Who is Afraid of Competition or the Fable of the Fox and Grapes

Few Lithuanians today would question the advantages of market and competition over a planned system of the Soviet era. Those who are over thirty remember pretty well the times of outright deficit and empty shelves in the shops, where one could get without trouble only grain, salt and vinegar. Younger ones may not even imagine arrogant restaurant and cafe doormen, rude taxi drivers and drowsy hair-dressers, treating each customer as a potential intruder.
The first signs of competition showed already in mid-eighties, at the outset of Mikhail Gorbachev’s “perestroika.” At that time the rise of private ownership and initiative was the most characteristic of services and commerce. Those who ventured on business projects had to compete not against each other but first of all against the state. Under a command economy and severe price controls, this kind of competition resembled the struggle of David and Goliath. As price competition with the state was virtually impossible, private entrepreneurs had to rely on the quality of services, flexibility and a proper fulfilment of customer needs.
In Lithuania, the state has relinguished over the past years monopoly rights in most spheres of business and life. The private sector contributes 70 percent of wealth created in the country. Even such traditional state-run sectors as energy supply, public utilities and telecommunications are going private. Competition in the private sector is increasingly building up, provided the government refrains from intervening.
Naturally, competition enjoys broad-based public support. After all, it furnishes more goods, secures quality consumption and provides an opportunity for the best market agents to realise themselves. Few would dispute that competition is the driving force behind progress and a safeguard to protect consumer interests. Still, there is no consensus as to what the essence of competition is nor how to enforce the recognised principles of competition.
LFMI’s survey of opinion leaders suggests that despite the rhetoric about the benefits of competition, many believe that government intervention is a more reliable “tool.” Such views tend to find a ready audience among losers outrivaled in competitive battles. This is understandable. Let us recall the fable of the fox which having failed to reach the grapes concluded that they were sour. It is small wonder that many of those who for one reason or another have less luck than their competitors forget about the merits of competition. They take to complaining about “wild capitalism” and advancing protection against rivals. Thus attempts are made to buttress “good” although uncompetitive products, and this is true not only of services or production, but also of culture and other spheres of life. In some cases, such policies are adopted under the cloak of EU policies, which although frequently ill-considered, are being mechanically transplanted to Lithuania.
Obviously, opposing competition in an open manner is neither fashionable nor clever. So it is obstructed by manipulating such notions as “free competition” and “opportunities to compete,” values promoted by genuine champions of freedom and competition. The State Competition and Consumer Protection Service and the whole competition policy pursued by the government play a prominent role here. Instead of pressing the government to remove licences, monopoly rights and other restrictions imposed on the freedom of activity, the said agency turns out to be an opponent of free exchange, judging what’s “fair” and what’s unfair, what’s “free” and what’s unfree.
Drawing on the functioning competition law and competition policies, one may “discover” that despite the declared freedom of contracts, people are far from being free to conclude agreements. One may “discover” that the right to possess and dispose of private property is often turned into an obligation to sell one’s products. That despite the awareness of the need to plan one’s activities (sometimes even falling back on the fallacies of a planned economy), people are not allowed to co-ordinate their acts on the market. That despite the fact that prices are determined by supply and demand, one may not “abuse” opportunities to charge high prices.
State-run enterprises and budgetary institutions continue to be active players on the market. The state cannot be a fair player because it seeks to set the rules, to judge the game and to play itself at the same time. The state will fail to be a fair referee of competition until state-owned businesses and various interventions exist.
Competition is affected by a number of factors, of which the most important is how much freedom of activity the state deigns to furnish. Competition law ought to safeguard the free zone from state or any other coercion. Sadly, it is all too often used to curb freedom and bolster governmental powers rather than private initiative. This is a widespread approach, according to which the already traditional “competition” policies are displayed as essential attributes of a free market.
LFMI uses a different approach. In co-operation with the Friedrich Naumann Foundation, LFMI addressed these issues at a major conference which this issue of The Free Market relatea in more detail. Conference participants were unanimous that by restricting freedom of contracts we will suppress competition and that by imposing regulations we will hinder the market. The phantoms of the near abominable past will not recede until government regulations are loosened.