Competition is often used as a defense of the policy of the privatisation of state provisions. Here in the UK it has been used to justify the privatisation of the rail network, telecoms and many other things and in recent years suggestions have been made that health care and education should follow. But does competition really work to self-regulate such industries.
The idea is simple. Instead of having one behemoth state run company which controls the entire market you split the company up into numerous privately owned businesses which have to compete against each other in price and quality of service for the attention of the consumers. We the public then have a choice between the different packages on offer from the various companies. These businesses are then regulated by governmental organisations such as Ofcom, Ofwat and the Competition Commission. Sounds good doesn't it?
One problem however is how much competition is acceptable. Low fare airways such as Ryanair and Easy Jet have been criticised heavily for undermining existing air travel heavyweights such as British Airways and Virgin. But of course this is the only real way for a new company to make headway in a tough sector and it is clear from their success that they are providing a service desirable to many consumers.
On the other side of things though many companies partake in the practice of price fixing. This means that the existing companies within a sector get together and make a (usually) unwritten (or at least unofficial) agreement to keep prices or rates above a certain level to protect their profit margins. This is especially prevalent in banking and prevents innovative new ideas such as micro-credit (for which Mohammed Yunus won the Nobel Peace prize last year) from taking hold without a lot of hard fighting. However it can of course be argued that without these arangements the prices would see-saw uncontrolably resulting in market instability. And an unstable market is a weak market.
I have no answer for these issues. But i think it's important not to take for granted that the way things are at the present time is the best way they could be. You'd better be damn sure it ain't broke before you stop trying to fix it.
deftnha posted on Feb 01, 2007
| views: 253
Comments
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silverwhisper said on Feb 01, 2007....
as a yank, i am very much in favor of private enterprise competition, esp competition b/n companies that are publicly traded and listed on a reputable stock exchange.
my reasons are these:
1. the laws protecting shareholders require an incredible amount of disclosure.
2. board members of such companies have a vested interest in operating properly. the reason the story of enron was so big was that it's so unusual (well, and also really brazen).
3. customers vote with their wallets. competition can lead to temporary instabilities--these are, after all, why share prices for traded companies exhibit any kind of variation. but they generally trend in a good way.
ed -
bloc said on Feb 01, 2007....
I think competition is the right solution for most things, but not all things. Let's not forget the the goal of any business is to make a profit, that's it. The profit motive works great for making most products and services, but I don't believe it's right for education or health care. health care is debatable, but I don't think that education is. -
kruuyai said on Feb 05, 2007....
I would agree with ed that free enterprise and competition can be a healthy thing and that instability caused by competition usually evens out. But one of the problems is that the trend in capitalistic societies is for companies to gobble each other up and ultimately, we end up with monopolies that control all the prices, with no other motive than profit... that is not usually a good thing for the consumer. The telephone service was privatized in Mexico some years ago with disastrous results. It was set up as a monopoly (TelMex) with disastrous results. Mexico is now the most expensive country in the world from which to make a phone call, either local, long distance or international.
I would agree with bloc that privatization is good for a lot of things, but not for education or health care. Although I would reverse his final point and say that education is debatable, but not health care. Private schools can and do do a good job of educating. The problem is that not everyone can afford to send their kids to private schools, so a free education needs to be available to everyone. With profit as the primary motive for health care, we can be pretty sure that our health care professionals are not going to be making the best decisions for us... even if they want to.
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