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London, a deputy under secretary of commerce for economics and statistics in the Clinton administration, asserts that competition thwarted inflation by making it impossible for certain businesses to raise prices and spurred investment by forcing companies to undertake measures to cut costs and expand. He contrasts the "oligopolistic, inflation-prone 1970s" against the heightened competitive markets of the 1990s and asserts that future prosperity will depend less on tax cuts and monetary policy than on the political will to encourage competition and expand it to industries with sharply rising costs, such as health care and education.
The Competition Solution highlights changes within the automobile and steel industries that have made both more competitive. By the end of World War II, the automobile industry had become tightly controlled by the "Big Three"--Chrysler, Ford, and General Motors. Volkswagen introduced smaller cars into the market, but the Big Three chose to share the market rather than produce smaller cars of their own. Then when gasoline prices soared in 1974, Ford and Chrysler sought protection from imports against the wishes of General Motors and auto dealers. The International Trade Commission held the automakers’ refusal to build smaller cars responsible for their financial difficulties, alongside the effects of a recession. Eventually, competition from Japanese plants located in the United States forced U.S. automakers to cut costs and build smaller cars. Competition from imports likewise forced changes in the steel industry. In March 1982, General Motors informed steel companies that they would have to compete for its business, forcing steel companies to cut prices and improve quality.
Similar competition in telecommunications and financial markets have increased customer options and created lower prices. AT&T eventually failed in its efforts to maintain a long-distance service monopoly when challenged by newcomers like MCI, which found support within regulatory agencies that realized the benefits of innovation and competition. Michael Milken created a "junk bond" industry, seeking out lenders for more speculative, high-risk companies that were willing to pay higher interest rates in exchange for stable bond financing. Congress and the Securities and Exchange Commission supported the development of Nasdaq, thereby creating a large, low-cost alternative to the New York Stock Exchange.
The breakup of these near monopolies and similar progress in the retail industry thanks to Wal-Mart have driven prices down and strengthened the economy. London considers education another industry ripe for the benefits of competition. Education currently represents 7 percent of U.S. GDP; efforts to deploy competition through charter schools and school-choice programs face stiff opposition from teachers’ unions and school boards that have thus far not had to accept real financial or employment consequences that traditionally go along with competition. London recommends applying real penalties to enhance competition and calls for the private, for-profit management of local schools.
Rising health care costs place heavy financial burdens on American businesses and taxpayers that could be alleviated through several competitive methods. Today, a fragmented organizational structure keeps doctors from sharing information with labs, pharmacies, and hospitals, thereby isolating consumers. London recommends that the federal government consider requiring doctors and hospitals to computerize patient records, which he estimates could save the country 30 percent of current health care costs while improving care and saving consumers from outdated and expensive care.
