I will go further and say that companies that fail to follow the laws of the market should be allowed to die. It is only by clearing their niche and letting the little companies vie for their place in the sun that the economy renews itself. Those companies that have trouble deriving profit from the environment should pass away, and better-suited companies will follow. The key, then, is to make companies die for reasons that fit national policy, and let new companies grow for reasons that fit national policy. The market will handle the rest. National policy should, instead of regulating and restricting, make unethical and inefficient business practices inherently more costly than efficient and ethical practices. By hampering the ability of inefficient companies to derive profit from the market, policy is able to guide existing immutable market forces rather than trying to stand in their way. It's much easier to guide the flow of a river than dam it up. Even from a dam, water must pass through or the dam will overflow. When the river's direction is changed, the natural flow of water works to the advantage of the engineer rather than to her disadvantage.
All this is to say that I believe the death of companies that are unable to take profit from the market is a good thing for the economy. Subsidies are inherently flawed in application, as constant subsidy only rewards bad behaviour and inefficient business practice. This may sound Libertarian, but it's simply good business sense. Arguments could be made that subsidies destroyed the cod fishery in the east because it encouraged overfishing. If the fishery had been allowed to evolve without subsidy, there might still be cod fishermen on the east coast (assuming, also, that we had a Lord Admiral Brian Tobin at the helm of Fisheries and Oceans to protect the catch from Spanish overfishing).
The problem currently is that the climax community corporations of each industry tend to be able to squeeze out up-and-coming new companies attempting to make a niche of their own within these industries. This is something we call the "Runaway Leader" problem in game design: the person who starts leading gets a stronger position, and from this strong position has a greater ability to keep on leading. Naturally, companies with more money can stand to make more money, and newcomers to an industry are more or less at the whim of the established companies there. To use another game analogy, spawn camping is both an effective way to play a deathmatch first-person shooter but it also punishes new players. Established companies are able to choose to "spawn-camp" new companies because of their established positions. This decreases competition based on innovation, and instead encourages competition through other more Machiavellian/minimax business practices. The solution must allow for one of three things to happen in the economy: allow for the large companies that stifle innovation to die under the weight of efficiency-minded taxes and feebates; force large companies to spend money on taxes, feebates, and upgrades so that they are rendered financially unable to engage in minimaxing behaviour, thereby allowing the development of unprotected niches in their industry that newcomers can fill; or simply force large climax community businesses to advance and innovate in order to hold their apex position in the industry rather than doing so through more Machiavellian means. If the market is like nature, then we must treat both the life and death of companies with reverence, for both things happen for a reason. National policy allows a government to intervene in how natural selection occurs in the market, and the rise and fall of companies in response to natural selection must be allowed to proceed, uninterrupted by subsidies. This is how to solve the runaway leader problem, and go from monopoly to competition.
MARKETS AND INNOVATION
Combating the Runaway Leader Problem - from monopoly to competition.
As we've already discussed, big companies are able to make advantages for themselves through their sheer size. There's a teaching in Kendo (Japanese swordfighting) that says there are "three things to kill" the opponent: his sword, his technique, and his spirit. In a similar fashion, there are three things to kill in the business world in order to quash competition: the marketing, the product, or the money. Of these three, money is the easiest thing for big corporations to attack. Unless the small company has a superior marketing strategy, or a game-changing product, they will inevitably lose when fighting a monetary battle of attrition. In some cases, they will still lose even with better marketing or products. He who has the gold, in effect, makes the rules.
This is sad, because it would be far better for the consumer if the product was the most important or effective deciding factor in competition. The logic of money being the supreme arbiter of commercial success is that we presuppose that the best product will invariably succeed on the market. This is simply not true. Often, the product that succeeds is simply the one that has a lapsed patent, or that is well-branded, or that has the most caffeine in it. Since we are on the topic of game design, Yahtzee was a game developed by a couple to play while out on their yacht (now the name makes sense, no?). They sold it to a marketer lock, stock, and barrel. The marketer was keen to promote it because all the profit from the idea from that point on would be his. Would he have tried as hard to make it a success if the yachting couple still owned the rights at the end of the day? In a word, no. Yahtzee is not a good game, but it sells like hotcakes. Did it sell because it somehow was appreciated by a huge number of people who play it every weekend, or did it sell because a good marketer got a hold of the rights to something he could sell to lots of people who would play it once or twice and then put it in their closet? I think we know the answer to that question.
Consumers do not make rational choices to purchase the product that will best fulfil their existing needs. There is no chance that a consumer, who purchases a faux Fabergé egg on the home shopping channel at 2 a.m. after a long night alone doing crosswords and listening to soppy love songs, is buying a product because the product itself fills a need. Utility maximisation and the rational consumer being a myth, the idea that the company with more money makes a better product is also recognised for a myth. We are reduced to seeing the market cynically as a place where - since value is subjective - the art of selling is actually a process of perception manipulation rather than a game of who makes the product best suited to the real needs of the consumer. The market, therefore, doesn't choose the best product, just as it does not choose the most efficient process, or the least wasteful manufacturer. It is up to national policy to define these traits as desirable through financial penalties and rewards. Competition is the only way the market improves, and innovative new companies must be given a fighting chance to establish themselves so that competition is increased. More companies means more competition.
The big box stores also eliminate entire ecologies of little shops. Businesses buy more "stuff" than most consumers do, and business to business purchases are far more lucrative than selling to individuals. It makes sense that the more businesses there are, the more purchasing there will be. Big box stores can cut costs and streamline - they pay minimum wage, buy in bulk, and can derive benefit from economies of scale. They have logistical networks and dedicated sources to get all their supplies in the most efficient and cheap manner possible. Mom and pop stores can't. The little shops may each individually make less money, but they also keep more money in the local environment. Their lack of continental supply chains makes it necessary for them to spend locally for what they need. They have to pay their workers (mom and pop) a living wage and they can't normally benefit from economies of scale. Keeping the big stores from establishing control over a market niche therefore not only increases competition, but increases overall consumption as well!
A couple previous discussions play directly into this topic. One, the "national labour law", and the other, feebates. The national labour law we talked about before was about two things. It was mainly about wage equity and freeing workers from being simple expendable pawns in the great game of profit maximisation. A knock-on effect that comes into play here is that it cuts into the scale advantage that large companies have. The larger the company, the more specialised it can make its workers, and the more efficient it can make its processes. This efficiency means profit, because a larger company typically pays less dollars of salary per dollar of income than a smaller company does. This is a contributor to the runaway leader problem, and wage equity just happens to cut into the ability of any leader to "run away". Second, feebates will penalise inefficient companies that are unable to improve their wasteful processes and practices. Letting the big companies hit by this double-whammy fail is part and parcel of the program: through the death of the inefficient, the efficient are given the chance to grow. If the big companies adapt and improve, the result is the same: both wage equity and efficiency is enhanced, and innovation flourishes.
A large part of this plan isn't "doing" something so much as it is about doing nothing. The key to this part of the policy is not to bail out that darling company of the swing constituency simply because it's politically expedient. We all know it happens. Strathcona gets a hospital, and Shawinigan gets a national tax processing centre... the swing and home ridings get disproportionate attention. If a company that accounts for a lot of jobs is about to perish, often the government will find funds in order to make certain those jobs survive - even if it encourages poor business practice. Well, I'm a prairie boy. The grass grows up lush and green after a prairie fire. It's a natural form of renewal. There will be a black spot there for a year or two, but the patch will grow up healthier than ever in no time. Stress the big companies, let the small companies develop, and it will be harder for the big companies to compete with them using money alone.
One final thing that is a little off topic, but still along the same lines as the runaway leader problem. Big stores have a great capacity to raise capital through keeping their shares high-priced and raising funds by releasing more shares to the market. If need be, they still have this ability to out-spend their smaller competitors at their fingertips. One way some companies keep their share prices high is, well, through lying. The corporation has evolved into an entity that somehow makes lying (called fraud) a crime without a perpetrator. This seems a little unfair, because with accountability comes responsibility, and responsibility tends to increase self-discipline. I propose, as my final recommendation along these lines, that CEOs, CFOs, and COOs be held accountable for the illegal actions of the corporation as a whole through the doctrine of command responsibility as enshrined in the Geneva Convention. Put simply, it means that if an atrocity is committed under your command, and you didn't try to stop it, you're responsible for it. The end. Lack of knowledge is not a defence (and shouldn't be) because as a commander, it's your damn job to know what's going on. With that happy thought, I will leave you with a short selection from the - rather well-written - Canadian Criminal Code:
Sentencing — aggravating circumstancesAs the saying goes, take care of the pennies, dollars can take care of themselves. With a bit of protection for the small companies, competition is improved and the little guys have a change to become big companies. By letting failing companies die, we not only rid ourselves of inefficiency, but allow for new ideas to fill the niche left by the departed. By increasing accountability, we make it less likely that big companies can game the market, and encourage stability in the national economic system.
380.1 (1) Without limiting the generality of section 718.2, where a court imposes a sentence for an offence referred to in sections 380, 382, 382.1 and 400, it shall consider the following as aggravating circumstances:
(a) the value of the fraud committed exceeded one million dollars;
(b) the offence adversely affected, or had the potential to adversely affect, the stability of the Canadian economy or financial system or any financial market in Canada or investor confidence in such a financial market;
(c) the offence involved a large number of victims; and
(d) in committing the offence, the offender took advantage of the high regard in which the offender was held in the community.