Economics 101 & Public Square

How Competition Constrains the Rich and Limits the Abuse of Power

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Does one woman becoming rich give her power over a poor woman?

As I discussed in a recent blog, economics can help us here.

Money does not imply that you have great power. Money gives you opportunity, choice, and often the ability to make even more money. But is that power?

How Competition Puts a Check on Power and Encourages Innovation

The exercise of private power—the God-given ability to act, create, and express ourselves—is much different from and more limited than public power—legal or official authority over others. In spite of their riches, the wealthy are quite limited in how they can use force.

For example, the Apple Corporation might like it if Apple products were mandated in offices, schools, and hospitals. This would give them a significant edge over their competitors. It would also ease the competitive pressures the market forces upon entrepreneurs, like Samsung’s recent campaign pointing out the slower iPhone operation speed.

These competitive pressures include things like:

  • Making products faster.
  • Making products that are able to do more.
  • Making products that are cheaper.

As consumers, we want these competitive pressures to be fierce and unrelenting. They force prudence and innovation upon business owners. They severely limit the coercive power that these individuals have on you and me. The competitive arena also provides the opportunity for the poor to apply their gifts to serve others and get ahead.

However, political decree operates much differently. Under political decree, there is no system of reward based on doing something people want—making products and services faster, more productive, and cheaper. More importantly, there is little discipline when businesses don’t meet the needs of others.

Political power uses coercion to accomplish its goals. For this reason, it can be very attractive for business owners to seek political protection to bolster their products over their competitors. This gives them the much-needed edge that the market is incapable of giving.

Not one person on the Forbes billionaire list has the power to protect themselves at the expense of others without the help of the government, the law, or some official authority that coercively mandates it.

Here is a little thought experiment. Can you tell which of these people possesses the most power?

  • Jacqueline Mars: She is worth $23.8 billion and ranks #34 on the Forbes billionaire list, along with her brother John. She makes candy. This is the family who created the Mars bar.
  • Michael Dell: He is worth $24.2 billion and ranks #39 on the Forbes billionaire list.  He makes computers and is chairman and CEO of Dell Technologies.
  • Mark Zuckerberg: He is worth $75 billion and ranks #5 on the Forbes list. He created Facebook.
  • Joseph Simons: He probably makes a little over $200,000 per year. He has a job that won’t land him on the Forbes billionaire list: Chairman of the Federal Trade Commission.

Despite the fact that he makes far less money than the first three people on this list, Simons is quite powerful. In fact, he has vast amounts of power, more than that of the other three people combined.

Simons can sanction businesses. He can influence entry and exit in different sectors of the market. These powers were not given to him by the market. They were given to him by virtue of his political office, by political appointment.

Mars, Dell, Zuckerberg, and many other entrepreneurs who become wealthy would probably like to acquire that amount of power. They would like you to only have one choice: their product. But without political power, they can’t do very much.

You see, no wealthy entrepreneur holds any special power in and of themselves. They may be able to drive a nicer car and live in a bigger house than you. They may be able to afford the best colleges for their children. But they hold no power over you or me.

Entrepreneurs must be responsive to their customers for their continued success. They are conferred unjust power and can oppress their competitors and those less powerful then themselves only if and when they lobby the government for special privileges.

I would argue that only in the market economy can a thirty-four-year-old share space and rank higher than men and women much older, who have been working at their businesses their entire lives. Markets are opportunity based. Though imperfect, they can sometimes provide hope for the destitute and constrain the wealthy from being oppressive.

It’s when society allows entrepreneurs to gain special privileges through the state—what we call cronyismthat the wealthy truly have an opportunity to oppress the least among us.

 

Editor’s note: Learn more about issues related to markets and power in Counting the Cost: Christian Perspectives on Capitalism.

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  • Pete Smith

    I agree with everything you wrote. Your ending is the most important: “It’s when society allows entrepreneurs to gain special privileges through the state—what we call cronyism—that the wealthy truly have an opportunity to oppress the least among us.” Has not every economy suffered from this to one extent or another? It’s the nature of fallen mankind to seek out benefits for self at the expense of others.

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