If you could kick the person in the pants responsible for most of your trouble, you
wouldn’t sit for a month.
— Teddy Roosevelt
TECHONOMICS NATURAL SELECTION
MECHANISM: COMPETITION
The relentless march of knowledge in applied form (technology) has always been
the force behind human productivity. In product after product, service after service,
endeavor after endeavor, and market after market, continuous improvement in technology
and its expanding deployment have resulted in more output with less human
labor and material resource. Techonomic progress has reshaped the fundamental
productivity of organizations on all levels throughout history.
In view of the applicability of techonomics to so many fields, crossing time and
national boundaries, and with the rate of techonomic change accelerating, could
there possibly be any current markets where techonomic forces are not working?
Can a market defy techonomic trends? Unfortunately, some markets and endeavors
not only defy but reverse them. They can do this only when a powerful external
force is exerted and maintained on the marketplace, however. And the price is high.
As the technology gets better, the economic cost to provide endeavors is increasing,
because these organizations are failing to become more productive.
Under normal circumstances, the techonomic theory of organizational evolution
would anticipate that the competitive market, the natural selection mechanism, would
eliminate negative productivity trends. Remember, each key element in Darwin’s
theory of organic evolution has an analogous element in techonomic theory. In the
competitive economic arena, it is techonomic intelligence that gives some organizations
the edge over others and results in their survival and growth, just as in the
natural environment, it is some favorable characteristic — better eyesight, coloration,
speed, etc. — that gives an animal the competitive edge and “selects” it for survival,
growth, and reproductive success.
Competition in an open market, where techonomic forces can operate freely, is
the selection mechanism that favors productive organizations and promotes their
health and growth. Fundamentally, techonomic theory posits that technology advance
results in productivity gain, thereby providing greater output for less cost. This theory
also anticipates an inverse result when free economic competition is artificially
constrained.
In three major U.S. markets — energy, healthcare, and education — techonomic
trends are operating in reverse, resulting in an economic decline headed to crisis.
The missing element in each of these markets is competition. Each of these troubled
markets exhibits a different way of diminishing the corrective force of competitiveness,
but the external force perpetuating the artificial market originates from the
same source — government:
•
The energy market:
Domestic competition from nearly all energy
sources has been stymied by unilaterally expensive environmental regulations.
These regulations render domestic exploration and production
economically unjustifiable relative to international sources.
•
The healthcare market:
By removal of personal responsibility within a
multilayer system of insurers, providers, litigators, beneficiaries, and suppliers,
competition has been diminished. The motivation for efficiency,
beginning with the individual, has been eliminated because “someone
else” pays the bills.
•
The educational system:
Monopoly leads to waste and inefficiency. The
public education system is a monopoly with a firm agenda to maintain a
perception of adequacy.
In this chapter we shall look at the negative trends in each of these markets, and
we shall consider specific suggestions for reintroducing competition into these key
markets. Due to the size and importance of these three markets, strength within them
is actually vital for sustaining the competitiveness and health of our remaining
economy. However, we shall no doubt have to suffer the ill effects of these negative
trends for a while longer before the will of the American people requires its government
to free these markets.
Since techonomic trends are active in the global economy, performance of these
U.S. markets must be viewed in terms of contemporary world markets. Techonomics
predicts that U.S. trends in these markets are very likely to be corrected in reaction
to a reduced economic living standard in our country relative to the world. However,
if the nation does not act decisively to address the major noncompetitive markets
producing these combined trends, then
more efficient and effective nations tempered
by the competitive fire of the international marketplace will economically
prevail.
In addition to competition, the free market attracts capital, bringing resources
to productive causes. Capital formation, the act of acquiring monetary resources for
the execution of a productive endeavor, is increasingly more important as technology
advances. The acquisition of capital for an endeavor demands a marketplace wherein
a reasonable return is possible (not guaranteed, but at least possible). It has been
aptly said that entrepreneurs are not risk takers; they are calculated risk takers. If
an opportunity is going to attract the capital it needs to grow, there must be a
reasonable governmental, economic, and cultural system in place that respects the
importance of capital. Investments must have the opportunity to bear fruit. If such
conditions do not exist, then elevated capital risk demands payback rates and shortened
time frames that reduce or eliminate the financial foundation needed to proceed.
The current situation in China is a clear example. In recent years, China has
systematically opened up trade and free market practices on its borders. Figure 8.1
shows the growth in trade between the U.S. and China over the past 20 years.
1
Capital formation for China has had to come from revenues generated from
product sales and from corporate partnerships with foreign firms willing to bear
the risk of unknown capital markets and government policies.
Conversations with
leading international equities brokers have confirmed my conviction that investment
in equities listed on Chinese exchanges remains a very risky endeavor. The high risk
is there mostly because of the uncharted performance of their equities regulatory
oversight system. China’s transformation will be slower as a result, but it will still
progress because of free trade and free markets around the world seeking low-cost
goods, wherever they can be found.
The techonomic productivity (output/cost) of manufacturing in China is increasing
rapidly as China embraces the competitive world marketplace. By contrast, the
techonomic productivity of manufacture in the U.S. is on the decline because we
are burdened with decreasing performance in the three influential markets: energy,
healthcare, and education.
Techonomics
has already considered aspects of these
markets both historically and recently, but this chapter offers analysis to pinpoint
the means by which marketplace competition was removed and to suggest corrective
measures.
To restore competition, it is essential to understand the means by which
it has been constrained.
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