Competition, Monopolies, and Employment
In line with his personal view about the true nature of economics, Foxwell developed a quite realistic approach to dealing with the evolution of industrial markets. For him, classical economists had lost touch with reality by preaching around the alleged benefits of an all-powerful competition which actually no longer had any consistent correspondence with the facts. Writing in 1888, in a paper about the relations of the State with large companies, Foxwell held that the abolition of the old type of monopolies, based on privileges and political power, allowed the free play of the forces of competition which, after a while, unleashed the unrestrained growth of a new kind of monopoly, built over the foundations of abilities, possessions, and opportunities (Foxwell 1888 [1919]: 264-265).
Competition, for Foxwell, meant open economic warfare, having as its unavoidable outcome the survival of the fittest. He very cleverly indicated that even small advantages by a few firms can lead them to grow into a full monopolist, for every victory makes the victor stronger and the loser weaker. Furthermore, advances in transport, communications, and finance have helped the constitution of monopolies operating on an international scale.[1] Foxwell admitted, though, the existence of some economic limits to this process, mainly due to the difficulties of managing very large enterprises, coupled with the sometimes swift transformations in the economic environment:
Then there is a constant change in the economic situation, giving new men a chance. The rapid progress of science, the incalculable caprices of fashion, the altered habits of the public, all disturb the routine of business, and help to dislodge the monopolies. The imperfection of heredity, too, places a term on the most successful enterprises. A father may leave his property to his son; it is a very different matter to leave him his business (ibid.: 266).
The most conspicuous advantages accruing to a monopoly, as Foxwell saw them, were the economies in administration, the concentration of knowledge and skills, the avoidance of wasteful costs of competition, such as litigation and advertisement, and the end of industrial anarchy. The consumers benefited also from the better quality of products and more stable prices, while public opinion would hold a strong sway over the monopoly actions, for the company’s reputation must always be kept above suspicion. However, abuses would inevitably happen, as in the fixing of excessively high prices, with corresponding large profits, or in the economic and political tyranny exercised over the employees and even over entire towns in some cases, not to mention the practice of large-scale corruption and bribery of public officials. The general interest, though, would be better served not by unconditional State intervention, but rather by the full disclosure of all economic transactions, giving public opinion the knowledge to best direct each one’s expenditures towards this or that product, one of the most powerful ways, according to Foxwell, of containing the monopolies’ reproachable actions. Whenever necessary, control should be exercised by local trade bodies familiar with the situation instead of by some representative of central authority (Foxwell 1888 [1919]: 270-275).
Foxwell elaborated further on this same theme in a speech delivered at the Royal Institution on 19 April 1917 entitled ‘The Nature of the Industrial
Struggle’. Competition, he said, should not be interpreted as a universal principle, but as a state of things that happens under some historical conditions. Although Smith and others believed it to be a fair process, modern industry gives evidence of three basic forms of competition: first, through the search for greater efficiency; second, through the pursuit of profits at all costs and means; and, third, through the ruthless destruction of competitors, be that at the domestic or international level. The first case, of honest competition, unfolds itself necessarily into the emergence of a monopoly. The second and third cases, of dishonouring competition, make use of adulteration, low quality materials, espionage, corruption, and a whole assortment of furtive means, leading to the survival not of the fittest, but of the most deceptive firm. Two codes of morals, therefore, govern these two radically distinct competitive activities, the consequence more often being a sort of Nash equilibrium, with worse practices commonly displacing the better ones: ‘There is a kind of Gresham’s law at work in business’, told Foxwell to his audience and ‘The best men often find their own standards degraded by an irresistible pressure of circumstance ... This is the “iron law” of the business world under unregulated competition’ (Foxwell 1917 [1919b]: 78).
The main flaw of dishonourable competition lies in the circumstance that the most ruthless, and not the fittest, is the very one to survive the struggle, so that instead of evolution, the process ends up in degeneration. As such, the State should not keep itself peacefully away from the market, as recommended by laissez-faire economists, but must step resolutely into the arena to make sure that only fair competition prevails. Foxwell proposed as the most important measure here the adoption of a National Trade Policy (NTP) to protect domestic markets from foreign aggression. Moreover, he added, large sections of industry, trade, and transport were under the control of some form of cartel or combination, with powers comparable only to the State, standing in need, therefore, of some form of locally managed regulation. The NTP would also have to address the problem of the isolation between science and production in Britain, a combination by then already well advanced in Germany’s large corporations, for otherwise the nation would lose its prominence among the industrialized economies. Once again, Foxwell is keen to alert his readers to the dangers of big business, such as State-aided predatory competition, seconded by all forms of corruption, and even military wars, orientated to the capture of foreign markets or to the establishment of colonial enterprises as a way of securing the provision of raw materials. In any event, he argued that these perverse side effects of monopolies could be minimized by State-controlled but self-managed organizations, thus avoiding the build-up of a gigantic bureaucratic structure, so that the positive aspects of modern industry could come to the forefront more easily (ibid.: 90-96). Foxwell considered himself to be the first person to put forth this particular reading of the reality of his day, since the British mind, according to him, was completely subjugated by the alleged benefits of competition:
English feeling is well expressed in our Common Law, the whole spirit of which is adverse to combination as ‘in restraint of trade.’ But it is beyond doubt that unregulated competition has destroyed more honest trade than all the combinations in the world. Even in England, legislation has been more occupied in restraining competition than monopoly. The social history of the nineteenth century has been one long protest, one great legislative reaction, against the mischiefs of unregulated competition. I think I was perhaps the first English-speaking economist to put in a word in defence of business combinations (ibid.: 88).
From some lectures delivered at the Industrial Remuneration Conference in the summer of 1885, in Scotland, Foxwell put together the following year a booklet entitled Irregularity of Employment and the Fluctuations of Prices, dealing primarily with the question of the stability of employment, which he judged the worst evil of modern society. Considering then the recurrence of economic fluctuations, Foxwell lists a number of difficulties arising out of them, such as the lack of protection for the weaker classes in times of industrial distress, the waste of capital and skills during the transference of resources among the sectors of the economy, the trail of suffering left behind by the introduction of machinery and the competitive struggle, and, lastly, the reduction in wages in times of unemployment (Foxwell 1886: 10-24).
The reasons for the economic instability of contemporary capitalism, as understood by Foxwell, lie, on the one hand, with the nature of the contemporary monetary system, and, on the other hand, with a general disposition to disturbance by modern industry due to both the advanced stage of the division of labour and the development of credit. In regard to the first factor, Foxwell blamed the scramble for gold by Continental central banks as the main reason for the shortage of money and deflation all round. Price reductions, although prima facie beneficial to labourers, would be often associated with a depression in industry and trade which increased unemployment. As costs do not fall as quickly as prices, profits are squeezed by the lag between receipts and expenditures, while debt contracts have to be honoured with a more valued currency, putting in this way an additional burden on the producers’ shoulders. The second reason for the deflationary pressure is derived from the high specialization of industry, with any misdirection of resources being amplified by speculation and easy credit, a process often prone to end in a financial crisis (ibid.: 38-56):
Industry and trade have worked at a degree of high pressure previously unknown, and population and wealth have increased; but with all this there has been enormous waste, both of men and material, unheard of suffering and squalor, debasement of commercial principle, adulteration of products, and degradation of taste. Industry has made great strides in its methods and results under the fierce competition. But, after all, it is not to this anarchical struggle that we owe the greatest achievements of the age. It will be distinguished in history not so much for the rapid increase of material products, as for its remarkable discoveries in natural and physical science (ibid.: 71).
Along with this argument, Foxwell elaborated a complex programme of reforms to remedy price fluctuations and the instability of markets, comprising altogether an agenda which he subsumes under the heading of ‘organization’. Besides the already mentioned restoration of bimetallism and the public control of monopolies, he proposes an ample set of measures directed to provide transparency and information to the public. That would be the case for the compilation, by State agencies, of aggregate statistics on employment, consumption, income, and the distribution of wealth, to be made available for all public bodies and boards of trade. Speculation and corruption, according to Foxwell, thrive on ignorance and disinformation, secrecy being the cover of all kinds of abuse in modern society, the essence of democracy laying precisely on publicity, which makes public interest supreme. In regard to lessening business fluctuations, Foxwell conceived of the introduction of some kind of organization, like the medieval guilds, uniting masters and men of the same trade, who would work as one to keep prices steady, moderate competition, and regulate their common output. These guilds, additionally, would be in charge of providing technical education and apprenticeships, quality control of products, and the punishment of falsifications, while searching for better channels of trade with a view to eliminating the middleman. Lastly, to address the unemployment issue, Foxwell suggested, first, the creation of a Bureau of Labour to assist the unemployed and provide them with information on work opportunities, savings, and retirement; second, the expansion of the use of long-term wage contracts, with sliding scales and standard lists; and lastly, the introduction of permanent staff on public agencies, museums, hospitals, and the like, in order to increase the overall stability of employment (ibid.: 73-90).
- [1] See Foxwell’s observations on the history of Barclays Bank for a conspicuous case of a successful bankingamalgamation (Foxwell 1908b).
