Cable on competition

Typical. You wait years for a government minister to channel Marx, and when he does, he cites one of the few things Marx got wrong. Vince Cable says:

Capitalism takes no prisoners and kills competition where it can.

That “where it can” is doing a lot of work. There is no question that each individual capitalist tries to kill competition, by undercutting his rivals, offering a better product or - let’s face it - lobbying the government for special protection. Every businessman wants to be a monopolist - or at least, he should do.
However, it doesn’t follow that such efforts succeed. The empirical evidence suggests that Marx was wrong. There is no tendency for capital to become more concentrated. Studies show that firm growth is independent of size (or anything else!), and so the distribution of firm size doesn’t change much over time. The degree of competition or monopoly is roughly stable. Tesco or Wal-Mart might seem monopolistic, but they are less so than 19th century truck stores.
One macroeconomic piece of evidence for this is the share of profits in GDP. If capitalism tended to kill competition over time, you’d expect this share to rise over time. But it hasn’t. Aside from a fall in the 70s and recovery in the 80s, the profit share seems trendless.
One reason for this is that there are strong countervailing pressures against individual capitalists’ desire for monopoly.
Herein, though, lies a problem. The weakness of the banking system means that some of these pressures are weaker than normal. With banks unable or unwilling to lend, new businesses are less able to grow to compete against larger firms. And existing firms are less able to get the finance to expand into areas where incumbent firms enjoy super-normal profits.
Competition requires finance. But this is lacking.
And here, Cable is weak. He says:

Our agenda can be summed in seven words: make [banks] safe and make them lend

There is, of course, a contradiction between these two goals. And Mr Cable said nothing to show how he plans to overcome it. 

Comments

[Tristan]

It seems to me that capitalism does seek to suppress competition. The current form of capitalism does this by working with governments to raise entry barriers and gain many forms of subsidy which aid in forming oligopolies.

(we are of course here talking of capitalism in its original sense, not the rehabilitation attempt which equates it with free markets - in which case we don't have capitalism).

[Luis Enrique]

It makes quite a difference (as I'm sure you know) whether firms kill their competition by out-competing them, or by lobbying to obtain protection. Which did Cable mean? If the former, why's he making that sound like a bad thing?

[Spun]

Financial firms may well be becoming more monopolistic. Not only has the crisis led to concentration but the share of profits has been steadily rising over the last decade and is more or less back to its precrisis levels (albeit before the headlines of the last few days). Given their profits, plus the amounts paid in salary and bonus a lot of surplus value seems to be going their way. This of course is helping them resist regulation. Not sure they are weak, even if they don't find traditional lending very profitable.

[pablopatito]

Maybe Marx was right and its only government intervention that has prevented competition being killed.

Companies lobby, but there's also considerable state intervention (eg MMC, planning depts) keeping check on the anti-competitive practices of the likes of BT and Tesco. In normal circumstances the state would have prevented Lloyds TSB from purchasing HBOS, wouldn't it?

Maybe Cable can see how the Tories dream of a smaller state with less intervention will cripple competition and he's fighting back?

There is no truly capitalist economy for which we can test Marx's theory is there? The US calls itself capitalist but I understand they have even more anti-monopoly legislation than we do?

[ajay]

With banks unable or unwilling to lend, new businesses are less able to grow to compete against larger firms. And existing firms are less able to get the finance to expand into areas where incumbent firms enjoy super-normal profits.

Well, yes, but then without finance it's also tricky for would-be monopolists to buy out their rivals. (Which is good anyway. Mergers and acquisitions are generally bad ideas.)

[BenP]

To. Big. To. Fail.

[Financial Planning]

he weakness of the banking system means that some of these pressures are weaker than normal. With banks unable or unwilling to lend, new businesses are less able to grow to compete against larger firms.

[moncler switzerland]

It's so nice to have you do all of the research for us. It makes our decision making so much easier!! Thanks.