2 thoughts on “Capitalism does work – to the extent that we allow it to operate”

  1. Posted 24/10/2017 at 14:00 | Permalink

    Capitalism needs to do away with Keynesian and return to the capitalism as envisioned by Smith

  2. Posted 25/10/2017 at 08:30 | Permalink

    The three cases of failure identified above – namely the health system, education system and the planning system for housing have one thing in common – they suffer from a lack of real competition, which is at the heart of a free market economy.

    What is also undeniable is the fact that, the type of competition used by the buyer to purchase goods, services and labour is the single most important factor that determines if value for money will be obtained, or not – especially so, if that buyer is the Government itself which, as a rule, always spends more than any other entity in any country around the world.

    Central to any effective competitive process is what some Governments call ‘keeping up competitive tension’ between suppliers throughout the entire period of the competition. It is just another way of saying that Bidders should be exposed to the full rigours of the free market, that is, not shielded from ‘feeling the heat’ of competitive market forces (which interferes with decisions relating to the allocation of private capital) – from the time the Government engages with the market for the provision of goods, services or labour, to the moment the single Bidder is selected, as the preferred Contractor to receive the contract.

    Whatever it is called, it is certainly not happening when the Government enters the market for military equipment. This is because the Ministry of Defence’s preferred version of competition to procure defence equipment for the Armed Forces is the ‘sudden death’ competition, which reduces the field of Bidders from six to one following a one-off release of the invitation to tender. See this illustration pic.twitter.com/xk0d8phEAJ.

    The presently applied ‘sudden death’ competition used by MoD has been rendered ineffective by Defence Contractors, who are quoting identical bottom-line Selling Prices against the same requirement – which amounts to price-fixing on a grand scale, with the active connivance of the Secretary of State for Defence. See this illustration pic.twitter.com/BQV4KUgdNg. Worse still, MoD’s Project Team Leader is being denied the opportunity to choose the single Contractor on the basis of price competitiveness, and therefore value for money.

    This has come about because MoD’s long-standing policy of disclosing the total budgeted expenditure figure or associated year-on-year financial funding profile in the ITT has resulted in Defence Contractors quoting identical bottom-line Selling Prices in their ITT responses – an entirely predictable result!

    What’s more, the single Contractor has no incentive to perform or keep prices down the moment all five Competitors disappear suddenly, which would explain why defence equipment procurement programmes have been plagued by persistent delays and cost over-runs, for as long anyone can remember.

    It is precisely to avoid this sort of disastrous situation from arising that the Government should do the sensible thing and quietly ditch this tried-and-failed competition policy and instead, set the objective of selecting the winning Contractor from a choice of industry teams, by running a multiple-phase winner-takes-all competition on the basis of a level playing field genuinely open to all-comers, including non-domiciled suppliers – to make sure it gets the very best value for money for the taxpayer.

    Using the market-based instrument of fair and open competition to select a single Contractor has the beneficial effect of incentivising all Bidders to get serious about identifying, quantifying and controlling the prime equipment and its associated Support Assets costs – a process that begins at the time of preparing the response to the ITT for the first Contract performance phase. Bidders who fail to do so run the risk of being excluded from the next phase of the competition.

    Normal commercial pressures and market forces inherent within the context of a multiple-phase winner-takes-all competition will, in themselves, compel Bidders to produce and deliver competitively priced, fully compliant ITT responses – not, because the Government says so, as some people in the pay of the State seem to think, but because of the omnipresent threat from the Competition!

    The policy of Progressive Elimination – removing Bidders one-by-one during the winner-takes-all competition requires that, a Bidder who scores worst against the selection criteria should be eliminated immediately after the Project Delivery Team has taken receipt of ITT responses and another, who has performed least well, at the end of each Contract performance phase, as shown in this illustration pic.twitter.com/RUToAZ6thx.

    That is to say:

    (a) From seven Bidders to five immediately after taking receipt of responses to the ITT for the first Contract performance phase.

    (b) From five to four at the end of the first Contract performance phase.

    (c) From four to three immediately after taking receipt of responses to the revised ITT for the second Contract performance phase.

    (d) From three to two at the end of the second Contract performance phase.

    (e) And finally, from two to one after taking receipt of responses to the revised ITT for the final manufacture and in-service sustainment phase.

    The ultimate result is one winner and six losers at the end of the multiple-phase competition.

    Another beneficial side-effect of applying this fully inclusive, winner-takes-all competition policy is that it will remove long-standing distortions and inefficiencies in the Supply Chain – by identifying and rooting out those Subcontractors who have positioned themselves in the extended Supply Chain but are not actually adding any value, that is to say, people who are acting as middle-men by simply raising invoices against the value of goods and services produced by lower-level, small and medium-sized enterprises suitably marked-up to reflect their cut of the action!

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