[Vnbiz] Competition -- Formerly "Future Leaders for Vietnam"

[Tran Dinh Hoanh]

Dear Sister Thu Huong, Brother Binh & CACC,

In this message I will discuss a little on competition as Thu Huong
has asked.  But before that let me clarify some point in my previous
postings on the leadership subject.

In the previous postings, some of my statements are generalization,
such as " It is impossible to produce good leaders without
competition."   Of course, we all know that every rule has exceptions.
 Meaning, even without competition there will still be good leaders
here and there.  I am just talking about a general principle.  Without
competition, most leaders are not good, and some leaders are good.
With competition, most leaders are good and some leaders and not good.
 I hope that everyone understands the rule of talking in generalities,
and will not get so nitpicking or confused.

And Brother Binh, of course, every society has its own way for
producing its leaders.  Leadership building happens in familly,
school, office, group activities on a daily basis.  We are talking
about whether the current leadership building in Vietnam is good
enough to produce good leaders, or just to produce more leaders of the
yes-man model.  That is the essence of this discussion.

Brother Binh, you can do this simple check:  Among all government
leaders of Vietnam of all ranks (from village leaders, to national
leaders) what is the percentage of leaders that you would consider
acceptable (not even good, just acceptable)?  50 percent?  30 percent?
 (Hint:  I think a good system should have 90 percent of its leaders
considered "acceptable," just like a good education system should
product at least 90 percent of high school graduates that deseved to
be called "high school graduates").

My position so far is that (1) the Vietnamese culture of focusing on
producing conformist and yes-men in family, school, and everywhere
else in our society does not help produce good leaders, and (2) the
VCP, focusing on political monopoly, enhances that tradition of
producing yes-men and no good leaders.  (3)  However, the economic
competition in the country helps produce good leaders.

That means in order to create a good environment to raise good leaders
we need (1) to change our attitude (to change our culture) about
producing yes-men, and instead producing independent, critical and
analytical thinkers and explorers, and (2) to inject political
competition into the system.

Another practical thing at the individual level is that we should
encourage each other to be leader.  If someone tries to push for some
project, let's support him/her, instead of dragging him/her down.

Now let's go the competition.  To simplify the discussion, I will
focus solely on economic competition.  But please keep in mind that
political competition is governed by the same principles, with only
some minor exceptions here and there.

Thu Huong mentions that in a free market competition is governed by
natural market forces.  Well, that is theory.  Adam Smith (in The
Wealth of Nations) talked about "the invisible hand" of the market,
which will automatically adjust price, quality and quantity of any
product to the optimal level (i.e., the best level).  If some
producers raise prices, customers buy less, which will in turn depress
the price down.  If a producer raises the price, customers will simply
go to other producers and thus force this producer to readjust his
price down again.

That theory of "perfect competition" assumes a lot.  It assumes that
producers will compete vigorously with each other, no one do anything
illegal and crazy, and consumers know everything there is to know
about product's quality and price.

We know that life is not like that.  Some producer compete by shooting
his competitors or burning down their houses, or producers may not
compete but collude to manipulate the market.  And many consumers are
clueless about the product's price and quality.  So perfect
competition doesn't exist, and the invisible hand of the market can't
do the job by itself.

But at the early time of capitalism (18th, 19th centuries) everyone
believed in the invisible hand so much that producers were left free
to do whatever they wanted.  So they did all the horrible things like
colluding to manipulate the market, monopolizing the market, cutting
throat of consumers, and exploiting the miserable mass of poor
workers.   The result was the rise of international socialism to fight
against capitalist abuses.  (So Socialism had an idealistic and heroic
beginning.  Philosophical Question:  How didi it become so arrogant
and, therefore, stupid until it dropped dead?)

Today, we know that the market cannot function by itself.  It needs a
set of rules and a rule enforcer.  Just like in soccer we need a set
of rules to play and we need a referee to enforce the rules.

In the competition field, the rules are designed to "foster
competition," meaning, to help competition among producers become
vigorous, because competition help lower price and increase quality of
product, which is good for consumers and therefore the entire economy.

And "competition" means "healthy competition," "fair competition."
Generally the following activities are prohibited:

-- Traditional criminal activities, such as beating up or threatening
your competitors.

-- Lying about a competitor or his product.

-- Conspiracy to fix prices or to divide the market.  "Price fixing"
is when a group of companies agree to sell a product at one single
price, wherever the consumers go, they see the same price price.  No
price competition among sellers.  "Market division" is when producers
agree that each one will cover a geographic location and others will
not compete, or each one will make one kind of product, others will
not touch the same product. (This is similar to match fixing in
soccer).

--  Monopolistic behavior such as "selling below cost" (to kill off
your competitors, and then raise prices skyhigh after your competitors
are all dead), or "tying" (Forcing your customers to buy an additional
product when they buy another product from you.  Microsoft, with an
almost monopoly position in operating systems for PCs, used  to force
everyone to buy its Internet browser if they buy its operating system,
until the US government sued it for anti-trust violation)

--  Deceptive consumer practices, such as deceptive advertising,
fraud, lying to consumers, etc...

In general, when companies compete without violating these rules, then
the competition is good.  Similar to soccer teams competing by the
rules, not beating each other up or threatening to burn each other's
house, and not fixing matches.

In addition to these above elements, anti-trust enforcers also pay
attention to the "concentration" of the market.  A market is highly
concentrated when it has a few dominant players with huge market
shares (and other players are non-existent or extremely small).  A
market is less concentrated when it has many small players and no
dominant players.  The more concentrated a market is, the less
competition it has (which means not very good competition).  Say, a
market of 10 players, 2 of them has 40 percent of the market each and
5 other players 4 percent each, is very concentrated.  Another market
also has 10 players but each one has 10 percent of the market is much
less concentrated and therefore tend to have much more competition.

Market concentration is measure and the Herfindahl index, which you
can read on Wikipedia at

http://en.wikipedia.org/wiki/Herfindahl_index

I will stop here before I start to confuse folks with economics.  My
point here for Thu Huong and everyone is: Competition is something we
need to manage to prosper.  Competition cannot survive by itself
without rules and referee, i.e., without the government's making rules
and enforcing rules.

Another question to think about:  Would the soccer game survive if the
referee does the refereeing while playing ball at the same time?

Have a great day!

Hoanh
-- 
Tran Dinh Hoanh, LLB, JD
Attorney of Law
Washington DC