Competition

Democrats trust competition and the free market, but we do not imbue the market with supernatural powers to remain fair and competitive on its own. A major role of government is to defend the level playing field.

There are several strains of thought within the Democratic Party about the relative roles of business and government within the economy. One school, which might be termed strong-government, believes the government should take an activist role in the economy, directly determining the outcomes of economic processes. During the New Deal this thinking was widely shared, but today it is relatively uncommon, if not quite dead.

An opposing school of thought may be called weak government, or laissez-faire, or market fundamentalism. Proponents believe anything that happens in the market, even monopoly power or negative externalities such as pollution, are inherently good, and the government should stay out of it even if individual Freedom is compromised.

Most Democrats today advocate a third school, where there is a balance of power between business and government. In this system we rely primarily on competitive markets but the government takes the role of referee to ensure that the market remains truly competitive and fair, and that Freedom is protected. Regulation is therefore concerned with process rather than product, striving to ensure equal opportunity but not equal outcomes for all. This is the approach of small but effective government.

Democrats generally accept the concept of free competition based on price and value, and want the markets to behave in this way. However, we don't accept that markets automatically have the characteristics of a "perfect market," such as legal behavior, numerous competitors, perfect information, zero transaction costs, or zero externalities. We assume that corporations, driven by competitive pressures, will try to expand the field of competition by exploiting market imperfections. The role of government is to keep the competition in bounds.

One way that corporations often step out of bounds is through consolidation. A perfect market requires that there be a large enough number of competitors that none have the power to control or shape the market to their advantage. However, a firm with a stronger cash position might want to increase its advantage by buying its competitors or pushing them out of business. Once a firm becomes large and powerful enough, valid competition essentially disappears.

Another way corporations stretch the rules is to shop for the worst referees, or simply buy them off. Many third-world countries have relatively weak governments that are easily pushed around, where environmental and labor laws, and principles of Freedom, are easily violated. We mustn't let America become this sort of third-world country.

It's a sign of moral deterioration in our culture when organizations fail to respect fair competition and sportsmanship. When companies freely report false accounting data, or when political organizations intimidate voters or manipulate election results, the loser is Freedom. We the people are the victims when the government referee is weak and ineffective.

Today we have the situation where a few corporations are so powerful that they dictate policy to government, essentially neutralizing the government's ability to meet its own responsibility to protect individual Freedom. Like out-of-control players, corporations feel free to leap from the playing field and attack the customers, to compete on the basis of who can get away with taking the most steroids. It's time for government to become a more effective referee, to restore the type of fair competition we all want.

Political themes: Importance of the level playing field. Perfect competition requires a good referee, a small but effective government.