Posts Tagged ‘competition’
“The roots of the word ‘compete’ are the Latin con petire, which meant ‘to seek together'”*…
Peter Thiel would have us believe that “competition is for losers.” The FTC begs to differ. Earlier this month, it introduced a proposed rule that would eliminate employee noncompete agreements. Scott Galloway explains why this is a very good plan…
… Yesterday’s iconoclasts pull the ladder up behind them the moment they become today’s icons. We’re in general agreement that “anti-competitive” behavior is bad, and have laws against it. Yet companies have been able to convince regulators to look the other way on an increasingly popular weapon of mass entrenchment. They’re passing out OxyContin during an AA meeting. The Oxy? Noncompete agreements…
Noncompete clauses are what firms use to sequester your human capital from competitors. When a new employee signs a noncompete with, say, Johnson & Johnson, they agree that when their employment ends, they won’t work at another pharmaceutical company for a designated period — usually one to two years. If you’re familiar with noncompetes, you likely associate them with technology jobs, where employers want to protect valuable intellectual property. And that’s the defense most often offered for the restrictions. BTW, the argument is bullshit … a confidentiality agreement does the trick.
The irony of noncompetes is they only serve to dampen growth. One of the few places where they’re banned is also home to the world’s most innovative tech economy: California. Job-hopping and seeding new acorns have been part of Silicon Valley since the beginning. In 1994 a Berkeley economist theorized that California’s ban on noncompetes was one of the main reasons Silicon Valley existed at all, and in 2005, economists at the Federal Reserve put forward statistical evidence supporting the theory. Apple, Disney, Google, Intel, Meta, Netflix, Oracle, and Tesla were able to succeed without limiting the options of their employees.
Yet outside California, corporate boardrooms love noncompetes. Historically they were attached only to high-skilled, high-paying jobs. Now they’re becoming ubiquitous across different industries at all levels. Fast-food workers are being forced to sign noncompetes, as are hairstylists and security guards. Roughly a third of minimum wage jobs in America now require such agreements. If forcing noncompetes on America’s lowest-paid workers sounds like indentured servitude, trust your instincts.
Employers claim noncompetes give them the assurance to pay for training and other investments in their employees. There is some evidence that noncompetes are associated with more worker training. But there’s a catch: They also decrease wages. The good news is we’ll train you to operate the fryer, the bad news is we won’t pay you a living wage to do it — and you can’t take a better job across the street.
The FTC estimates that noncompetes reduce employment opportunities for 30 million people and suppress wages by $300 billion per year. That’s far more than the total value of property stolen outright every year. Multiple studies also show that noncompetes reduce entrepreneurship and business formation. Which makes sense — it’s difficult to start a business when talent pools are not accessible or allocated to their best use. Downstream, the lack of competition leads to entrenchment, which eventually results in higher prices for consumers — as one study found has occurred in health care. Everybody loses. Except, of course, the incumbent’s shareholders…
It’s worth remembering the insight of W. Edwards Deming, one of the architects of Japan’s rise to industrial leadership after World War II: “In 1945, the world was in a shambles. American companies had no competition. So nobody really thought much about quality. Why should they? The world bought everything America produced. It was a prescription for disaster.”
The case against noncompete agreements: “Compete,” from @profgalloway.
See also: “Noncompete Agreements Reduce Worker Pay — and Overall Economic Activity” (source of the image above).
* Mihaly Csikszentmihalyi
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As we remove the shackles, we might recall that it was on this date in 1915 that Ralph Chaplin, a Wobblie (a member of the Industrial Workers of the World) finished his poem “Solidarity Forever“– which, sung to the tune of “John Brown’s Body”/The Battle Hymn of the Republic,” has become a labor movement anthem.
“Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience”*…
Regulation often addresses real public needs/concerns. But the costs of compliance often favor the largest players in a regulated market– which can lead to consolidation. From the Oxford Martin School, a current example…
Exploiting the timing and territorial scope of the European Union’s General Data Protection Regulation (GDPR), this paper examines how privacy regulation shaped firm performance in a large sample of companies across 61 countries and 34 industries. Controlling for firm and country-industry-year unobserved characteristics, we compare the outcomes of firms at different levels of exposure to EU markets, before and after the enforcement of the GDPR in 2018. We find that enhanced data protection had the unintended consequence of reducing the financial performance of companies targeting European consumers. Across our full sample, firms exposed to the regulation experienced a 8% decline in profits, and a 2% reduction in sales. An exception is large technology companies, which were relatively unaffected by the regulation on both performance measures. Meanwhile, we find the negative impact on profits among small technology companies to be almost double the average effect across our full sample. Following several robustness tests and placebo regressions, we conclude that the GDPR has had significant negative impacts on firm performance in general, and on small companies in particular…
“Privacy Regulation and Firm Performance: Estimating the GDPR Effect Globally,” from @oxmartinschool via @benedictevans
[Image above: source]
* Adam Smith
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As we seek balance, we might recall that it was on this date in 1969 that the U.S. officially withdrew $500, $1,000, $5,000, and $10,000 bills from circulation, pursuant to an executive order by President Richard Nixon. The larger bills had been used by banks and the government for large financial transactions, but had been rendered obsolete by the electronic money transfer system.
Those large-denomination bills were last printed on December 27, 1945 and are still considered legal tender. Indeed, (a version of) the $500 is still used in the game of Monopoly.
“Money laundering is giving oxygen to organized crime”*…
The United States Treasury Department is putting art galleries and museums on notice over the high risks of financial crime in their trade, warning that various aspects of the art industry makes “it attractive to those engaged in illicit financial activity, including sanctions evasion.”
The advisory, published on Oct. 30, calls out the art industry’s heavy use of shell companies. Citing the “high degree of confidentiality and anonymity” in the art trade, the advisory cautions that art dealers may find themselves unwittingly working with criminals seeking to move illicit funds. It also notes that artwork’s often “subjective value” creates an additional attractive value to financial criminals — who are known to manipulate invoice prices to covertly shift money around the globe.
“The advisory serves as another reminder that the $28.3 billion American art market is the largest unregulated industry in the United States,” [said] Tess Davis, executive director of the Antiquities Coalition, which advocates the return of stolen relics to their home countries…
The U.S. Treasury urges new safeguards against financial crime, money laundering, and sanctions evasion: “Secretive high-end art world can be vehicle for dirty money.” From the International Consortium of Investigative Journalists, part of their on-going investigation of international money laundering, FinCEN Files.
Turns out that a U.S. Senate investigation led to the same conclusions: “The art world has a money laundering problem.” So did a House investigation: “Art and Money Laundering.”
And for the curious, here is a look at how it’s done: “Laundering money through art, if you’re into that sort of thing.”
All-too-appropriately, Hasbro has released, in collaboration with the Metropolitan Museum of Art, a fine-arts edition of its flagship game: “Monopoly: The Met Edition.”
* then-President of Mexico, Enrique Peña Nieto, June 2012. It’s alleged that he spoke with authority based on personal experience: in 2020, his successor as President, Andrés Manuel López Obrador, asked Mexicans if they would like to see former Mexican presidents face trial against allegations of corruption (a move deemed constitutional by the Mexican court and laws); the people will vote to decide in a referendum in 2021. According by a survey by newspaper El Universal, 78% of Mexicans polled do indeed want the former presidents of Mexico to face trial– and Enrique Peña Nieto is the one they most want to be incarcerated.
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As we note that cleanliness isn’t always next to godliness, we might spare a thought for Jean-Baptiste Say; he died on this date in 1832. An economist and businessman, Say argued in favor of competition, free trade, and the lifting of restraints on business, and was among the was among the first economists to study entrepreneurship– and to valorize entrepreneurs as organizers and leaders of the economy.
He is probably best remembered for the assertion that supply creates its own demand– “Say’s Law“– a label first used by John Maynard Keynes, who went on to argue that it is wrong… the debate (e.g., as between Steven Kates and Paul Krugman) continues to this day.
“Central planning didn’t work for Stalin or Mao, and it won’t work for an entrepreneur either”*…
Applying science to social problems has brought huge dividends in the past. Long before the invention of the silicon chip, medical and technological innovations had already made our lives far more comfortable – and longer. But history is also replete with disasters caused by the power of science and the zeal to improve the human condition.
For example, efforts to boost agricultural yields through scientific or technological augmentation in the context of collectivization in the Soviet Union or Tanzania backfired spectacularly. Sometimes, plans to remake cities through modern urban planning all but destroyed them. The political scientist James Scott has dubbed such efforts to transform others’ lives through science instances of “high modernism.”An ideology as dangerous as it is dogmatically overconfident, high modernism refuses to recognize that many human practices and behaviors have an inherent logic that is adapted to the complex environment in which they have evolved. When high modernists dismiss such practices in order to institute a more scientific and rational approach, they almost always fail.
Historically, high-modernist schemes have been most damaging in the hands of an authoritarian state seeking to transform a prostrate, weak society. In the case of Soviet collectivization, state authoritarianism originated from the self-proclaimed “leading role” of the Communist Party, and pursued its schemes in the absence of any organizations that could effectively resist them or provide protection to peasants crushed by them.
Yet authoritarianism is not solely the preserve of states. It can also originate from any claim to unbridled superior knowledge or ability. Consider contemporary efforts by corporations, entrepreneurs, and others who want to improve our world through digital technologies. Recent innovations have vastly increased productivity in manufacturing, improved communication, and enriched the lives of billions of people. But they could easily devolve into a high-modernist fiasco…
But this characteristically high-modernist path is not preordained. Instead of ignoring social context, those developing new technologies could actually learn something from the experiences and concerns of real people. The technologies themselves could be adaptive rather than hubristic, designed to empower society rather than silence it.Two forces are likely to push new technologies in this direction. The first is the market, which may act as a barrier against misguided top-down schemes. Once Soviet planners decided to collectivize agriculture, Ukrainian villagers could do little to stop them. Mass starvation ensued. Not so with today’s digital technologies, the success of which will depend on decisions made by billions of consumers and millions of businesses around the world (with the possible exception of those in China)…
That said, the power of the market constraint should not be exaggerated. There is no guarantee that the market will select the right technologies for widespread adoption, nor will it internalize the negative effects of some new applications. The fact that Facebook exists and collects information about its 2.5 billion active users in a market environment does not mean we can trust how it will use that data. The market certainly doesn’t guarantee that there won’t be unforeseen consequences from Facebook’s business model and underlying technologies.
For the market constraint to work, it must be bolstered by a second, more powerful check: democratic politics. Every state has a proper role to play in regulating economic activity and the use and spread of new technologies. Democratic politics often drives the demand for such regulation. It is also the best defense against the capture of state policies by rent-seeking businesses attempting to raise their market shares or profits.
Democracy also provides the best mechanism for airing diverse viewpoints and organizing resistance to costly or dangerous high-modernist schemes. By speaking out, we can slow down or even prevent the most pernicious applications of surveillance, monitoring, and digital manipulation. A democratic voice is precisely what was denied to Ukrainian and Tanzanian villagers confronted with collectivization schemes.But regular elections are not sufficient to prevent Big Tech from creating a high-modernist nightmare. Insofar as new technologies can thwart free speech and political compromise and deepen concentrations of power in government or the private sector, they can frustrate the workings of democratic politics itself, creating a vicious circle. If the tech world chooses the high-modernist path, it may ultimately damage our only reliable defense against its hubris: democratic oversight of how new technologies are developed and deployed. We as consumers, workers, and citizens should all be more cognizant of the threat, for we are the only ones who can stop it.
At the same time that science and technology have vastly improved human lives, they have also given certain visionaries the means to transform entire societies from above. Ominously, what was true of Soviet central planners is true of Big Tech today: namely, the assumption that society can be improved through pure “rationality.” Daron Acemoglu— Professor of Economics at MIT, and co-author (with James A. Robinson) of Why Nations Fail: The Origins of Power, Prosperity and Poverty and The Narrow Corridor: States, Societies, and the Fate of Liberty (forthcoming from Penguin Press in September 2019)– explains: “Big Tech’s Harvest of Sorrow?”
[Illustration above from “The Singular Pursuit of Comrade Bezos,” also worth a read.]
* Michael Bloomberg
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As we rethink “reason,” we might recall that it was on this date in 1894 (one year before Marconi’s first demo) that distinguished physicist Oliver Lodge achieved the first successful radio transmission of information via Morse Code in a presentation to the British Association for the Advancement of Science at a meeting in Oxford. He sent a message about 50 meters from the old Clarendon Laboratory to the lecture theater of the University Museum.
Lodge continued to develop his approach, and patented several elements of it… running into intellectual property disputes with Marconi. Finally, in 1912, Lodge, at heart an academic, sold his patents to the more determinedly-commercial Marconi.
“But if you’re gonna dine with them cannibals / Sooner or later, darling, you’re gonna get eaten”*…
A select few athletes are so iconic, they’re known by a single name. Jordan. The Babe. Serena. Pelé. Tiger. Shaq.
And, of course, Kobayashi.
The godfather of competitive eating, Takeru Kobayashi burst onto the American scene at the 2001 Nathan’s Hot Dog Eating Contest, where the lithe 5-foot-8 Japanese 23-year-old, using a revolutionary water-dipping technique and a body-wiggling maneuver known as the “Kobayashi Shake,” ate an astounding 50 hot dogs—double the prior record. That feat thrust Kobayashi to instant superstardom, and his subsequent five wins at the famed July 4th competition only solidified his standing as the king of the eating world—a title he’d only officially relinquish in 2007, when American Joey Chestnut dethroned him at the Nathan’s extravaganza.
The tumultuous saga of Kobayashi and Chestnut is the subject of ESPN’s latest “30 for 30” documentary, The Good, The Bad, The Hungry, which details the stratospheric rise and controversial fall of Kobayashi, whose reign was cut short by losses to Chestnut (winner of 11 Nathan’s contests, and a multi-world record holder), a falling-out with Major League Eating (MLE) and its co-founder George Shea, and an eye-opening arrest at the 2010 Nathan’s event…
More on this epic rivaltry at “The Rise and Fall of Kobayashi, Godfather of Competitive Eating: ‘They Were Making a Joke of Me’.” Find The Good, The Bad, The Hungry here.
* Nick Cave
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As we go for the gold, we might recall that it was on this date in 1928 that sliced bread was sold for the first time, by the Chillicothe Baking Company of Chillicothe, Missouri.
For more on this seminal development, see “What was the best thing before sliced bread?”
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