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Is statism needed to protect against corporate monopolies?

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Centinel posted on Sat, Aug 20 2011 12:03 PM

I frequently encounter progressives and even some conservatives who argue that government is needed to protect society against corporate monopolies like big oil, big agri, big pharma, and big banks to name a few.

My retort is that government actually forms a duopoly with these companies that enhance their monopoly status through preferential tax and regulatory policy.

I also counter that monopolies in the private sector only represent a tiny portion of the free market and even these short-lived monopolies are dependent on competition and satisfying consumer preferences in a free and competitive market place in which start-up competitive firms could easily ramp-up to compete and undermine oppressive monopolies.

Lastly, I counter that it is ridiculous to create the Mother of all monopolies, the Federal government in order to protect against many tiny industry specific monopolies, none of which knock down my door in the middle of the night because I didn't buy their products or services.

However, I would like some additional supporting arguments to throw at the brain-dead drones on the statist side since this appears to be their main argument for supporting big wasteful and corrupt government.

 

 

 

 

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First of all it is impossibly difficult to get anywhere near that sort of position without government privilege. So that's one thing: You remove the government privilege, it's quite likely you won't even see anyone get anywhere near that sort of position.

 

 

So that will eliminate more than 99% of the cases of monopoly right there. (Seriously...that percentage. For every one example one might be able to come up with in which a company grows to that sort of position without government privilege I'll give more than 99 others who weren't able to do so despite their best attempts.) But even still that leaves two more things: 1) A company just being big and rich doesn't allow it to gain, and certainly doesn't allow it to maintain, any monopoly power. It doesn't even keep it from going bankrupt:

 

 

It is only when you have a de jure monopoly--that is a monopoly by law...when laws prevent other entrants into an industry or sector--that you risk the sort of things these statists are talking about. As long as there is free entry into the market, those things don't exist. That's why US Steel fell apart, that's how every one of these other enormous companies with names like Bank of America, Goldman Sachs, AIG, Bear Stearns, Lehman Bros, GM, Ford, Chrysler...were not only not able to garner the type of monopoly/oligopoly power these people always talk about despite having plenty of government privilege, but were also all brought to their knees and would have all gone bankrupt, again, if not for government interference.

Being a big company does give you advantages, sure. But even a big company with a huge market share is not safe from competition. Just being one of the few players in an industry does not allow you to exploit customers OR workers. Only when there is prevention of new competitors is there any real risk.

Think about it. Why else would you see Philip Morris lobbying for tobacco regulation?  (And not just any regulation, regs the company helped write). Why else do you see Skype, Google and Amazon.com pushing for government regulation of the Internet? Or toy companies like Mattel supporting mandatory laws to require toy testing? (Again, the company actually helped write the legislation).

Because they know, that as a larger company, they can sustain the added cost of compliance...but a smaller company couldn't be able to.  So basically the government not only helps eliminate competition for the bigger company, but it does so through force.  So no matter how much better, cheaper or faster the other guy could do something, it makes no difference because it's a government mandate that stops him.  You can't get a much better assurance than that.  And what's more, the tax payers are the ones footing the bill for keeping the other guy out of the market.  They pay the cost of creating, maintaining and enforcing the rules that keep him out...meaning a company not only gets monopoly privilege, but it also doesn't even have to pay a fraction of the cost for it.  It's like having the mafia there to back you up with scare tactics and intimidation...except you don't even have to pay monthly collections.  As Russ Roberts (of Hayek/Keynes rap fame) points out, capitalists never liked capitalism.  They much prefer corporatism.

The same motivation goes for school officials campaigning for ever-more government presence and regulation in the already government-controlled monopoly of the education industry. They even lobby against such simple things as school vouchers.  If someone were truly interested in the education of a child, what problem would they really have with allowing the child to attend school wherever she and her parents felt was best?  The truth is their concern is not with the children.  It's with maintaining their monopoly.

So that's #1: Just because a company is big, doesn't mean it can get away with cheating customers or employees. Even if it turns out the company has enough of a market share that it is a de facto monopoly (i.e. (mostly) the only provider for a certain class of services or products.) And that leads to #2:

When was the last time you were pissed off at a company selling you a product at a lower price?

Some people say "they will just work on some kind of massive scale letting them make things cheaper than any startup could."  And?  What the hell is wrong with offering a better product at a cheaper price?  Since when is it such a bad thing to give the customer what he wants?  This is exactly how Standard Oil came to hold the market position it did.  Rockefeller was obsessed with efficiency and was always finding ways to improve his service.  He captured such a big market share because his innovations made him the only guy who could still make a profit when oil went down to a nickel a barrel.  Pretty much any company he bought was already facing bankruptcy because they couldn't make a profit...meaning people got their goods at ever lower prices.  Not only that, but he even helped the environment:

Quote:
Back when there were a lot of oil companies competing to make the most of their find, companies would often pump waste products into rivers or straight out on the ground rather than going to the cost of researching proper disposal. They also cut costs by using shoddy pipelines that were prone to leakage. By the time Standard Oil had cornered 90% of oil production and distribution in the United States, it had learned how to make money off of even its industrial waste - Vaseline being but one of the new products launched.

The truth is there is absolutely nothing inherently bad about a de facto monopoly and the case of Standard Oil proves it.  Innovation was through the roof, prices were through the floor, and more and more people were able to get the products they needed because (a) they were finally invented and (b) the people could finally afford them.  Standard Oil in fact is a great example of many of the benefits to a de facto monopoly:

Quote:
The benefits of having a monopoly like Standard Oil in the country was only realized after it had built a nationwide infrastructure that no longer depended on trains and their notoriously fluctuating costs, a leap that would help reduce costs and the overall price of petroleum products after the company was dismantled. The size of Standard Oil allowed it to undertake projects that disparate companies could never agree on and, in that sense, it was as beneficial as state-regulated utilities for developing the U.S. into an industrial nation.


A large market share does very little to put a company in a position to take advantage of anyone. It is only when the government gets involved do things get messy.  It is only when the government prevents entrants into a market, and creates a de jure monopoly do these threats of price fixing and employee exploitation exist.  Also important to note, as Doug French outlines (audio here) there actually is an upper limit to how large a company can get and not essentially "buckle under its own weight" so to speak.

The truth is these evil "robber barons" of the late 19th and early 20th century were not so...

 

 

The horror stories are based in the idea of "they could have dropped prices and pushed all their competitors out...they could have exploited the workers and charged obscene prices for their product..." Not only did those things not happen, it's not even true that they could have happened.  This is the infamous "predatory pricing" argument we so often hear.  That, is debunked here.

 

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Answered (Not Verified) Wheylous replied on Sat, Aug 20 2011 12:30 PM
Suggested by SkepticalMetal

1st off, nothing is 100% certain. Even with government we might have monopolies.

Second, as you said, government is both a monopoly and an aggressor.

Third, there is one general practical principle which helps us (which we can thank democracy for it):

Anything which can happen in democracy can happen in a voluntary society (forget aggression for the moment). Here is the evidence:

If in democracy we want to ban monopoly, we need 51% of the people to support the law (assuming representative representation; if this doesn't exist, then it's a poor democracy anyway). If 51% of people support a law in a democracy, then the same percent would support a specific action in AnCap. Even if the other 49% don't agree, if 51% of a nation is for something: it will happen. Hence, if we truly don't want a monopoly, we won't buy stuff from it and BAM, no monopoly. We instead will start a consumer-friendly coop to handle our business. If statists truly don't want monopolies, in a free society they can prevent them. It's just that in a free society it's very dang convenient to shop at a monopoly. Hence, monopolies exist.

Fourth, a pet theory of mine is that a lot of monopolies became monopolies because of government intervention. Railroads got money, big oil + coal got unions busted, etc.

Remember: the government initially busted up unions, which were a purely capitalistic construct (At least in the beginning). If you read the thoughts of the leaders of the Knights of Labor, they truly wanted a society where the workers bought, not stole, the means of production and thus cooperated. The top guys were against government help for unions.

Keeping this in mind, unions are actually proof that capitalism works. Big corporations in America were a fairly new construct (ca 1850s, correct me if this ignorant assumption of mine is wrong). Given the "exploitation" of big corporations, the rise of unions to protect labor (ca 1868ish) shows that the market is quick to respond to employee and consumer demand. Had government not been in bed with monopolies and used force to enforce the monopolies, the system would have fixed itself through natural, free market means (remember the Farmers' alliance and the Grange, which stared farmer coops). Once you look at it this way, it is truly surprising how flexible capitalism was even back then without telephones, radio, and the internet.

Fifth, another pet theory of mine: The internet is the great liberator. We can organize people in an instant and things go viral in days. The internet is a voluntaryist's best friend.

Sixth: government actually grants monopolies in a very direct way: patents. Government also keeps small competition out by providing licenses which are tough to get. Big business wants regulation to keep the small guy out.

So the conclusion: Statism is not needed to protect against monopolies. Giving a damn is needed to protect against corporate monopolies. And in in this economy, who has the extra damns to give out?

 

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First of all it is impossibly difficult to get anywhere near that sort of position without government privilege. So that's one thing: You remove the government privilege, it's quite likely you won't even see anyone get anywhere near that sort of position.

 

 

So that will eliminate more than 99% of the cases of monopoly right there. (Seriously...that percentage. For every one example one might be able to come up with in which a company grows to that sort of position without government privilege I'll give more than 99 others who weren't able to do so despite their best attempts.) But even still that leaves two more things: 1) A company just being big and rich doesn't allow it to gain, and certainly doesn't allow it to maintain, any monopoly power. It doesn't even keep it from going bankrupt:

 

 

It is only when you have a de jure monopoly--that is a monopoly by law...when laws prevent other entrants into an industry or sector--that you risk the sort of things these statists are talking about. As long as there is free entry into the market, those things don't exist. That's why US Steel fell apart, that's how every one of these other enormous companies with names like Bank of America, Goldman Sachs, AIG, Bear Stearns, Lehman Bros, GM, Ford, Chrysler...were not only not able to garner the type of monopoly/oligopoly power these people always talk about despite having plenty of government privilege, but were also all brought to their knees and would have all gone bankrupt, again, if not for government interference.

Being a big company does give you advantages, sure. But even a big company with a huge market share is not safe from competition. Just being one of the few players in an industry does not allow you to exploit customers OR workers. Only when there is prevention of new competitors is there any real risk.

Think about it. Why else would you see Philip Morris lobbying for tobacco regulation?  (And not just any regulation, regs the company helped write). Why else do you see Skype, Google and Amazon.com pushing for government regulation of the Internet? Or toy companies like Mattel supporting mandatory laws to require toy testing? (Again, the company actually helped write the legislation).

Because they know, that as a larger company, they can sustain the added cost of compliance...but a smaller company couldn't be able to.  So basically the government not only helps eliminate competition for the bigger company, but it does so through force.  So no matter how much better, cheaper or faster the other guy could do something, it makes no difference because it's a government mandate that stops him.  You can't get a much better assurance than that.  And what's more, the tax payers are the ones footing the bill for keeping the other guy out of the market.  They pay the cost of creating, maintaining and enforcing the rules that keep him out...meaning a company not only gets monopoly privilege, but it also doesn't even have to pay a fraction of the cost for it.  It's like having the mafia there to back you up with scare tactics and intimidation...except you don't even have to pay monthly collections.  As Russ Roberts (of Hayek/Keynes rap fame) points out, capitalists never liked capitalism.  They much prefer corporatism.

The same motivation goes for school officials campaigning for ever-more government presence and regulation in the already government-controlled monopoly of the education industry. They even lobby against such simple things as school vouchers.  If someone were truly interested in the education of a child, what problem would they really have with allowing the child to attend school wherever she and her parents felt was best?  The truth is their concern is not with the children.  It's with maintaining their monopoly.

So that's #1: Just because a company is big, doesn't mean it can get away with cheating customers or employees. Even if it turns out the company has enough of a market share that it is a de facto monopoly (i.e. (mostly) the only provider for a certain class of services or products.) And that leads to #2:

When was the last time you were pissed off at a company selling you a product at a lower price?

Some people say "they will just work on some kind of massive scale letting them make things cheaper than any startup could."  And?  What the hell is wrong with offering a better product at a cheaper price?  Since when is it such a bad thing to give the customer what he wants?  This is exactly how Standard Oil came to hold the market position it did.  Rockefeller was obsessed with efficiency and was always finding ways to improve his service.  He captured such a big market share because his innovations made him the only guy who could still make a profit when oil went down to a nickel a barrel.  Pretty much any company he bought was already facing bankruptcy because they couldn't make a profit...meaning people got their goods at ever lower prices.  Not only that, but he even helped the environment:

Quote:
Back when there were a lot of oil companies competing to make the most of their find, companies would often pump waste products into rivers or straight out on the ground rather than going to the cost of researching proper disposal. They also cut costs by using shoddy pipelines that were prone to leakage. By the time Standard Oil had cornered 90% of oil production and distribution in the United States, it had learned how to make money off of even its industrial waste - Vaseline being but one of the new products launched.

The truth is there is absolutely nothing inherently bad about a de facto monopoly and the case of Standard Oil proves it.  Innovation was through the roof, prices were through the floor, and more and more people were able to get the products they needed because (a) they were finally invented and (b) the people could finally afford them.  Standard Oil in fact is a great example of many of the benefits to a de facto monopoly:

Quote:
The benefits of having a monopoly like Standard Oil in the country was only realized after it had built a nationwide infrastructure that no longer depended on trains and their notoriously fluctuating costs, a leap that would help reduce costs and the overall price of petroleum products after the company was dismantled. The size of Standard Oil allowed it to undertake projects that disparate companies could never agree on and, in that sense, it was as beneficial as state-regulated utilities for developing the U.S. into an industrial nation.


A large market share does very little to put a company in a position to take advantage of anyone. It is only when the government gets involved do things get messy.  It is only when the government prevents entrants into a market, and creates a de jure monopoly do these threats of price fixing and employee exploitation exist.  Also important to note, as Doug French outlines (audio here) there actually is an upper limit to how large a company can get and not essentially "buckle under its own weight" so to speak.

The truth is these evil "robber barons" of the late 19th and early 20th century were not so...

 

 

The horror stories are based in the idea of "they could have dropped prices and pushed all their competitors out...they could have exploited the workers and charged obscene prices for their product..." Not only did those things not happen, it's not even true that they could have happened.  This is the infamous "predatory pricing" argument we so often hear.  That, is debunked here.

 

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yesyesyesyesyes for eloquence, clarity, and logic.

 

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Praetyre replied on Sat, Aug 20 2011 10:54 PM

Big Oil: Are shielded by the government from the consequences of their own actions via liability caps, and granted exclusive drilling rights to lands under federal environmental "protection". See Reisman on this. He speaks of OPEC, but his arguments can just as easily be applied to Exxon or BP.

Big Agra: You've got to be kidding me. Even NPRites acknowledge that these types are the biggest recipients of corporate welfare, let alone less blunt instruments of oligopoly like the raw milk ban (eliminating potential small competitors like the Amish) or the FDA.

Big Pharma: Where should I start? There's the aforementioned FDA, there's the War On Some Drugs, IP and patent laws preventing the distribution of cheaper generic brand medicines (this ties in with Big Agra, too. Both are campaigning for the ability to patent genes) and the whole medical-licensing/psychological establishment.

Big Banks: I think only the prison and utility industries can surpass this one for sheer cronyism. Trillion dollar bailouts, fractional reserve banking, legal tender laws, the capital gains tax on gold, the stakes they hold in the Fed, and that's just getting started. And yet the media and intellectual castes classes think we need to punish the consumer and investor with more regulation, the eternal solution to all problems caused by government intervention into the economy. Mises was dead-on: the failures of previous interventions begot new ones.

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If you'd like more info, look up "standard oil" or "monopoly" on these forums. There are a bunch of places where I have linked articles arguing against the possibility of evil monopolies and predatory pricing. There is also good other evidence that government helps many monopolies (AT&T is an example).

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Another good video

 

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