Competition Solution: The Real Secret Behind American Prosperity

Rating:
Summary: Terrific exposition of the benefits of competition
Review: In this excellent book, Paul London echoes the thesis of William W. Lewis (The Power of Productivity, University of Chicago Press, 2004) that it is increased product market competition that is responsible for the prosperity of past two decades. Factors ranging from globalization to deregulation to financial innovation all led to this increase in competition. Globalization increased productivity by forcing the streamlining of domestic industries. Deregulation meant that protected, inefficient companies had to change their ways to survive against new market entrants. And new financial market segments ranging from the NASDAQ market to high-yield bonds made capital available to new companies that had not previously been able to exist.

London argues that the increase in prosperity was caused far more by increased competition in private industry than by federal monetary or fiscal policies. It was not the Federal Reserve's monetary policy of the 1980s-1990s that killed inflation, but rather increased competition, which meant that companies were no longer free to indiscriminately raise prises. Likewise, it was increased competition rather than lower tax rates that forced existing companies to increase their investment in productivity-boosting capital. Higher living standards were the happy result for consumers, employees, and investors alike.

Most of London's evidence is anecdotal rather than empirical, but on the plus side this makes the book highly readable. An enthusiastic five stars.