Upholding the Freedom of Competition
The philosophy of competition has taken a backseat to government interference. In the recent cases of Bear Stearns, Lehman Brothers, and Fannie Mae, among others, it was the government, not the marketplace, that determined whether the companies were fit to fail or survive. Traditionally, businesses are required to adjust to the harshest of circumstances if they want to survive over the long run. Great businesses grow stronger, not weaker, in the worst of downturns and certainly don’t come crawling to the government for help.
During the middle 1920s, Ford sold roughly ten vehicles to every one sold by Chevrolet, a strong competitive cushion for any company. To reverse this trend, Chevrolet continually increased its advertising, starting in 1927, and in 1931 actually overtook Ford’s lead in automobile sales. You wouldn’t take vehicles to be a hot item in a very rough economy, especially with everything we see today with GM, Chrysler, and Ford. But with smart management and a stellar advertising strategy, Chevrolet kept its business healthy and took advantage of weaker competition. Similar strategies were used successfully by other businesses in the era.
Camel lost its number one spot in the tobacco industry to Lucky Strike in 1929 and Chesterfield in 1931, quickly putting it in the number three position. In response to this sudden fall in market share, Camel greatly increased its advertising budget and once again regained the top spot in 1935. Remember, this was happening in a time when unemployment was climbing as high as 25%, yet with smart advertising programs Chevrolet and Camel, two companies selling non-essential items, expanded their profits and market share.
Proctor & Gamble also performed impressively in this time period, essentially by starting the era of radio advertising and programming. The key to success for many companies remained in a well-managed advertising plan, especially through the new medium, radio, which happened to be one of the fastest growing industries during the Depression. “Print media” (newspapers, magazines, etc.) and billboards also picked up as advertising outlets.
Coca-Cola is another business that took advantage of advertising possibilities. In 1929 there were enough fears going around that the company worried sales were going to decline. Coca-Cola started a new advertising campaign in 1929, and per capita consumption of the drink doubled that year. Interestingly, the other popular drink business of the early 20th century, Moxie, decided to cut back on its advertising budget around the same time, which was the start of its ending days.
Obviously we can’t forget about the many businesses that did fail, but the progress that was made by the free market in the harshest of circumstances is often ignored. What strikes me about the above examples is the fact that because of their strong advertising, all of the companies became popular, household names largely in the Great Depression.
Today the competitive process has been incredibly limited by the government. It was the competition in the Great Depression that promoted the creativity and originality of businesses like Coca-Cola, Camel, and Proctor & Gamble, boosting them into the spotlight over the long run. In the 1930s the auto companies competed like everyone else, and the smart ones took the opportunity to open up to customers and expand their market share. The consumers made the final decision on the success of the businesses, leading to the success of Chevrolet. Today, it is the federal government deciding whether or not GM, Chrysler, and Ford can fail, how they will fail, and has even gone so far to reorganize the management at GM.
Competition created the healthiest areas of the economy in the Great Depression. It was when government got overly involved in areas like farming and international trade that consumers and individuals felt the pinch, businesses struggled, and employees were laid off. Companies who were prepared for a downturn used it as an opportunity to increase advertising, gain market share, and keep a steady base for employees.
When people have the choice to purchase a product, it motivates a business to improve their products to the liking of the most customers, and provides the incentive for other businesses to enter in the “race,” so to speak. It is only in a free, competitive market that the power and choice of the individual is upheld.
When the government starts handing out money to keep certain businesses and industries afloat, you know something is wrong with the process and system. We’re supposed to believe that the fate of the financial system rested on the success of Bear Stearns, Lehman Brothers, Fannie Mae, etc. If this were the case, is this even a system that we should consider keeping afloat? People realized they couldn’t afford the mortgages, the banks who had provided the mortgages expected this but didn’t do a thing to prepare for it. Instead of letting the businesses fail, restructure, and allow new competing businesses and ideas have a shot, the government prevented all of this by throwing taxpayer dollars at a system that is supposedly resting on the fate of several corporations.
Corrections outside the influence of the government, and central bank, are necessary and useful for the long-term strength of businesses and the economy. If a correction comes along like today and the government prevents the floundering businesses from failing, it does not send the message that risky and stupid practices come with potentially devastating consequences. If anything, it encourages more of the exact same practices that got us into this mess.
Common sense alone tells us that a strong economic system does not rest on the fate of a few corporations, the willing hand of government to throw taxpayer dollars at failed ideas, or the ability of the government to interfere at will in the affairs of the market. Clearly the events we have witnessed over the past year do not represent the actions of a free and consumer-controlled economy.
As hard as the federal government and Federal Reserve may try, no manipulated system will outrun the foundation or principles of freedom. The principles and practice of competition, risk and reward, and free choice - not government and central manipulation - will build the strongest, most sustainable, and freest economies.