When labor is fully employed, competition to obtain workers operates to raise wages, shorten hours, and improve the conditions of work. But when there is a large reserve of idle labor, competition may have the opposite effect. Competitors may endeavor to cut costs by reducing wages, lengthening hours, and impairing the conditions of work. The employer who wishes to pursue a policy more favorable to labor may find it impossible to meet the prices charged by his rivals if he attempts to do so. Under such circumstances, competition operates to depress the standards of labor. In fact, it is in certain of the most highly competitive trades that such standards have been notoriously low. Monopoly did not produce the sweatshop. The monopolist may not deal fairly with his workers, but no competitive necessity prevents him from doing so.
Competition contributes to efficiency in manufacturing and in distribution; it causes inefficiency in the utilization of natural resources. Competition in the production of timber, bituminous coal, and petroleum hinders the application of improved technology and encourages the employment of wasteful methods of exploitation. It may provide the consumer with a large supply at a low price for the time being, but it does so at the expense of future generations. Competition is not conducive to conservation.
Where competition does contribute to efficiency, the gain is offset, in part, by the wastes which it entails. Competition involves an unnecessary duplication of plant, equipment, and personnel. It makes for secrecy and impedes the communication of new ideas. It multiplies the effort required to obtain information concerning conditions affecting a trade. It necessitates costly negotiation over matters which monopolists would handle by the issuance of orders. It compels managements to direct toward bargaining, attention which they might otherwise devote to the improvement of internal efficiency. In certain fields, it prevents the coordination of services that might be better rendered by a single firm. It may even make it impossible for individual plants to attain the most efficient scale of operation. Between these wastes and the competitive stimulus to efficiency, a different balance must be struck in every field.
Competition is not without its costs. It may require a high rate of business morality; it may inflict serious losses on investors. Nor are the inefficient the only ones to suffer. The bankruptcy which eliminates a business entity does not destroy the productive equipment which it owns. Such equipment may be acquired at bargain prices by other concerns. With lower costs, they may proceed to undersell their rivals in the trade. Inability to meet their prices may bankrupt other firms, regardless of efficiency. A whole industry may thus be caught in a vicious circle of failure, loss, recapitalization, further failure, and repeated loss. Bankruptcy in small doses may prove healthful for a trade. But bankruptcy in too large a measure may impair its usefulness. At best, the process is a wasteful one.