Competition Works, D’Ye See?

Matt Ridley on an important little historical point:

Here is a beautiful and cultured continent being run as if it was the Ming empire: with mandarins deciding what should be done and how, with the same inflexible rules in every corner, with a distrust of enterprise and innovation, and with a mercantilist, zero-sum approach to trade that beggars both belief and neighbours.

At the time when the early Ming emperors were stifling China’s prosperity with centralised bureaucratic tyranny, backward Europe was transformed into the world’s most innovative and wealthy continent. It did so precisely by not being unified and centralised: by being a quilt of different countries so that entrepreneurs, inventors and artists could shop around for a congenial regime, as David Hume was the first to argue.

We do know what improves productivity, that’s competition. So, we’ve a supplier of whatever it is and they’re OK to middling say. Then comes some other bloke who can do this better. Our first chappie must thus either up his game or exit the market to be replaced by the better bloke. And so, through either the death of the OK to middling, or their pulling their socks up, the efficiency with which things are done rises over time as a result of competition.

This is also the point about international trade and productivity. It’s a reasonable rule of thumb that only the 10% of the most efficient producers of whatever try to sell in other countries. It’s obvious enough that mediocrity is easily available domestically after all. So, only the good at whatever bother to try to sell to other places where they already have the so-so and OK to middling around the corner.

It’s the exposure of that mediocrity to the foreign competition – already defined as the best 10% recall – which boosts domestic productivity. This does rather kill the argument that domestic industry must be protected from the more efficient foreigners because that is to deny the very point of the trade on productivity in the first place.

Hume’s insight, and Ridley’s restatement of it, is that the same is true of government. Obviously, by definition, a government is a monopoly in any one place because that’s what sovereign means. But we also know that monopolies are inefficient – we gain less output at higher cost just because of that existence of the monopoly. The only way we can gain competition – and thus that increase in productivity – is by having competing jurisdictions. Each sovereign in its own area but with it being possible to business – and, we’d hope, people too – able to move between them.

That is, far from our desiring an overarching monolith like the European Union we need, instead, a patchwork Europe of competing states. The Holy Roman Empire perhaps, the Imperial cities competing with the bishophrics, they with the Duchies, Margravates and city republics and feudal estates and Papal whatevers and so on.

Actually, the Peter Simple vision of Europe rather than the one we’ve got.

Competition works for business, it works for people and we should allow it to work for governments too.