… is from page 287 of one of Harold Demsetz’s brilliant 1982 De Vries Foundation lectures, “Competition in the Public Sector,” as this lecture is reprinted in volume II of the 1989 collection of some of Demsetz’s most important works, Efficiency, Competition, and Policy:
Many national policies require the passage of time before their success or failure can be determined, and many programs require a commitment to others that has an important time dimension. Infrequency of elections allows working time, but it also reduces the rapidity with which voters may directly discipline their parties. Business firms are disciplined by consumers on a continuing basis. The impact of poor quality or of dishonest performance is felt quickly by firms once it is discovered; revenues available from sales or from the capital market are soon made more difficult to secure….
The desirability of providing governments with time to work out their programs comes at the cost of an increase in the probability that politicians will behave opportunistically, taking advantage of the delay in reckoning. The infrequency of elections encourages more short-run opportunistic behavior than the continuity of economic competition permits to business firms.
DBx: Competition in a private-property-based economy amongst people spending their own money is concurrent and non-coercive. A thousand – or, rather, a multiple million – ideas bloom simultaneously, each to be compared to the other. Experimentation is continual. The relatively better ideas survive at a higher rate than do the relatively worse ones. The economy improves.
To describe in any detail some ‘ideal’ economic ‘outcome’ is unavoidably to produce the product of an individual’s imagination. Yet because no single individual’s, or committee of individuals’, creativity and knowledge come within light-years of the creativity and knowledge at work in free markets – modern markets which host and encourage a never-ending orgy of ideas having sex with each other – no individual or committee or parliament or duma of individuals can hope to outperform the market process over time.
Keep the above in mind when you next hear a plea for industrial policy.
Note also, by the way, that Demsetz above mentions one of the many productive roles played by financial markets – a point to remember when you next encounter the assertion that financial markets ‘produce nothing.’