COMPETITION IN INDUSTRY. According to doc trines evolved in the course of the eighteenth century and for mulated by economists from Quesnay to Adam Smith, the well being of a community is better served by leaving the individual free to manage his own affairs in his own way in the light of what he conceives to be his own interest than by subjecting him to in terference by even the best intentioned government. Left to his own devices under conditions of economic freedom the individual will find his greatest gain in furnishing those goods or services for which there is most demand, and will, in the long run, find little profit in exacting a price much higher than his total expense of production. During the course of the Industrial Revolution these doctrines gained general acceptance, and, by the middle of the 19th century, the beneficially self-impelling and self-regulat ing nature of the economic order was widely held as an article of faith, to be reinforced a little later by the application to human affairs of what was popularly understood to be the Darwinian theory of progress, proceeding by a struggle for existence in which the least fit go under and the most fit survive.
The outlook of the i9th century upon the economic order came therefore to be increasingly dominated by the view that supplies, prices, profits, and wages were best left to look after themselves. Let the State give no privileges and set no impediments, let it be content to make the rules, let it leave the business world to its own devices, and competition would ensure that all would be for the best. The desire for gain would urge each to maximum effort; and competition would harmonize supplies and requirements, would ensure that the level of wages, prices, and profits were about what they ought to be, and would make for the elimination of the less fit economic unit and the survival of the more fit—the better placed, the more energetic, the more adaptable.
Similarly, wages tend to find their own "natural" level in the competition of employers for workpeople and of workpeople for the best-paid employment.
What was not sufficiently realized by those who pinned their economic faith to the "law of competition" was that the law will operate completely and effectively only where a condition of per fect economic freedom prevails and where buyers and sellers have the widest knowledge of present and prospective demands, sup plies, and prices. A condition of economic freedom demands something more than non-interference on the part of the State; it demands the free access of buyers to sellers and the absence of all action in restraint of free competition on the part of those engaged in industry. At no time has such a condition prevailed over the whole of industry and trade. It was probably most nearly reached in the first half of the i9th century when, following upon the great inventions, the improvement in transport, and the ex tension of joint-stocks financing, new enterprises sprang up and offered their wares with a minimum of collusion over extensive areas; but even then economic freedom was far from perfect. And it was to become steadily less so. By the 'seventies or 'eighties a new "law" began to force itself on the attention of the economic world; the law that "competition begets combination." How ever natural competition may be, it is not in human nature that several sellers should go on undercutting each other to the ad vantage of buyers when by agreement between themselves they can establish a higher price or control the common output and so keep prices above the competitive level. It is this second "law" that has already come to engage the attention of governments in many countries and is likely to constitute one of the major prob lems of government for many generations to come.
None the less, competition still prevails over wide areas of trade and industry, and in examining the nature and governance of demand, supply, and price, it is still convenient first to assume free competition and then to enquire into the extent to which the limitation of competition by external circumstance or by the delib erate action of interested parties nullifies the conclusions reached.
Kinds of Competition.__Competition is not necessarily to be identified with harshness or aggression. A common form of com petition between producers or sellers is competition in service. The grocer "serves" his customers, and if he can "serve" them more acceptably than the rival grocer in the next street he will increasingly attract their custom. He cannot thereby be consid ered as displaying a ruthless attitude towards his rival. The grocer in the next street may be a very good fellow, and it may be piti able that his business should decline, but the increasingly patron ized grocer would find little moral justification for relaxing, on that account, his efforts to serve his customers well. His highest obligation is to do as well as he can that to which he has set his hand. If both were class-conscious members of a Grocers' Trade Union, the stronger might go easy with his service in order not to set a standard which would force the pace of the weaker; but to sacrifice service to loyalty is only to forsake one virtue for an other—not necessarily higher. The more successful grocer may in human fellowship give his rival a hand in improving his service and so acquire double merit, but the fact that rivals do not uni versally do so reflects not upon competition but upon human nature.
The creative competition which centres upon the rendering of better service, even though it leaves the weakest to go to the wall and the hindmost to the devil, is in itself honourable and bene ficial. In this respect it commonly. differs from competition not of service but of injury. If the prospering grocer, not content with excelling by service, sets himself deliberately to injure his rival's business—by blocking his sources of supply, by selling goods below cost until the rival is driven from the field, or by false advertising,—the morality and social advantage of his pro ceeding become highly questionable. Such aggressive competition aimed at the injury of a rival may be defended with much plausi bility on the ground that it merely speeds up the process of weed ing out the inferior, and the argument might be acceptable if it were true that the power of aggression is always a measure of fit ness to serve. To assume that such is the case is, however, just as dubious as to claim that the competitor in a footrace who gained first place by doping or bludgeoning his rivals was necessarily the best runner. One of the commonest types of competition pertains to quality and price. Each competitor endeavours either to sell the same article at a price lower than that quoted by his rival, or a better article at the same price. Such competition is commonly aided by informative advertising—a device which helps the aver age person to satisfy his wants more cheaply, more satisfactorily, and far more easily than if this method of broadcasting informa tion did not exist. In this connection, the fact should be noted that, to justify the advertising of an article on a wide scale, it must be of such a quality as to satisfy the desires of those who purchase it.
Wastefulness of Competition.—In so far as advertising fails to increase knowledge concerning the quality and availability of goods, but merely induces buyers to shift their purchasing with out gain to themselves, it represents a waste of materials and hu man effort. The degree to which such waste occurs is a matter of dispute.
Aggressive competition often expends effort in nugatory combat which might much more beneficially be given to improving and cheapening method, process, and product. Undercutting among rival manufacturers may lead to goods being sold at "cut-throat" prices; but the price may none the less be higher than it might be if the individual firms were in friendly communication or if the manufacture were concentrated in a few, instead of spread over many, establishments. Competitive production often means a wasteful duplication of activity and plant; it results in each firm working out its technical and commercial problems without help from the others; it allows each manufacturer to go in for many varieties and patterns and to specialize in none; it leaves each firm to buy in small quantities, to market in small parcels, and to carry separate stocks. It leads to needless multiplication of shops of all types, with the result that most shopkeepers make but a meagre livelihood, and far too many persons are diverted to the mercantile field when they would benefit society more by working in other industries. Thus, competition may stimulate the will to serve and yet deny the means. For these reasons goods produced under a regime of free competition may be dear even though the competing producers are making less than a living profit.
One of the most serious defects of the competitive system in an advanced industrial order arises out of the time lag between the decision to produce and actual production ; coupled with lack of knowledge, intensified, may be, by deliberate secretiveness, as to what others may be planning to do. Even in primary agricultural production a season will elapse between seedtime and harvest; a decade may elapse between planting and fruit-bearing; and a temporary shortage may induce many, unknown to each other, to sow or plant for the production of what is momentarily scarce and dear; with the result that the eventual yield is inordinate, the glut leads to low prices and waste, each separate cultivator de cides to plant anything rather than what he overplanted before, and shortage comes again.
In manufacture, the same process is to be observed. If the cotton trade is prosperous a score of enterprisers may decide to build new mills with the object of partaking in the current pros perity, none reckoning on the action of his fellow, but more than a season will elapse between the forming of a company and the production of the first bale of cloth, and, by then, circumstances that made the boom may have passed away, and into the very depths of the slump may be poured the products of a score of new mills. In this respect the case of manufacture is worse than the case of agriculture. The cotton factory remains, useless for any thing but textile production, and in the effort of redundant fac tories merely to keep going, at whatever loss, a whole industry may be brought to a ruinous condition which may endure until some of the weaker factories have to close down, thereby reducing supplies and allowing prices to rise again. Fluctuation is inherent in all economic competition, and violent in "blind" competition, but, where business men are well informed as to the state and prospects of the market and the action and plans of their com petitors, its extent may be lessened somewhat.
Informed and Uninformed Competition.—In the United States, where concerted action in restraint of competition is for bidden by law, the substitution of informed for uninformed competition has made marked progress. Not only is business in formation issued on a voluminous scale by the Government and by private agencies, but associations of firms in the same line of industry collect information as to enquiries, quotations, orders, stocks, etc., from members, and issue digests of the information to contributing members. The legality of such activities under the Anti-Trust laws, particularly when they relate to prices or output, is, however, doubtful. (See ASSOCIATIONS, INDUSTRIAL.) Hindrances to Free Competition.—The chief obstacles which prevent competition from operating effectively may be clas sified under three heads, namely custom, monopoly, and govern mental interference. Custom interferes in many ways with the free play of competitive forces. For example, farm rents in a whole community are often set at a definite share of the crop, re gardless of the quality of the land. Merchants mark up the prices of their goods by customary percentages, ignoring the state of trade. Common labour commands a customary wage despite strik ing differences in the efficiencies of individual workers.
For centuries, monopoly, either complete or partial, has limited the realm of competition. Nothing is more natural than for com petitors to get together and agree to fix prices, curtail production, divide up territory, and drive out competitors by fair means or foul. Improvement in means of communication and growth of large-scale enterprise has facilitated the extension of monopoly. The i9th century witnessed a widespread development of power ful monopolistic labour unions which, by raising wage rates un duly, have seriously curtailed opportunities for employment. Similarly, huge manufacturing concerns have adopted the policy of maintaining selling prices in the face of falling demand, and have thus necessarily brought about a decline in production and accentuated depression. Governments have long interfered with competition by fostering monopolies, levying tariff duties, fixing wage rates, and placing numerous restrictions upon the freedom of enterprise.
In most nations, the loth century has seen a great increase in such interference.
Despite its wastefulness and weaknesses, most economists agree that no other economic system has as yet been able to turn out an average volume of product per man-hour even approaching that produced under a system of free competition.
The enormous quantity and variety of goods thrown upon the mar kets of the world during the period in which competition has been in the ascendant affords sufficient proof that individualism is a potent conjuror of worldly goods. Furthermore, competition is socially bene ficial in another way as well, for it provides a zest that might otherwise be lacking in industrial endeavour. The presence of an avowed trade enemy, the sense of danger, the imperative need for keeping in fighting trim have produced in the past qualities of alertness, vigour, and self reliance which the more amiable objective of service might not have fostered so keenly. The type of character produced by these influences may not be wholly admirable, but it is at any rate strong and forceful and it is a commonplace that very many of those who are eminent in the new sphere of service by combination acquired their ability and strength in an environment of competitive struggle.