The Competition Solution
The Bipartisan Secret behind American Prosperity

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    The Competition Solution
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“We can only hope that, on that inevitable day when the Democrats are back in charge, enough of them will hear Mr. London's message loud and clear and heed it once again.”

--Wall Street Journal, May 24, 2005

"In a new book (The Competition Solution, published by the American Enterprise Institute), economist Paul London argues that heightened competition overshadows Reagan's tax cuts, Clinton's budget policies or new technologies in explaining the resurgent prosperity of the 1990s. He's more than half right. Competitive pressures helped suppress inflation. They also helped raise living standards, through improved productivity."

--Bob Samuelson, Newsweek, February 7, 2005

"Ever since he went to Washington as a student, to watch Senate hearings on the travails of the American automobile industry, Paul London has suspected that competition is the great unappreciated truth of the American economy. Now, decades later, in this lively and provocative book, he demonstrates how competition has been the great source for the innovation, job creation, and national wealth that has made the American economy so generally successful over the last two decades. And he argues that keeping to this principle, irrespective of partisanship and politics, ought not to be a secret but rather a guiding commitment to help ensure a bountiful American economy in the years ahead.”

—Daniel Yergin, author of The Commanding Heights: The Battle for the World Economy and The Prize: The Epic Quest for Oil, Money, and Power

“Paul London has done a masterful job of explaining the prosperity of the 1990s, which exceeded our expectations. His is an entirely different perspective which defies conventional wisdom, takes much of the complexity out of international competition, and should be a must read for anyone interested in business.”

—David Glass, former CEO of Wal-Mart and chair of its executive committee

“Paul London demonstrates that competitive markets are the vital ingredient in our nation’s economic success. Tempting though they might be, protectionism, excessive regulation, and national ‘champions’ will only undermine our ability to maintain that preeminence in an increasingly competitive global economy. Policymakers should read this book lest they forget a lesson that has served us well and will continue to do so.”

—Joel I. Klein, former assistant attorney general for antitrust

“In this surprising book, Paul London tells the story of how, over the past thirty-five years, politicians in both political parties have taken steps to strengthen competition and stimulate the economy. As a result, our nation is stronger, and private industry is better able to meet the challenges of the global economy.”

—George Mitchell, former Senate majority leader

The 1990s were an era of unexpected and, in some ways, unprecedented prosperity. Economist Paul A. London examines the history of America's economy over the last several decades and the sources of our recent success, and comes to surprising conclusions about what we can learn from it.

London argues that prosperity in the 1990s was the result of political struggles over several decades that opened up markets and increased competition within them, rather than the changes in monetary or tax policy that most economists focus on. Competition, not the Federal Reserve, ended inflation by making it impossible for businesses to raise prices; competition, not tax cuts, spurred investment by forcing companies to make investments that enabled them to cut costs and expand.

The Competition Solution contrasts the vibrant, competition-driven American economy of the 1990s with the oligopolistic, inflation-prone one of the 1970s. London uses anecdotes and examples to show how both Republicans and Democrats helped bring down the oligopolies and monopolies by backing open trade, supporting antitrust, and ending price fixing in key industries. He tells the story of how the courts and politicians helped competitors challenge the Big Three auto companies and the United Auto Workers; Big Steel and the steelworkers union; airlines and their unions; AT&T and the Communications Workers of America; the trucking companies and the Teamsters; the established eastern financial institutions; and even powerful local retailing interests. Our future prosperity, London argues, will require political leaders who are willing to take on these kinds of fights.

Just as the prosperity of the 1990s was driven by more intense competition, London argues that future prosperity will depend less on tax cuts and monetary policy than on having the political courage to maintain competition where it is strong and expand it in industries with still-rising costs, such as health care and education. Local monopolies dominate these two industries, making it hard to apply "the competition solution," but London suggests ways to promote competition in both. [more...]

Paul A. London served as deputy under secretary of commerce for economics and statistics in the Clinton administration from 1993 to 1997. He wrote The Competition Solution while a visiting fellow at the American Enterprise Institute.

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