Wednesday, August 17, 2011

Competition Schmompetition

This post is a response to the comment of one of our readers to the previous post about Cebu Pacific:

Anonymous said...

The only way to improve service is competition. If we have this "open sky" policy the local airline industry will shape-up. This is what Tourism Sec Alberto Lim was pushing and was also the cause of his early political demise.

The same is true for the local shipping transport industry this should be opened up to foreign investors to improve service and safety. The more competition the less we hear of poor safety standards . As MVP have said the limited local capital will not be sufficient to improve Philippine infrastructure.

Dear Sir/Ma'am,

Let me start by saying that additional capital does not necessarily mean more competition, so I don’t really  get the point of quoting what MVP supposedly said.

Now for the meat of the matter.

I understand how--given our love for democracy, capitalism, and all things American--many of us can believe that free markets and unfettered competition is the panacea to the world's multitude of woes. After all, it's what introductory economics taught us: perfect competition is always best for consumers.

Unfortunately, this can't be farther from the truth. I'll give you two examples that support this admittedly contentious stand. First, let's take a look at the 2008 global financial crisis. While there may be no single factor that caused that shitfest, the deregulation of the US's financial system should be at the top of the list. Arguably, what happened happened because the financial experts that have surrounded the past two American presidents--ex-Wall Street people, all-- pushed for industry-wide deregulation, which essentially told banks and other financial institutions that they could freely compete and do whatever they want. And do what they want, these greedy motherfuckers did. How’s that for laissez-faire economics?

Want something closer to home? Since we’re talking about the local transportation industry anyway, why don’t we take another look at that? Ever noticed how there’s no jeep, bus, or taxi whenever you desperately need one and there’s a glut of them whenever you don’t? That’s free competition at work. Things are as shitty as they are because anyone with enough dough to buy a second-hand Toyota Vios and who knows the right people can get a taxi franchise and run his or her own mini-taxi empire, despite “regulation” from the LTFRB and even if our streets simply don’t need another taxi. Things are as shitty as they are because whatever regulation is in place is either unwilling or powerless to shape capacity and supply--by requiring operators to retire or replace their aging vehicles or by setting a strict schedule based on a thorough study, for example--to meet demand.

People say that the surest sign of economic prosperity is a healthy and efficient public transportation system: you only need to go as far as Hong Kong and Singapore to see the truth in that statement. And an efficient transportation system can only be achieved with a tightly regulated monopoly or oligopoly. Here in Hong Kong, there are only two bus operators (and their routes don’t overlap), one taxi service, and one privately-operated subway system (MTR); regulation is there to serve the public’s interest by controlling the profits of these operators. The only competition there is is intermodal in nature: when people decide to ride a bus or taxi because they’re too lazy to walk to the nearest MTR station.

So is competition--from a foreign player or otherwise--the answer to Cebu Pacific’s deteriorating service? Why don’t we all give that another thought before we say yes.

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