Quote of the Week – George Orwell on Economic Competition

The trouble with competitions is that somebody wins them.

This brilliant quote is taken from George Orwell’s review of Friedrich Hayek’s The Road to Serfdom and situated in a discussion of monopoly. Orwell contends that free market competition leads to monopoly and “a tyranny probably worse, because more irresponsible, than that of the State.” Orwell’s argument, while rherhetoric brilliant, is deeply flawed.

The analogy between economic competition and other kinds of competitions is misleading. In a footrace, only one person can come in first. What matters is not how fast you run, but whether you run faster than your opponents. A race is a zero-sum game – your gain is another person’s loss and vice versa. And if there are prizes for the top three finishers and the third fastest runner needs 40 minutes, then it doesn’t matter whether you reach the finishing line after 41 minutes or an hour.

Not so with economic competition. McDonald’s might produce millions of hamburgers per day, but that doesn’t mean a small restaurant producing tens of burgers per day can’t compete with them. Economic competition is not winner-take-all. In most markets, whether you’re profitable or not has little to do with whether you control 50% or 0.5% of the market share. A small, independent burger joint won’t outdo McDonald’s on units sold, on revenue, or on total profit, but it may well be more profitable in relative terms. Unlike in the board-game Monopoly, the goal of real-world capitalists is not to acquire all available property, but merely to make a good return on their investment.

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