market economy

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Competitive advantage lessons from the market economy (from Kay, 2004) --
The market economy exists within a social, political, and cultural context. The success of the creative capability of the market economy, over other types of economies, offers lessons for sustaining competitive advantage. The market economy coevolves with the social, political, and cultural institutions it coexists with. Here are some of the attributes associated with a market economy.

  • The rule of law counters unrestrained individualism.
  • Conventions and rules which are clear, explicit, and broadly accepted make for efficient exchange.
  • Trust fosters effective and efficient economic exchange.
  • An economy conjoined with a culture, whose individuals care about business as an activity for its own sake, rather than self-interested materialism, is more successful.
  • Homogeneity in critical foundational aspects enable more complex structures and regulations for the benefit of the economy.
  • Societies that thrive have a broad consensus on the legitimacy of the distribution of wealth and income.
  • Economies with mechanisms to ensure plurality, such as through anti-trust laws, are robust.
  • Centralization of power inevitably leads to destruction of creation capability of institutions - Ford Motor by 1940s nearly destroyed by Henry Ford, Khrushchev's failed economic reforms for the Soviet Union, Mao with reforming China, Jack Welch towards the end of his tenure, and GE's central planning prior to Jack Welch dismantling it - whereas decentralization of power brings with it the limitation of risk of decisions and spurs the institution's ability to create.