To put it simply: profit. In the Great Leap Forward example, Mao mandated that everyone produce steel. Since very few of China’s citizens were capable of doing this, much less properly equipped, the result was a poor product that no one needed or wanted.
Competition in markets is not just good for those seeking profit; it benefits society as a whole. Competition provides incentive for the attainment of new knowledge, which forces entrepreneurs to make the best use of their skills and property. For the purposes of this writing, competition is defined as, “action of endeavoring to gain what another endeavors to gain at the same time” (Hayek, p.96, 1945). What are businesses trying to gain? Profit from consumer dollars. Inevitably, this leads to the creation of new technologies or services that fill a want or need in society, benefitting both the entrepreneur (financially) and society at large. As stated above, everyone possesses a different set of skills and knowledge. Additionally, everyone interprets information differently and has differing means of reacting to information. The result is competition. Competition selects the best business practices while exposing practices in need of improvement or abandonment without interference from a central authority. In other words, the customer will “vote” for the best business with their dollars. Losses are just as important