The Value of Free-Market Competition

by | May 28, 2013

It is wrong of governments to interfere with markets, whether through protectionism or other regulations restricting our freedom to trade and compete.

In Canada, like most everywhere in the world, the markets are not free. For example, the Canadian government has targeted some key industries in which it restricts competition and foreign competition in particular: financial services, transportation, natural resources, and telecommunications. Somehow the government has deemed that these industries are “strategic” and companies in them must be Canadian (-owned). The limited competition in these industries and others is bad for everyone, including the companies (their shareholders) themselves.

Most people get it that lack of competition harms consumers: Canadians pay some of the highest prices for cell phone service because there are only a few competitors in the telecommunications market, with not much incentive to lower prices or to improve service. (The recent comments welcoming foreign competition by CEO of Telus, one of the large players, offered a glimmer of hope to Canadian consumers for wider range of cell phone services and prices. Now, if the government only lifted the foreign ownership restrictions …). Another example of consumers suffering from restricted competition is the Canadian airline industry. The government prevents cabotage—foreign-owned airlines initiating flights from Canada, and again Canadian travelers pay more than those in more competitive markets.

But what many do not realize is that lack of competition harms also the companies themselves. They are often perceived as complacent “fat cats” because they can charge high prices or sell subpar products and services. It is true that government protectionism can benefit “fat cat” companies in the short term, but in the increasingly global world, countries and companies that insulate themselves from competition will miss out its benefits.

One of the biggest benefits of competition in free markets is innovation: new, better and cheaper products and services, or better ways of providing them. Only companies faced with constant competition are pushed to innovate: think of consumer electronics companies such as Apple, Samsung, and Blackberry. And those that are protected from competition and strangulated by government regulation will be the least innovative: think of health care or mail delivery, not just in Canada but in most countries. It is what economist Joseph Schumpeter called the “creative destruction” of competition that leads to innovation—and value both for consumers and for shareholders of companies.

Countries cannot protect companies from competition and remain self-sufficient “islands” forever—not unless they want to become stagnant backwaters with declining prosperity and well-being for their residents.

Competition has value also for individuals—the same principle applies, which is also difficult for many people to grasp. We like competition among companies that sell us goods and services, but not so much when we have to compete for jobs. But competition for jobs is also good for us. Let’s assume that you are looking for a job and find a company advertising one that seems to match your qualifications and interests. Why is it in your interest that you are not the only applicant for that job? For the company to be able to offer that or any other job, it must have a pool of qualified applicants so that it can find a suitable candidate who will help its productivity and competitiveness. If only one person applied for any job the company offered, it could not hire the talent it needs to compete successfully.

You of course would like to get this job, but because of competition you may not. Even if you do not get the job, competition is in your interest, provided that the employer acts rationally and hires the most qualified candidate. It’s certainly disappointing if you do not get the job. However, if the company acted rationally and hired the best candidate, it is indeed in your interest that you lost in this particular competition. The more qualified candidate who was hired will be more productive than you would have been in the same job, which makes the company more competitive and enhances its performance. This means that it will create more wealth, leading to other job opportunities, some of which will better match your qualifications, either at this company or elsewhere.

Competition and free markets are good for us, as they make us strive to do our best, leading to more value creation. It is wrong of governments to interfere with markets, whether through protectionism or other regulations restricting our freedom to trade and compete.

Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada. How to Be Profitable and Moral” is her first solo-authored book. Visit her website at

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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