Don’t ask “Mr Moneybags” how to run the economy

As Nobel laureate Paul Krugman pointed out ‘a country is not a business’. So why, he asked, do politicians think it is sensible to ask a successful businessman for advice on running the country? Why, for example, is David Cameron asking Sir Philip Green for his input? His views are clear and predictable, and of no relevance to running a successful economy.

Freedom from government interference undoubtedly produces the most dynamic markets, SO LONG AS THEY REMAIN COMPETITITVE. Competition is what drives prices down and technology up, for the benefit of everyone, including, of course, the customers. The key thing is competition. If the market ceases to be competitive, by, for example, one firm being so successful it starts to dominate the rest, then dynamic is lost, and everyone loses, except the dominant firm that is able to make super profits.

That is not just a vague possibility; it’s more or less inevitable. The idea of a perfectly competitive market is just for economic theorists, no such thing exists in the real world. And in markets which are highly competitive, the most successful players inevitably become dominant as the market matures and so competition loses out, innovative dynamic is lost and the general good suffers. This pattern has been repeated in industry after industry and has been reported time after time. The natural consequence of a competitive market is monopolistic. So competition needs to be protected and that inevitably means government regulation. As has been said elsewhere on this site, you can’t have both free markets and competition; at least not for long.

Regulation limits the power and profitability of those successful competitors which develop into monopolistic market leaders – the Mr Moneybags of their industry. So they might be expected to object vociferously to regulation and argue for the continuation of totally free markets. What they are really arguing for is the right of the monopolist to dominate its smaller competitors. So, why would politicians ask them for advice?

The economy as a whole depends on the preservation and stimulation of competition, not the protection of those with monopolistic aspirations.

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