Symposium | The Hidden Keys to Growth

Competitive Egalitarianism: How to Structure Markets

By Steven Teles

Tagged competitionequalityMonopoly

American liberalism has never been of one mind where competition is concerned. Many liberals favor an ethos of cooperation, finding competition ugly and morally destructive. Others worry that a competitive economy can drive a race to the bottom, with firms cutting wages and long-term investment in order to undercut rivals. Finally, still other liberals looked to large, stable firms as a more attractive target for inculcating corporate social responsibility through professionalization and various forms of soft or indirect pressure.

As Lina Khan reminds us, liberals have long been divided on the value of competition. The early New Deal was a contest between those who favored corporatism—including industry-wide standards negotiated by incumbents—and those who wanted to bust up precisely that kind of insider collusion. In truth, the collapse of the National Recovery Administration in 1935 did not lead the New Deal to an uncomplicated embrace of competition. In fact, while the Federal Trade Commission was opening the way for competition between firms, other parts of the New Deal were busily encouraging geographic constraints on competition (most famously in banking) in order to protect local firms from outsider challenges.

Many of the fights we see today, and which are represented in this symposium, are in fact a continuation of this long conflict between two different liberal visions of competition. Uber and Lyft, for instance, have liberal fans among those appalled by the poor service of local taxi monopolies, minority riders with long-standing complaints about racist taxi drivers, and others who appreciate the flexibility it offers to drivers whose increasingly complicated and fractured lives can’t be shoved into a 9-to-5 job. But other liberals have been terrified by Uber, worried that competition is driving down wages. Just as important, they have been worried that competition is only a way station on the path to monopoly—but now, a monopoly much larger and more politically powerful than the crummy little local taxi monopolies Uber replaced.

A similar battle between liberal factions has been raging for decades over charter schools. Liberal advocates of charter schools are frustrated by the intransigence of district schools, which they see as monopoly providers whose teachers’ economic interests trump those of poor children. They like the idea of pursuing egalitarian ends through giving poor people more choice, and forcing providers to serve their needs. But other liberals oppose charters, seeing competition as anathema to teacher professionalism and as a scheme to weaken teacher unions.

The essays in this symposium generally come down on the side of what I call competitive egalitarianism—a commitment to using law to structure markets so that they generate effective competition, and so that they compete in ways that serve the broad public and unleash the vast potential for economic growth that is hampered by current practices and rules. Unlike conservatives, competitive egalitarians emphasize that markets do not simply spontaneously emerge, but are creatures of law and custom that may be designed to generate more equality or less, more growth or less. In fact, generating competition is an ongoing struggle, as market participants seek to create monopoly rents and to capture government power to protect those rents. Encouraging competition means allowing the factors of production, whether capital or labor, to move around, challenging geographic monopolies and moving to where opportunity rests.

Competition and mobility are vital to the American economy because, unlike countries such as Germany and Sweden, we are not particularly skilled at complex state-led coordination. We have a recent record of less than spectacularly well- implemented physical infrastructure projects, and we come up far short of many of our competitors in working closely with firms to develop and upgrade skills. In fact, our human capital is as good as it is only because we invest so much in higher education, and make students spend so many years there, that the resources are bound to produce some value even if poorly designed. We should try to get much better at this basic coordination function—matching our state investments to a coherent economic strategy, without inefficiently siphoning off a ton of resources to producers—but it is highly unlikely to be our competitive advantage.

Instead, our competitive advantage has traditionally resided in our ability to quickly move capital from less efficient to more efficient places and projects. We have been good at attracting people from other countries to fill many of our economic needs, and moving people around our huge internal market. Our high levels of economic competition have made it difficult for zombie firms to survive for long, sucking up capital along the way. Low barriers to entry and a capital market oriented to new firms have made it relatively easy for new business models and ideas to get a chance. We have compensated for our relatively low levels of effective coordination with a very high level of flexibility.

A plausible liberal politics needs to accommodate itself to what we are good at. Competitive egalitarianism combines an aggressive attack on constraints on competition with a much larger, more national and transparent system of social insurance. That means, as David Schleicher urges us, waging war on all the ways that incumbent homeowners collude to protect their home values by constraining building in high-growth areas. But building a more flexible, national labor market also, as he reminds us, requires us to reconstruct social welfare programs that currently hamper movement from declining to rising places. A more competitive economy would be one that can smoothly attract talent from around the globe, as Alex Nowrasteh urges. But it also means nationalizing the impacts of increased migration, rather than focusing them on border communities and places where migrants disproportionately settle. Competitive egalitarianism would embrace the opportunities for economic growth promised by the automated production that Devin Fidler and Marina Gorbis envision, while constraining that automation’s risks of market consolidation and rebuilding the welfare state to ensure that its fruits are widely shared.

Markets do not spontaneously emerge, but may be designed to create more or less equality.

Competitive egalitarianism would impose much greater national supervision over state level economic constraints, like the licensing of occupations, while also rolling back the abuse of intellectual property to line the pockets of large Silicon Valley and entertainment firms. Unlike conservatives, however, competitive egalitarianism would involve a much more aggressive attack on industry consolidation, as Khan and Phillip Longman encourage. At the same time, that competitive egalitarianism would encourage much greater constraints on the size of financial firms. It would follow Aaron Klein’s lead and encourage new entrants into the financial industry who could compete away the rents they extract from asset management and processing transactions.

Competitive egalitarianism would go even further, by focusing on the huge swaths of the American economy where the state directly produces inequality. When you look at the 1 percent, fortunes derived from government constraints on competition are ubiquitous. The extreme fortunes in finance and information technology are obvious cases. But the closer you look, the more you see anti-competitive rents honeycombed through our economy. Dentists make large incomes largely because they can force dental hygienists to work in their offices and not compete from outside of them. Car dealers have made large profits largely because their franchises are protected by state law, an arrangement that has become more obvious as Tesla has tried (in some states, unsuccessfully) to sell its cars directly to the public. The last 30 years have seen an explosion of occupational licensing, which reduces the dynamism of the economy and exacerbates inequality (through, among other mechanisms, very high, expensive and unnecessary educational requirements and blanket bans on ex-offenders). Protective, usually industry-specific regulation like this should become a much greater target of the left, including through a willingness to consider legal challenges that liberals are usually skeptical of.

Along with more aggressive antitrust policy and selective, egalitarian deregulation, competitive egalitarianism adds a larger, less complex, and much more nationalized welfare state. If we are going to reinvigorate our great national market, we will need to socialize the risks generated by the movement of capital and labor far more than we do today. We won’t be able to afford a patchwork welfare state, especially in health care. We will need to move past the Affordable Care Act to a health-care system that cuts states out of the financing and provision of care entirely, eliminating the risks of moving between jobs, and between states. At the same time, we will need to intervene in the health-care market much more aggressively, as Longman urges, in order to ensure that providers actually compete against each other to discover new ways of organizing medical practice more efficiently—rather than spending their time looking for new ways to siphon up rents.

Competitive egalitarianism is friendly to markets—in fact, it affirmatively intervenes in the economy to produce market competition where it is absent. It is also sympathetic to strong, centralized government programs. But it is skeptical at best about things in between. Markets that are red in tooth and claw, or government running programs itself based on a public service ethic, are more consistent with competitive egalitarianism than collusion between the state and private firms. Competitive egalitarianism would, for instance, toss out all of our massive subsidies to financial firms by scrapping tax-subsidized savings (like 401ks, IRAs, education savings accounts), replacing them all with a more generous Social Security system and Pell Grants. Having eliminated the need for the vast majority of Americans to rely on the stock market for their retirement, the government could regulate the business of asset management in a much more hands-off way.

Competitive egalitarianism would require an enormous shift in the organization of our politics. Just as with private firms, competitive egalitarianism would try to move toward having the states run only those functions that they could manage with their own resources. Just as we should go much further in moving the financing of health care out of states, we could consider doing something similar with schooling by replacing all federal K-12 funding with a progressive voucher that would go directly to students.

One advantage of pulling these very expensive functions off of state and local government balance sheets is that the federal government could more responsibly leave much of the rest of governance to actual competition between states. States could compete responsibly for firms and people over the mix of taxes and spending, once the functions that are most important for social welfare no longer had to be paid for out of their fragile tax bases. With the states exclusively responsible for things like physical infrastructure, we would also have more effectively competitive politics, in which politicians could no longer pass the buck to the feds for crumbling roads and bridges (and would be free of many of the strings that accompany federal dollars).

Competitive egalitarianism is unlikely to be the ideology of the mass of liberal Democrats. Too many Democratic interests count on constraints on competition to put food on their table, whether it is teacher unions seeking to slow the growth of charter schools on the low end, or Hollywood and Silicon Valley executives dependent upon aggressive intellectual-property protection on the high end. But it could be the intellectual lodestar of a generation of educated young liberals, the kinds of people who staff think tanks and fill jobs in Democratic administrations. It is a natural fit for people who combine a commitment to greater equality and social mobility, a somewhat Mugwump-ish distaste for wealth generated by cozy insider deals, and a willingness to embrace the creative destruction produced by competition.

In a Democratic Party that is likely to be more Sanders-ish in the future, it would provide a fighting faith for liberals who are not convinced of the case for social democracy but who yearn for something more convincing than “moderation.” On many issues, it would fight hand in hand with the social democratic left, especially on antitrust, shrinking the financial sector, and nationalizing the welfare state. But it would provide a bridge to parts of the right in its willingness to fight constraints on competition that come from the state. In fact, a somewhat less redistributive version of competitive egalitarianism could provide a philosophical basis for post-Trump reformist conservatives.

Competitive egalitarianism, in short, is the natural ideology of the modern knowledge class, the guiding star of middle-class radicalism. It is the key to using what has traditionally been our greatest strength—an open, mobile, dynamic market—to generate more equally shared economic growth.

From the Symposium

The Hidden Keys to Growth

There's more to growth than just macroeconomic policy. Here are a series of proposals to get us back to shared growth: Lina Khan on Antitrust Enforcement • David Schleicher on Labor MobilityAlex Nowrasteh on Immigration Expansion Devin Fidler & Marina Gorbis on Technology Phillip Longman on Health-Care Monopolies  Aaron Klein on the "FinTech" Revolution  Steven Teles on Competitive Egalitarianism

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Steven Teles is an associate professor of political science at Johns Hopkins University. He is the co-author, with Brink Lindsey of The Captured Economy and, with David Dagan, Prison Break: Why Conservatives Turned Against Mass Incarceration.

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