The competition solution: the bipartisan secret behind American prosperity

Abstract

The 1990s were an era of unexpected and, in some ways, unprecedented prosperity. Economist Paul A. London examines history of America's economy over last several decades and sources of our recent success, and comes to surprising conclusions about what we can learn from it. London argues that prosperity in 1990s was result of political struggles over several decades that opened up markets and increased competition within them, rather than changes in monetary or tax policy that most economists focus on. Competition, not Federal Reserve, ended inflation by making it impossible for businesses to raise prices; competition, not tax cuts, spurred investment by forcing companies to make investments that enabled them to cut costs and expand. The Competition Solution contrasts vibrant, competition-driven American economy of 1990s with oligopolistic, inflation-prone one of 1970s. London uses anecdotes and examples to show how both Republicans and Democrats helped bring down oligopolies and monopolies by backing open trade, supporting antitrust, and ending price fixing in key industries. He tells story of how courts and politicians helped competitors challenge Big Three auto companies and United Auto Workers; Big Steel and steelworkers union; airlines and their unions; ATT trucking companies and Teamsters; established eastern financial institutions; and even powerful local retailing interests. Our future prosperity, London argues, will require political leaders who are willing to take on these kinds of fights. Just as prosperity of 1990s was driven by more intense competition, London argues that future prosperity will depend less on tax cuts and monetary policy than on having political courage to maintain competition where it is strong and expand it in industries with still-rising costs, such as health care and education. Local monopolies dominate these two industries, making it hard to apply the competition solution, but London suggests ways to promote competition in both.