive down demand for labor in the US. Meanwhile, they lobby the government to import unlimited workers, to mercilessly drive American wages to zero. If you learn a new skill and apply it, getting extra wage profit, the government will immediately import enough H1B foreign workers to drive that wage back down. Except it’s not even perfect competition. Because the foreign worker competing for the same job has free health care, welfare, and other government handouts… that the US worker has to pay for, taxed out of his or her wage. This makes Americans more expensive. So why would any firm hire an American?
The paradigm is that corporations and government collude to protect firms from perfect competition, while ensuring the job market is perfect competition for high skill, and negative competition for low skilled labor. This is explained by the logic of collective action. Where the little guy doesn’t have a high stake, so doesn’t complain, while the big guys do, so they exploit government coercion to protect themselves. This isn’t done for the shareholder, nation, or worker… but to benefit the executives, cronies, and captured bureaucracies. Left unchecked this paradigm will mine a nation out until it collapses. I think we can all agree, we don’t want to see this happen to the US, Britain, France, or any other nation. The answer then is to lobby government ourselves… despite the logic of collective action.
Sincerely,
John Pepin
