With a new executive order cracking down on anti-competitive practices in the U.S. economy, President Joe Biden has set his sights on a problem that has been developing for years. Workers, consumers and small businesses are all cheated, and it is the government, not the market, that offers them the best hope.
NEW YORK – For the Liberals, the government is always the bad guy. As President Ronald Reagan memorably put it in his first inaugural speech, “In the current crisis, government is not the solution to our problem; government is the problem.
Since the 1980s, markets have been idealized as the only way to achieve optimal allocation of resources. A healthy economy is driven by entrepreneurship, not politics, because the price mechanism reliably conveys information about the value of goods and services. Buyers bid, sellers sell to the highest bidder, and all parties are knowledgeable and rational decision-makers. An equilibrium price is always reached, ensuring an efficient result. It’s a perfect world.
The real world, however, is not perfect. Market players face transaction and information costs. Negative externalities and market failures are inevitable. Even strong laissez-faire advocates agree that sometimes government intervention is necessary, although the state should not do anything that can distort market outcomes.
But what if the biggest distortion comes from the market players themselves? Given that today’s overlapping financial, health, and climate crises are fundamentally different from the “current crisis” Reagan had in mind, we should ask ourselves whether the market is the problem now.
The current US administration seems to think so. July 9, 2021 from President Joe Biden, decree on “Promoting Competition in the US Economy” reads like a litany of market distortions and rigging. The list is long, but among these are major players in the agricultural, health, financial, pharmaceutical, technological and transport sectors.
The executive order is an opening salvo against several issues plaguing the US economy. These include excessive consolidation within key industries; a lack of market transparency; unfair, discriminatory and deceptive prices; barriers to market entry erected by incumbent firms; and anti-competitive distribution practices. The victims include average internet users, social media and retail platform users, airline customers, new entrepreneurs and a range of small and medium-sized businesses, including independent brewers and farmers.
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All of these groups are being cheated by companies that distort the market to their advantage. In this new environment, “buyer beware” is a hollow adage. Once upon a time, a farmer could inspect a cow before buying it. If he didn’t notice the animal was limping, that was his problem. But this kind of simple exchange of relative equals has been replaced by a very unequal arrangement in which anonymous customers are pitted against large corporations in an asymmetrical relationship that admits of no haggling or negotiation.
Worse, the same large companies have consolidated their dominance through a host of deceptive practices such as deceptive advertising, ancillary fees and other pricing strategies that hamper product comparison, and measures to thwart attempts. customers to recover charges for poorly performed services.
In the financial sector, fraud, deception and misrepresentation have long been addressed through regulatory oversight. Companies wishing to issue stocks or bonds on official exchanges must disclose the information investors need, and this compliance actively monitored and enforced.
Of course, this system is far from perfect. Over the past decades, regulators have been under-resourced and there has been an expansion of private equity offerings. Yet the biggest point remains: markets only work when everyone follows the same rules.
Companies will always be tempted to break the rules to gain an advantage. But in some industries today, the erosion of the market principle goes far beyond cheating consumers or beating potential competitors. Pharmaceutical companies, for example, are the main beneficiaries of legalized monopolies. They regularly take advantage of patents on innovative products derived from government-funded basic research and regularly attempt to renew patents by simply modifying the parent compound.
But even these substantial legal subsidies have apparently not been sufficient for the industry. The big pharmaceutical companies have embarked on a new rent-seeking by raising the prices of prescription drugs and blocking the production or distribution of generic and biosimilar drugs – even during the pandemic.
As for Big Tech, controlling customers and clients, and preemptively acquiring potential competitors, has become de rigueur. The dominant platforms present themselves as pro-consumers even if they deny consumers any meaningful choice. For example, Amazon doesn’t just take high fees from retailers who actually have nowhere to go; it is also in direct competition with them.
Likewise, the big social media companies have bankrupted many media outlets by allowing their content to run without compensation. When Australia passed a law requiring digital platforms compensate the media companies, Facebook temporarily blocked Australian news links on its platform and threatened to leave the country altogether. (The company only released its virtual choke after making a deal with Rupert Murdoch’s NewsCorp, while smaller news outlets stayed away from the negotiating table.)
But the ultimate cost of market distortion falls on employers. Overall, big companies have used every trick in the book to dominate workers rather than compete for them. After decades of undermining unions and outsourcing jobs to suppress wages, employers are increasingly using non-compete clauses to bind employees at all levels within the company.
These provisions now apply to 28-48% of all employed people in the United States – everyone from restaurant workers to top-tier employees who have innovated and brought substantial value to their employer’s bottom line (while being denied any intellectual property claims they’ve helped make. create). Those who try to leave are threatened with litigation, and US courts have long sided with employers, who remain free to fire employees at will.
These asymmetric arrangements all exude hierarchy, not free markets that efficiently allocate resources, including human capital. Now that the Biden administration has set its sights on these neo-feudal practices, the Liberals should applaud the loudest.