Jawaharlal Nehru had once said “Why do we need 19 brands of toothpaste?”
So, I thought about this for a while, since it is a fair question. Producing 19 brands of toothpaste is enormously inefficient. It requires many people doing accounting, marketing and other housekeeping activities which are resources you could divert into the production of other goods and services. Then I realized why : “It eliminates corruption” ( among other inefficiencies ).
I am yet to see a good systemic solution for government corruption. One common solution proposed is to put people to watch the government officials to check if they are corrupt. But of course the problem here is that it creates a new problem : who will watch the watchers ?
Free market is a solution to this problem. Imagine a toothpaste company ( say “Colgate” ) trying to make toothpaste. It requires the supply of 100 Kg of Calcium Carbonate from the rocks in a nearby quarry. The quarry owner agrees to sell this to Colgate for $100. Imagine the supplier in charge of securing the raw materials instead asks the quarry owner to charge the company $200 so that both of them can pocket $50 each. This cost would in turn be borne by the customer purchasing the toothpaste. However, in this case, another company ( say “Pepsodent” ) may be able to obtain the same quantity of Calcium Carbonate for $100 from another quarry and the sell their toothpaste for a lower price. Given two packets of toothpaste with exactly the same quality which one would you choose ? Surely the lower priced one. This should put Colgate out of business and thus end this instance of corruption. Therefore, this provides a systemic incentive to end corruption.