Randy Shumway: Competitive market can be short-term pain, long-term gain

Published: Tuesday, May 20 2014 5:10 p.m. MDT

This file photo depicts Bill Turnmire checking a metal stamping at United Metal Products in Detroit, Friday, Jan. 14, 2011. Between 1948 and 1967, operational restructuring forever altered the auto industry, and Detroit lost more than 130,000 jobs in manufacturing.

Paul Sancya, Associated Press

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Editor's note: This column was previously published in a newsletter produced by Zions Bank.

Over the course of the 20th century, Detroit established itself as the capital of America’s all-important automobile manufacturing industry — a global paragon of modernity, national entrepreneurialism and labor. In fact, by the middle of the century, the automobile industry employed nearly one in every six working Americans either directly or indirectly. By 1950, Detroit was the fifth largest city in the U.S.

However, between 1948 and 1967, operational restructuring forever altered the auto industry, and Detroit lost more than 130,000 jobs in manufacturing. No longer the engine of American capitalism, Detroit started to embody America’s urban crisis in the 1970s. As more efficient and consumer-focused overseas competitors took a bite out of the American auto industry, Detroit was left with an alarming scarcity of jobs and a significant population to support.

Over the years, a number of policies were enacted to artificially shelter jobs by counteracting competitive forces — these policies stabilized wages for a time but resulted in long-term inflated labor costs, inefficient production and manufacturers’ troubling incapacity to align with customer demands.

Rather than reversing course and facing the short-term pain required for the automotive industry and its associated workforce to evolve, leaders in Detroit essentially kicked the can down the road by requesting a federal bailout. In 2013, on the coattails of these near-sighted policies, Detroit went bankrupt.

Policies designed to shield jobs from the prevailing winds of economic and technological change rarely return long-term positive results socially or economically. Given the founding economic principles that drove our country’s rapid ascent, it is surprising that the term “competition” has often been viewed negatively — even derisively — in recent years. Competition creates constant change and, frankly, change is difficult to endure, even when it is necessary and positive in the long view. But when fair competition is allowed in an open market, products and services almost always improve while prices decline. And in the long run and in the aggregate, the workforce is markedly better off — even when that requires retooling and retraining in the interim.

If history proves the value of evolution and innovation again and again, why are so many of today’s protectionist policies instead shackling critical sectors of our economy? While protectionist policies may be good short-term politics, their capacity to curtail social and economic advancement is real and often stifling.

Once again, America’s economy is in flux. Just as we moved from an agriculture-dominant economy to a manufacturing-dominant economy 100 years ago, we now need to adapt and move to a new economy based on information and technology. Our policies need to thoughtfully engender, not obstruct, this transformation.

New technology simplifies processes and streamlines the amount of labor and expense involved. Consider how, only years ago, Americans treated a long-distance phone call like an open refrigerator — and for good reason. Prior to 1984, the long-distance monopoly ensured limited innovation, inefficient fulfillment and high rates. Today, thanks to technological evolution and free market competition, we hardly even pay for long-distance calls. If a provider doesn’t meet our needs, we have a plethora of alternatives.

Think of how expensive the first home computers were and how little they did. While delivering only a sliver of the capacity of current mobile phones, those old computers cost thousands of dollars. The role of competition in technology is hard to overstate. As technology advances, both in response to and in facilitation of competition, costs associated with functionality decrease.

Competition encourages companies to use cutting-edge technology to produce the best possible product at the lowest cost. Time and time again, economic history shows that although an open market and competition can inflict short-term pain on established industries — such as a loss of manufacturing jobs in Detroit — it will ultimately return long-term economic and social gain.

Therefore, rather than neutralizing competition, public policy must thoughtfully focus on enabling competition while simultaneously facilitating the essential retooling of the workforce’s skills and knowledge. As workers periodically stretch and pivot their careers in line with technological advancement, the U.S. workforce will be significantly better off in the long run. We need policies that encourage fair competition and innovation, enabling our nation to produce better products at lower costs and propelling a higher standard of living for all.

Randy Shumway is the CEO of the Cicero Group and is the economic adviser to Zions Bank.

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