by Mike Masnick

Filed Under:
competition, eliot spitzer, protectionism

gm, sec

A Love Of Competition, Not Protectionism

from the culturally-difficult dept

There's an interesting dichotomy that goes on in captialist societies. We all know that markets grow and innovation occurs through competition and the ongoing process of companies trying to out-innovate each other -- but each individual organization is always looking to monopolize its own world. In fact, that is what innovation is all about. You innovate to get a monopoly on whatever that innovation is, for as long as you have it. The problem, however, is that too many have build up the belief that these monopolies should be lasting, or even permanent. That's not true. For the health of society and the company, they absolutely should be fleeting monopolies. That's the only way to make sure a company changes with the times and is flexible enough to handle market changes. But that quixotic and dangerous pursuit of permanent monopolies leads to dangerous situations -- often using or demanding protectionist policies from gov't regulators.

Eliot Spitzer (yes, that Eliot Spitzer) makes some interesting points in a column where he attacks both the SEC and GM for focusing on protectionism rather than competition. When it comes to GM, the argument is easy to understand. GM has done much to try to resist novel and useful innovations in the interest of protecting its own business. As for the SEC, that's a bit more of a stretch -- and obviously stems from Spitzer's own efforts back when he was NY's Attorney General and attempted to take on Wall St. while the SEC resisted any such investigations and lawsuits. Thus, to him, he represented "competition" and the SEC tried to block out such competition (which brings up some weird questions concerning whether or not it's good to have competition within the regulatory structure).

But the key point Spitzer makes is that we need to build a "culture of competition" into American organizations, rather than protectionism. That sounds good, but I'm having trouble seeing how you could actually make that work directly. There are some things you can do on the margins -- and, in fact, research has shown that making noncompete agreements unenforceable actually does increase competition (is it worth pointing out at this time that noncompetes went from unenforceable to enforceable in Detroit in the 80s...?). But, you can only do things like this at the margin. There is no way to flat out change a culture in this manner. Instead, I think you actually need to create incentives for companies to take a longer term view, rather than the short term view we get today. With the quarterly report set up, everyone has a 3-month time horizon on pretty much everything they do (in some cases one year, but never more). If companies actually had incentives to look at the significantly longer term, they would recognize themselves that ongoing competition and innovation are the only way they're going to continue successfully serving a market in the long run. But until someone comes up with a way to create incentives that allow for both transparency and longer term views, then it's likely that companies will focus on beating down competitors rather than winning through innovation.

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  • identicon
    Anonymous Coward, 26 Jan 2009 @ 10:01pm

    Kick out the ladder

    reply to this | link to this | view in chronology ]

  • identicon
    NotBob, 26 Jan 2009 @ 10:45pm


    It seems that the fact that a publicly traded company Has to focus on keeping the investors happy, which often means taking a short-term view of things like profits and growth, is something that sabotages long term thinking. But without the investor, a lot of companies wouldn't even exist. Catch-22?

    reply to this | link to this | view in chronology ]

  • icon
    PT (profile), 27 Jan 2009 @ 1:52am


    I think you mean "speculators", not investors. Investors are in the market for the long term, making their money off dividends, while speculators are in it for a capital gain, the bigger and quicker the better. The problem we've had since the 1980s is that companies have been too focused on generating capital gains for their stockholders, rather than managing their business for the long term. This is of course encouraged by paying executives in their own stock.

    It's not so much that we need to create incentives for companies to make long term investments, as much as that we need to remove the incentive to increase the stock price at the expense of everything else. This pretty much means breaking the hold of the financial sector on the industrial. I don't know how one would go about that, but paying executives in actual money instead of stocks might be a good start.

    reply to this | link to this | view in chronology ]

  • identicon
    Gene Cavanaugh, 27 Jan 2009 @ 3:39pm


    WOW! I am impressed! I find myself in the position of totally agreeing with everything Michael says!
    I will add that, in defense of GM, wages in the auto industry have gone up to the point that, even with automation, they are uncompetitive in the cars many people want - they have to build "muscle" cars, whether the mainstream wants them or not, because that is where the large margins are (and where the "Muricuns" that buy "Muricun" agin them furriners are, even if they have to pay extra).
    Also, I will add that I am now convinced that the IP system is hopelessly broken - not that we don't need one, as Michael says, but we don't need the one we have at this time!

    reply to this | link to this | view in chronology ]

  • identicon
    Jesse Anderson, 28 Jan 2009 @ 11:46pm


    To me it sound like a plantation idea!

    reply to this | link to this | view in chronology ]

  • identicon
    moelarry, 29 Jan 2009 @ 6:18am


    great idea! in fact let's do away with all form of property rights including copyright. god knows you have nothing of value to protect anyway.

    reply to this | link to this | view in chronology ]

  • identicon
    B, 29 Jan 2009 @ 2:43pm

    Romer provides the answer

    Economist Paul Romer provides the answer -- and curiously, he argues for strong, not weak patent rights, to provide the short term incentives to make innovation work.


    reply to this | link to this | view in chronology ]

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