Members of the business community and economists generally think of market capitalism as competition. You build a better mousetrap, and the world beats a path to your door. Competition drives you to explore every possible way to succeed.
This basic philosophy is one reason why we at CED prefer a system of market-based competition among competing health-insurance plans to the current law, including with respect to Medicare. Take the Independent Payment Advisory Board, or IPAB. In concept, such a cloistered committee of smart people thinking about ways to save money while delivering quality health care would be harmless enough. (For today’s purposes, let’s set aside some people’s concerns about the authority of this group to impose its decisions on – rather than merely recommend its ideas to – providers.) But assume in an abundance of fairness that the IPAB bats 1.000 – that every idea it promulgates turns out to be a winner. Could we conceivably stretch our imaginations even further to assume that this limited group would think of every productive idea to deliver quality health care efficiently? Probably not.
So under the current system, IPAB will send its ideas to what is mostly a sea of solo-practice, fee-for-service healthcare providers. If instead we had competing armies of health plans, each with its own designers trying to find new ways to improve care delivery – and to copy every useful idea that they see in every competitor – we quite likely would have a much richer flow of innovation leading to a more rapidly improving overall healthcare system.
So a key point – by no means the sum and total of our argument – is that a fixed agenda of improvements from one entity will be no match for what could emerge from a large number of innovators seeking every possible way to compete and succeed in a competitive market.
But let’s turn back one page to those apparently positive – or even compelling – words: “every possible way.”
Using the proverbial “better mousetrap” image again, suppose that one entrepreneur finds a way not to improve his own mousetrap, but to create a media buzz that his competitor’s mousetrap does not work as well as it in fact does – or that his own works better than it in fact does. He gains business at the expense of his competitor, perhaps even driving him or her out of operation. Is that what market capitalism is all about? Is that what competition is supposed to yield, through Adam Smith’s “invisible hand,” for the benefit of all of society?
Creating such a media buzz could entail illegal activity, such as the perpetration of fraud. But suppose that this entrepreneur found a legal way to create such a buzz – which in this world of instantaneous communication of free speech (you get what you pay for) – might not be all that difficult. Is that what market capitalism is all about?
What protects us from such abuse of the free market – not through outright crime, for which our criminal justice system is the obvious and designated remedy, but rather from the legal manipulation of fellow economic actors? Well, at one level, it is accepted and observed standards of behavior – “norms” is one term that this concept evokes. We may expect that those with whom we do business will behave in the same manner that we do. In fact, we may well count on the mutual observance of such unwritten, even unstated rules to facilitate everyday commerce to long-run mutual benefit.
I’m going to venture my own opinion that a significant part of the deterioration in economic and especially political conditions in recent years has come from an erosion of previously accepted norms – and that once such erosion has begun, there is an unfortunate natural tendency of that deterioration to continue and even accelerate in a “race to the bottom.” After presenting this demoralizing observation, I will try very hard to present some sufficient and efficient remedies for this process. It won’t be easy, because as I speak to you right now, I have not yet thought of very many.