In free market/bean counter ideology, nothing a private company does can be wrong because competition will correct all mistakes in the long run. This meshes perfectly with the ultimate bean counter goal of having all companies in an industry owned by the same 4 bean counter-run hedge funds and run by the same bean counter executives. That way the bean counters can squeeze the public dry and have maximum leverage when society has no choice but to start handing out bailouts.
when society has no choice but to start handing out bailouts
"Too big to fail" works if they're making the right people rich but were otherwise being seen to do their job, then suddenly external factors seem to threaten their existence and money can get them back to making the right people rich. The pandemic was a good example of that. However, when they're publicly failing to do their job due to a broken or corrupt internal culture then instead of bailouts they might get broken up or more drastically changed because money can't solve the problem at that point.
You definitely get the idea that the activities of large firms are political and not driven by competition but I don’t think “too big to fail” required the public to think the banks were doing a good job in 2008. There was general agreement that the banks themselves caused the 2008 financial crisis. The bailouts happened because the bankers who would have lost their fortunes were powerful enough to order the elected officials to bail them out anyway.
“too big to fail” required the public to think the banks were doing a good job in 2008
The analogy to the banking crisis doesn't quite work. For years the banks didn't have any major snafus, banking in general was working great for most people and making many (and crucially, all the right people) rich. Also, the previous problems had been papered over pretty effectively and 2008 was a particularly bad crash. Boeing on the other hand has had a string of major crises for a few years in a row. It'd be comparable to the banks if savings and loan, the dot com crash, and 2008 all occurred within 5 years. By that third one very few politicians would have the political capital left to spend on bailouts.
A private company makes mistakes. Competition corrects it by either forcing the private company to adapt or driving them out of business. There are issues with that plan when there are not enough competitors.
There also are problems with having too many competitors. For example having much less money (due to lower margins) to hire and pay your employees and creating lengthy processes to ensure quality. Competition isn’t necessarily the best solution or even a good one.
More competition is similar to “defunding” all the competing companies.
Yes. There is literally never enough competition for bean counter arguments to matter. Saying “competition” is the solution to a problem is just a bad excuse to not fix it. In the real world, large organizations make decisions based on political pressure from governments and the public.
The only real competition is for shareholder "investment" and returns.
In the absence of effective external oversight and regulation - clearly a problem across the economy, never mind here - you can guarantee a race to the bottom where only the beans matter.
If the company stops making quality products that usually creates a bonus, because cheap. Lower headcount? Bonus. Union busting? Bonus. Low wages? Bonus. Indifference to worker welfare? Bonus. Cosy revolving door relationship between lawmakers, regulators, and senior management? Mega payout!
The incentives are all aligned towards making payouts for owners bigger, while lowering objective quality of service, worker conditions, and worker pay.
Airbus is less terrible because the EU regulatory regime isn't quite as toothless, and the EU has a very slightly less competitive and exploitative financial culture.
You find the same human-hostile forces right across the economy - from landlords who send rents into an exploding price spiral, to utilities that monopolise infrastructure while investing as little as possible, to pork barrel government spending at inflated prices, to startups whose only real USP is an app and a plan to sidestep existing regulations, to tiny restaurants that expect customers to tip generously, because they're certainly not going to pay waitstaff a living wage.
I think of the WW1 Christmas Truce and wonder how many competitors are able to stop competing for mutual benefit. It's good when competition in war ceases, but it's not good when several "competing" companies decide to cease competition for mutual benefit. If people can do it in the highly charged situation of trench warfare, why can't companies do it to? Could a market with 10 competing companies cease competing for mutual benefit? What about 20?
Competition is not enough. It must be easy for new competitors to enter the market to ensure a nefarious trust doesn't form between companies.
I get what you're trying to say, but the context of the Christmas truces is more complicated than just mutual benefit:
There was a huge disconnect between the leadership of the respective armies and the rank-and-file soldiers dying in the trenches. So it wasn't just "its Christmas, we shouldn't be killing each other", it was also "we have no idea why we are fighting in the first place, and our leaders think it more important that we die than that we win." It was deliberate insubordination to what the soldiers understood was pointless wasting of their lives.
I think the correct analogy is if the workers of Airbus and Boeing both struck because the two companies had both adopted new business practices in the name of business competition, that simply killed workers and passengers without providing either with any kind of competitive advantage.
Not everything is zero sum. The important element is not whether or not it is mutually beneficial to the companies, but whether it is detrimental to some other party.
Price fixing, wage suppression, monopolizing etc are all detrimental to the customer, employees, or other businesses, but it is possible to collaborate or “cease competition” in certain areas for mutual benefit in ways that are not detrimental (and in fact, are also beneficial) to others.
If it's organized, but what if it's just an unspoken rule in the industry? The result would be an unchanging status que with little innovation.
If this were true I'd expect to see industries where innovation usually comes from new companies in the market. The existing companies have stopped trying, stopped competing, and thus you only see innovation from new companies. Do we see this pattern often?
My point is the number of competitors is less important than how easy it is for new competitors to enter.
nothing a private company does can be wrong because competition will correct all mistakes in the long run
There must be real competition for this to work. In reality their are 2 large plane builders, Airbus and Boeing. And I believe Airbus also as issues too.
Plus, you know that old saying, "In the long run, we are all dead" :)
The root of the problem is that it's hard to quantify engineering quality. That means it's hard for shareholders to hold it to a high standard to preserve long-term value. But it's just as hard for socialist planners to do that.
But there is a lot of regulation and supervision. It kicks in late in the cycle, though, because doing so early is a hard problem (e.g. detecting rot in the engineering culture).
Comments
In free market/bean counter ideology, nothing a private company does can be wrong because competition will correct all mistakes in the long run. This meshes perfectly with the ultimate bean counter goal of having all companies in an industry owned by the same 4 bean counter-run hedge funds and run by the same bean counter executives. That way the bean counters can squeeze the public dry and have maximum leverage when society has no choice but to start handing out bailouts.
"Too big to fail" works if they're making the right people rich but were otherwise being seen to do their job, then suddenly external factors seem to threaten their existence and money can get them back to making the right people rich. The pandemic was a good example of that. However, when they're publicly failing to do their job due to a broken or corrupt internal culture then instead of bailouts they might get broken up or more drastically changed because money can't solve the problem at that point.
You definitely get the idea that the activities of large firms are political and not driven by competition but I don’t think “too big to fail” required the public to think the banks were doing a good job in 2008. There was general agreement that the banks themselves caused the 2008 financial crisis. The bailouts happened because the bankers who would have lost their fortunes were powerful enough to order the elected officials to bail them out anyway.
The analogy to the banking crisis doesn't quite work. For years the banks didn't have any major snafus, banking in general was working great for most people and making many (and crucially, all the right people) rich. Also, the previous problems had been papered over pretty effectively and 2008 was a particularly bad crash. Boeing on the other hand has had a string of major crises for a few years in a row. It'd be comparable to the banks if savings and loan, the dot com crash, and 2008 all occurred within 5 years. By that third one very few politicians would have the political capital left to spend on bailouts.
A private company makes mistakes. Competition corrects it by either forcing the private company to adapt or driving them out of business. There are issues with that plan when there are not enough competitors.
There also are problems with having too many competitors. For example having much less money (due to lower margins) to hire and pay your employees and creating lengthy processes to ensure quality. Competition isn’t necessarily the best solution or even a good one.
More competition is similar to “defunding” all the competing companies.
Yes. There is literally never enough competition for bean counter arguments to matter. Saying “competition” is the solution to a problem is just a bad excuse to not fix it. In the real world, large organizations make decisions based on political pressure from governments and the public.
The only real competition is for shareholder "investment" and returns.
In the absence of effective external oversight and regulation - clearly a problem across the economy, never mind here - you can guarantee a race to the bottom where only the beans matter.
If the company stops making quality products that usually creates a bonus, because cheap. Lower headcount? Bonus. Union busting? Bonus. Low wages? Bonus. Indifference to worker welfare? Bonus. Cosy revolving door relationship between lawmakers, regulators, and senior management? Mega payout!
The incentives are all aligned towards making payouts for owners bigger, while lowering objective quality of service, worker conditions, and worker pay.
Airbus is less terrible because the EU regulatory regime isn't quite as toothless, and the EU has a very slightly less competitive and exploitative financial culture.
You find the same human-hostile forces right across the economy - from landlords who send rents into an exploding price spiral, to utilities that monopolise infrastructure while investing as little as possible, to pork barrel government spending at inflated prices, to startups whose only real USP is an app and a plan to sidestep existing regulations, to tiny restaurants that expect customers to tip generously, because they're certainly not going to pay waitstaff a living wage.
I think of the WW1 Christmas Truce and wonder how many competitors are able to stop competing for mutual benefit. It's good when competition in war ceases, but it's not good when several "competing" companies decide to cease competition for mutual benefit. If people can do it in the highly charged situation of trench warfare, why can't companies do it to? Could a market with 10 competing companies cease competing for mutual benefit? What about 20?
Competition is not enough. It must be easy for new competitors to enter the market to ensure a nefarious trust doesn't form between companies.
I get what you're trying to say, but the context of the Christmas truces is more complicated than just mutual benefit:
There was a huge disconnect between the leadership of the respective armies and the rank-and-file soldiers dying in the trenches. So it wasn't just "its Christmas, we shouldn't be killing each other", it was also "we have no idea why we are fighting in the first place, and our leaders think it more important that we die than that we win." It was deliberate insubordination to what the soldiers understood was pointless wasting of their lives.
I think the correct analogy is if the workers of Airbus and Boeing both struck because the two companies had both adopted new business practices in the name of business competition, that simply killed workers and passengers without providing either with any kind of competitive advantage.
Boeing and Airbus work together on the CAD standards that they use to build their products.
Ceasing competition for mutual benefit is generally illegal.
Not everything is zero sum. The important element is not whether or not it is mutually beneficial to the companies, but whether it is detrimental to some other party.
Price fixing, wage suppression, monopolizing etc are all detrimental to the customer, employees, or other businesses, but it is possible to collaborate or “cease competition” in certain areas for mutual benefit in ways that are not detrimental (and in fact, are also beneficial) to others.
If it's organized, but what if it's just an unspoken rule in the industry? The result would be an unchanging status que with little innovation.
If this were true I'd expect to see industries where innovation usually comes from new companies in the market. The existing companies have stopped trying, stopped competing, and thus you only see innovation from new companies. Do we see this pattern often?
My point is the number of competitors is less important than how easy it is for new competitors to enter.
I agree, but I'm not sure how that relates.
You said it's illegal, and I claimed it happens all the time, that's how it relates.
Sorry, I still don't quite follow. Can you give an example of companies ceasing competition for mutual benefit?
There must be real competition for this to work. In reality their are 2 large plane builders, Airbus and Boeing. And I believe Airbus also as issues too.
Plus, you know that old saying, "In the long run, we are all dead" :)
Competition makes a lot of things better, but it's not super clear that safety is one of those things.
I mean, sort of... but with something as complex as aviation, the feedback cycle into the market is slow and noisy.
The root of the problem is that it's hard to quantify engineering quality. That means it's hard for shareholders to hold it to a high standard to preserve long-term value. But it's just as hard for socialist planners to do that.
It's not about "socialist planners" but about market regulation and a thorough supervision. And sufficient deterrents.
But there is a lot of regulation and supervision. It kicks in late in the cycle, though, because doing so early is a hard problem (e.g. detecting rot in the engineering culture).