Does "Perfect Competition" Hinder Growth?

It depends. Does competition exist in the form of complete product representation, or is "competition" more a component (such as knowledge or infrastructure links) which further enables the entire process? In a recent post ("Perfect Competition is Bad for Growth"), Dietz Vollrath, via the bullet points below, provided a fairly standard summary of the innovation which generates growth.

• Growth is ultimately driven by innovation
• People will innovate if they have incentives to innovate
• The incentive to innovate comes from economic profit
• Profits only exist when the innovator or firm has some market power

Because worldwide consumers often access tradable goods production, this form of competition has proven more beneficial (thus far) for consumers, than competition in non tradable goods. While Vollrath's first two points are general in nature, the last two factors became more important in the last century for growth potential.

Perhaps missing from the traditional growth economics perspective, is the spontaneous innovation which once occurred. Individuals enjoy both the challenges of innovation, and the sharing of those challenges with others. This natural inclination was only diminished by institutional claims to knowledge. Even though organizations are better positioned to utilize knowledge use, the costs of research and development thus far have been far more extensive than in the past. While spontaneous innovation often did not generate large profits, it provided the rich soil from which economies continue to grow in the present.

How to think, then, about the relative lack of innovation for developed nations in recent decades? While innovation still exists in some institutional capacities, that which is capable of scaling up for societal gain has been primarily in digital communications. What about the "imperfect" competition which stands in the way of innovation? From a commenter at The Growth Economics Blog:

So the issue isn't one of "perfect competition bad for innovation" as much as it is the rate at which market structure transforms from perfect to imperfect competition influences both the pace of innovation and the rate of diffusion.

The easiest way to think about this process is what has actually occurred at local levels, which has also stood in the way of substantial innovation for quite some time.  There is little diffusion of knowledge use in some economic environments, and scarcely any diffusion of innovative infrastructure or building component capacity in many environments. Even a recent post from left leaning Project Syndicate indicated the need for building and construction to be exposed to economies of scale.

Again, innovation in building components and infrastructure would be desirable for all income levels, not just individuals with lower incomes. Few other aspects of consumption would be as freeing, as this single factor. In a sense, it's odd that such an important scaling process should even be still be needed, in one of the most basic areas of our lives.

Perfect competition would not even be necessary, for the innovations which could free both our time use and services options in the future. How to make that possible? Who or what stands in the way? As mentioned in yesterday's post, the wealth of non innovated building structures also provide additional monetary flows for services formation. However, consider...If some recent statistics are taken seriously, one in thirty children experienced homelessness in 2013. How is that even possible?

As part of the product generation process, knowledge use has scarcely been given the chance to compete. While it's understandable that many institutions wish to limit knowledge use, this is no longer practical or realistically possible. Too many populations do not have access to the services they need. All individuals need the right to intellectual exploration, real challenges and meaningful work. All individuals need the right to assist one another for daily needs - credentials or no. Not only do governments need to recognize this, but private interests need to do so as well. Otherwise, a growing polarization in knowledge use and economic access will only become more difficult to reverse over time.

Fortunately, many aspects of knowledge use can take place without imposition on other existing knowledge use structures. Unlike the marketplace where too many copies of a tradable good would destroy profits, knowledge use adapts to specific geographic settings, and is also time dependent. Quite often, the result is a unique product: a result of local circumstance and resources.

Often, when competition is taken into account, it's too easy to focus on tradable goods instead of the altogether different circumstance of non tradable goods. As for the latter, neither competition or innovation have truly emerged. Of course, that really is the good news in terms of growth potential, because starting the process is equivalent to opening a whole new frontier. Should this happen, few would need to worry about perfect competition again, for the foreseeable future.