EN -- LARRY ROMANOFF -- The Pathology of American Competition -- September 27, 2020

 

 

The Pathology of American Competition

 

 By LARRY ROMANOFF – September 24, 2020

 

 

 

Economic textbook theory tells us competition will provide increased social benefits, but is pitifully thin on evidence to justify the claim. The one place where competition might have social value is in the case of a monopoly, where the dominant firm abuses its position to charge inflated prices and offer poor service, which is why monopolies are discouraged and why governments tend to break them up; the resulting fragments haven't the same power to abuse the population. But this is quite unrelated to 'competition' in any meaningful sense of that word, but instead relates to the natural tendency of corporate executives' greed to approach infinity as regulation approaches zero. I have lost the source of this quote, but its content is important:

 

"The monopolies or quasi-monopolies created by mergers and acquisitions are effective mostly to expose the public to the worst excesses of capitalism, excesses which have not much changed in the past 100 years. In 1911, speaking to a Senate Committee, US Supreme Court Justice Louis Brandeis said that American corporations managed to thrive only because of their dirty tactics, and by illegally fixing prices and purchasing or destroying competitors. He said that with a level playing field, "these monsters would fall to the ground"."

 

 

The most common understanding of the term 'competitive' is for products or services to be more or less equivalent in terms of price and value. This philosophy of competition assumes that some amount of pressure or hardship will force us to grow and perhaps do our best. If we have demanding customers, we may strive to meet their expectations by improving our service to a level we would not otherwise have offered. If we have two vegetable markets in close proximity, customers will frequent the one they feel is most attractive or offers the best quality or service. To that extent, they keep each other honest and the prospect of losing customers may serve to improve the service or maintain reasonable prices. Yet every city in every country has many shops offering similar or identical products but the service and prices tend to be average. China has more than 50 million businesses. If that isn't enough competition, I don't know what would be, but with all this so-called competition, what do we have? High prices and lousy service, so where are the benefits to consumers? The simple answer is: there are none, and the economic theory of the benefits of competition is a textbook myth. But in a sense, this is a small thing and not in any way what the Americans mean when they talk about competition, which is related only to achieving market domination and destroying other suppliers in the market.

 

There is nothing inherently good or righteous about "competition". This is an American capitalist construct, used as a kind of magic wand to justify countless serious abuses and social policy violations, and as a propaganda tool to control a debate by focusing on a widely-promulgated but false premise. Competition is not a goal. It is not a value. It is not an absolute. It is not a religion. It is nothing. There is no magic in competition, and it is only the Americans who dictate their commercial agenda in these terms. The American corporate bible tells us that competition produces a world of socially-beneficial wonders, but there is no evidence whatever that it does any such thing. American capitalism as it manifests itself today is a pathology belonging to the morally and mentally defective, and should have no place in a world of human beings. The entire concept of American competition needs to be examined without its shroud of religious propaganda and consigned to the garbage can of commercial history where it belongs.

 

 

Americans go to great lengths to proselytise the necessity of competition but would be sorely pressed to provide cases where the American style proved in any way beneficial to anyone but the few corporations in that market. And for every one of these they could produce, we could find hundreds of illustrations of the opposite. In another article, we will examine the US healthcare market which is virtually 100% privately-owned and with no restrictions on competition, and search vainly for the benefits. A healthcare system that is by far the world's most expensive and yet provides the lowest level of care of every civilised nation, with the highest rates of medical malpractice, but with hugely profitable hospitals. With all this the competition in US healthcare, why is the system the most expensive and with the lowest standard of care in the civilised world? We will also soon see that the American educational system is not better and is becoming worse each year, providing increasingly lower education at increasingly higher prices and increasingly filling the pockets of the lucky few in the top 1%. With all this so-called competition emerging in the US educational market, why isn't the system adhering to American competition theory and improving the quality of American education? God knows the US needs it. We will search vainly for the benefits of competition in these systems in the US, and discover there are none.

 

 

American advertising executive John Lyons once wrote that business strategy is "a carefully-designed plan to murder the competition". He claimed further that any business premise that lacked "a killer instinct" was not a good strategy, nor even a strategy at all. This is typical American "law of the jungle" competition. When translated into the language of action in the commercial marketplace, it means I needn't make good mobile phones in order to dominate the market; I just need to kill all the other companies that make phones. If I live in a rural area with 100 other farmers who grow oranges, I don't have to breed a better or sweeter variety of orange in order to dominate the market. I just need to kill the other 100 farmers who grow oranges. We don't "compete"; we kill. We use brute force, whether economic, financial, political or military, to eliminate all competition. This is the American way. American hypocrisy promulgates an image of competition as being very different from this, much more moral and high-minded, "fair" and even altruistic, praiseworthy in every respect. But all that is just American marketing. According to the American fables of commerce, I, as a fruit farmer, will work very hard, apply all the latest agricultural methods, use no harmful chemicals, concentrate on the genetics of cross-breeding my fruit, until eventually my native American innovativeness and ingenuity will create a superior species of sweeter fruit, at which time my product will rise to the top and dominate the market due to its (and my) natural superiority. That's the fairy tale of the American Dream, and nothing could be farther from the truth. In an entirely different category in terms of consequence, American (and some other) MNCs dealing in resource-based commodities such as metal ores, will often invest huge sums of money to drive competitors out of business, to the chagrin of those innocents who believe American nursery stories about welcoming and thriving on competition. During a time of low and falling ore prices, these giant MNCs will increase production to very high levels and even discount sales below the already-low market rates, to place increasing pressure on their smaller and higher-cost local rivals, eventually driving them all out of business and into bankruptcy. Following this, of course, the predators then buy up their now-bankrupt competitors for pennies, and market prices can be pushed to astronomic levels to recoup the earlier losses and guarantee enormous profits indefinitely into the future.

 

 

To most people, the idea of competition would bring to mind a circumstance or event involving an equitable challenge among equals, as in the Olympic Games, or perhaps a chess match or a world tennis final. Pitting a world champion against an amateur schoolboy would hardly be considered as worthy competition, and few people would consider such an asymmetric situation fair or reasonable. But yet this is the true world of American competition, and the more unequal and unfair it is, the more American corporations value it. Americans, in spite of their blustery self-confidence, are cowards and, whether doing battle in shooting wars or competing in the commercial arena, they will always avoid any confrontation offering the possibility of defeat. Bullies prey on the weak, not on the strong. We will examine the history of American MNCs in China, where their idea of competition is to use their financial power to purchase and kill every popular company that might possibly pose a commercial threat to their own brands. This is not competition in any useful sense; it is only a kind of homicide where we kill companies instead of people. There is in this so-called competitive process no thought of equitable challenge or fairness; it is simply a quest for maximising profits by brute force with a total absence of concern for the historical and cultural value of those brands, companies and products that are destroyed in this pursuit of market domination. The American version of competition is a disease, not a virtue.

 

 

Virtually the entire American thrust of 'competition' in China and elsewhere is not to succeed by offering better products or service, but to utilise any possible methods to permanently disable and eliminate all competitors. This kind of insane pathology is peculiarly American. The Americans repeat incessantly the propagandised religious mantra of competition, presenting it as a necessary framework within which a civilised world must operate but, as with all propaganda, they attempt to foreclose not only a discussion but a realisation of the underlying concepts because those concepts cannot bear exposure to the light. The kind of competition the Americans pretend to preach - but never deliver - is the kind that comes from an essentially fragmented market where no firm is large enough to exert any meaningful amount of control. The only way to reveal the truth of consumer demand is within such a fragmented market environment because only then can the public have enough influence to exhibit and communicate their needs and wishes. But the Americans have no interest in any such condition; their interest is domination with an entire market controlled by only a few very large firms that can exert enough control to achieve whatever ends they want, and this means no competition at all.

 

 

When American firms began entering China some 30 years ago, the Chinese government accepted their entry on good faith and permitted the companies to enter numerous joint ventures with domestic firms and also to purchase many prominent Chinese brands outright. The assumption of good faith was in every case a huge mistake. The entry of American capital into China has been colloquially categorised as "a three step process": First, establish a joint-venture by promising to apply your extensive capital, knowledge, international experience and awesome marketing abilities toward promoting the local Chinese brand. Second, deliberately skew the JV's accounting, finance and marketing departments to simultaneously bleed the JV dry from significant consecutive annual losses incurred by siphoning all the profits to the US parent until the Chinese JV shares are essentially worthless. Then third, purchase the skeleton and bury it.

 

 

US-based Pepsi-Cola purchased eight beverage brands including TianFu and Beibingyang on these "good faith" JV's, and killed all of them, brands that were leaders in the China market. P & G was given a 50-year license for Panda detergent which was at the time the most prominent domestic brand with the largest market share. Since P&G's only purpose was to create a market for their Tide brand, their first act was to raise Panda's retail shelf price by 50%, effectively killing the sales and destroying the brand, with their cheaper Tide as the only sensible consumer choice. P & G also formed JVs with Li Ka-Shing's Hutchison Whampoa and the Guangzhou Lonkey Industrial Company that owned the leading laundry and cleaning factory in southern China, taking over many more brands in like manner, all of which have now disappeared forever. There is no escaping the conclusion that P & G's purpose in the purchases and JVs was to enter China by killing off any and all competing domestic brands.

 

 

Nanfu had been China's top-selling alkaline battery brand for years, preventing its foreign rivals in China, Duracell and Energizer, from gaining any significant domestic market share, and was also number three or four and growing rapidly in the international market in which it would quickly replace these same rivals. US-based Gillette (owned by P&G) engineered a takeover by underhandedly acquiring a majority of shares from foreign partners, then immediately shut down all export production lines and killed Nanfu's international sales to prevent competition for its Duracell brand. US-based Pepsi has done the same with numerous Chinese brands, in each case entering a JV with promises to promote the Chinese products but in fact bankrupting the JVs and killing all the Chinese brands to eliminate any domestic competition for Pepsi.

 

 

The picture of cosmetics brands is the same. Even though only 500 of the 3,500 cosmetics manufacturers in China are foreign owned they control an 80 percent share of the market, achieved primarily by purchasing and killing China's domestic brands. Shanghai Jahwa's Maxam brand cosmetics reached enormous popularity and financial success in China's domestic market and was expected to be a forerunner in China's nascent cosmetics industry in terms of both product development and marketing. But after the Shanghai government put Jahwa into a JV with US-based SC Johnson Wax in 1990, the brand was immediately devastated, with sales suddenly plummeting by 98% and its products evaporating from stores almost overnight. Mini Nurse Skin Care was a beloved Chinese brand with a powerful distribution system, being sold in more than 250,000 retail outlets around the country; L'Oreal entered a JV because it wanted the distribution system to promote its Garnier brand, but Garnier failed miserably in the Chinese market and Mini-Nurse today is a walking corpse which will most likely disappear despite L'Oreal's protestations. The evidence indicates there is no doubt L'Oreal intended from the start to kill the brand, but no matter; as a reward, they get to do it again. The company recently received approval from the Ministry of Commerce to buy Chinese skincare company Magic Holdings International, which L'Oreal boasted would create "even faster and more sustainable growth" for their two leading brands, L’Oreal Paris and Maybelline New York - two brands that should be boycotted in China forever.

 

 

Slotting and stocking fees are another vicious American practice that is removing hundreds of Chinese brands from the market. These are essentially rental fees paid to supermarkets for their shelf space and can range as high as one million RMB per supermarket for initial placement and tens or even hundreds of thousands of RMB per month in stocking fees. When I first arrived in Shanghai in 2005 the supermarkets carried dozens of brands of Chinese snacks, potato chips for example. Today, we see 90% or more of all shelf space containing only Pepsi's Lay's brand, and it is clear what has happened. Pepsi, with their large available financing, simply paid higher prices for the shelf space and forced all the domestic brands out of the supermarkets into a void where they will slowly die. This is financially-sound "competition", eliminating the need for media advertising since consumers can no longer find any other brand to purchase. The situation is the same with items like chocolate and candy bars; supermarkets once carried dozens of Chinese brands, but today we find only Dove and Snickers, both owned by US-based Mars. Supermarkets once carried dozens of Chinese brands of household cleaning products but today we see only those from US-based S. C. Johnson. None of this is accidental, nor is it attributable to anything we might call a level playing field or fair competition. In every case, the intention was not to promote competition, but to eliminate it, and to do so by killing off all the competitors. In the light of all this, AmCham Is famous for telling China's government, "competition remains the ultimate incentive for (American) private sector investment". We can see why.

 

 

These are examples of the true intent of American-style "competition", which is in reality a vicious predatory capitalism and the real intent behind American whining about China opening its markets and the Americans having what they so dishonestly define as "a level playing field". The Americans have never been interested in anything remotely resembling fair competition and will in practice resort to any level of dirty tricks and desperate measures to eliminate competition and destroy competitors in the process. In 2013, Swedish auto manufacturer SAAB was forced into bankruptcy, losing a desperate struggle to stay in business after previous owner US-based General Motors blocked attempts by a Chinese automaker to purchase the company. GM retained control over the disposition because it owned some technology licenses for Saab, and forced Saab into bankruptcy to prevent Chinese competitors from obtaining any useful technology.

 

 

Capitalism is never a contributive activity; it is always extractive. Its entire purpose is to identify and extract streams of revenue wherever it can find them, and it does not of its own nature stop until it has extracted all the wealth of a society. Capitalism is exploitative by nature, using workers and consumers to serve only its own desires without reference to the needs of a society or a population, which is why capitalist societies always consist primarily only of elites and (eventually) impoverished citizens. As John Kozy noted, competition does not foster concern for others, but instead antagonism. He wrote,

 

 

"Capitalism is institutionalized meanness. It is the primeval miasma manifested in greed. It is the disease that makes human beings inhumane, and it is fatal. Why then would those in other nations look up to America and want to emulate its culture of meanness? Why aren’t they revolted by it?"

 

 

And he's right. Capitalism works only under the "interference" of government, where its excesses are tightly held in check, as we have in China. Under the system that Americans falsely term "the free market", which is totally unregulated capitalism, society will eventually disintegrate - which is precisely what we see in America today. At the time of writing there was in China a debate about universal fiber Wi-Fi and Internet access, with some proponents on the side of universal government-built infrastructure and some on the side of American free-market competition. It should be obvious to any thinking person that this system is a crucial part of a nation's universal communications infrastructure which should be designed and operated only in the best interests of the people and the nation, and that American-style "free-market private enterprise competition" should be banned.

 

 

The US State Department, AmCham, many US multinationals, promulgate the thesis that China's SOEs desperately need exposure to competition, that they should be broken up or sold off into the private sector, but without ever defining their terms or providing a rationale for this ideology. Claims that China’s SOEs inhibit competition are nonsense from every meaningful perspective. The Americans want the SOEs out of the picture because they can't compete, in the real sense of the meaning of that word, and because those sectors are profitable and the Americans want the money. They do the same with China's schools, hospitals, and almost every imaginable sector of China's economy and infrastructure, using meaningless flowery adjectives to describe benefits that would flow to the nation and the people if only China's government would accept their sage advice. But aside from those flowery adjectives, there is nothing. American demands for competition simply mean, "Let me in, because I smell money."

 

 

Every branch of the US government, organisations like AmCham, the US multinationals, the US media and more, incessantly claim that "China needs more competition", but they tend to be fuzzy on support for that theory because the Americans do not actually mean that China needs more competition. Instead, they mean they want China to give them free rein to take over yet more companies, destroy or shut down more competitors, and dominate yet more market segments. It isn't 'competition' that they want; it's domination. They don't want to 'compete', and in truth and in reality Americans do everything possible to avoid real competition because they normally lose. What they want is to destroy all domestic competition so they never actually have to compete. If the free-market Westernised ideologues have their way, China will have deep regrets for decades to come. The Western world is full of such tragic examples. The Americans have a pathological infatuation with a mythical conception of competition, but it isn't competition that the Americans love. What they revere most is a strongly asymmetric situation where their huge financial resources or available political pressure can ensure complete market domination, totally destroying any domestic commerce and culture in the process. This is the American 'law of the jungle' mentality promulgated as a theological virtue and forced on unsuspecting nations through political and military pressure. I offer here an ideal solution to American corporate demands in China: Open all the markets wide to American entrance; no restrictions, but don't permit them to buy any existing Chinese or other company. If the Americans want to enter the Chinese market and to "compete", let them do that, but let them start all their businesses from scratch, and let's see how well they do. Virtually all of them will fail because American business has almost never been competitive on any 'playing field' that was indeed level. It has only been through political and military pressure exerted by the US government that markets have been opened to them, and by using vast financial resources to destroy every domestic market they have entered. In the absence of these advantages, American businesses have almost always failed.

 

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Larry Romanoff is a retired management consultant and businessman. He has held senior executive positions in international consulting firms, and owned an international import-export business. He has been a visiting professor at Shanghai's Fudan University, presenting case studies in international affairs to senior EMBA classes. Mr. Romanoff lives in Shanghai and is currently writing a series of ten books generally related to China and the West. He can be contacted at: 2186604556@qq.com.

 

 

Larry Romanoff is one of the contributing authors to Cynthia McKinney's new COVID-19 anthology ''When China Sneezes''.

 

Copyright © Larry Romanoff, Moon of Shanghai, 2020