What has competition done for us?

The alternative to free competition is to let politicians and interests groups make all the decisions, argues Nima Sanandaji, of the Captus think tank.

During the Summit of the European Union’s head of governments, June 2007, French President Nicolas Sarkozy asked the following question: “Competition as an ideology, as a dogma, what has it done for Europe?” Sarkozy’s response seemed to be “not very much”. The phrase “an internal market where competition is free and undistorted” was replaced in the new proposed EU Treaty with “a single market”. This remark was of great political importance. But was Sarkozy right?

As Swedish author Johnny Munkhammar explains in a policy paper published by the European Enterprise Institute, the issue of free competition has had great significance for Europe for the past few hundred years.

Europe’s journey from poverty into wealth occurred in tandem with the expansion of property rights and free competition. The first such system emerged in the Renaissance cities of northern Italy and southern France, giving rise to a level of wealth that could support works of art that we still treasure today, but also to the development of technologies and financial institutions such as banks. Free markets and private ownership were further established in the Netherlands, helping the country to become a thriving economy and for a short period a colonial superpower. Similar policies were built upon in the United Kingdom, giving rise to the industrial revolution.

As Munkhammar points out, free markets are a cornerstone in economic development. Ireland, which until recently was an impoverished nation, has risen to become one of the world’s richest by reducing government expenditure and liberalizing its economy. The countries of Eastern Europe suffered greatly during communism but those of them that were willing to open up their economies have grown rapidly.

The basic issue of competition is not whether it fosters economic development or not. Although even a French centre-right president might challenge this notion, history and economics as a science clearly indicate that the response to this question is “yes”. Munkhammar explains that the fundamental questions are whether anybody should be allowed to compete in order to satisfy the demands of a consumer? If not – who should be allowed and who should determine that other than the consumer? And what should be created?

The alternative to free competition is to let politicians rather than the consumers decide. In countries where politics decides which companies may compete and which may not, there is little need to satisfy the demands of the consumers, or compete by giving workers a good deal. Companies thrive on buying the favour of politicians rather than being effective and subsequently they spend their time and effort in doing the former.

The alternative to free competition is a system where political interest groups even dominate policy formation even more than today, as unions and industry groups try to get permission for their business and hinder their competitors through legislation and government handouts. Limiting competition would be to challenge, or fundamentally break, one of the most important cornerstones of Western civilization – the free market. In order for Europe to continue to prosper The European Union must persist to uphold the value of free competition.

Nima Sanandaji is the president of the Swedish free market think tank Captus and publisher of the weekly online Swedish magazine Captus Tidning.