I hear this complain a lot in my country: Romania.
"The state electrical/gas/etc company was sold to a private investor and we didn't get any real benefits, there is no real competition."
There's also the accusation that laissez-faire capitalism will automatically lead to monopoly. Law of the jungle stuff.
How should I best address that?
The newly privatized industry is a de facto monopoly since it was based on a state run monopoly so you really can't get around that.
The problem is that people look at these monopolies as the end result of laissez-faire capitalism when in fact they are the result of the former State system.
I wonder if there will be a long term lack of competition because these companies are protected by their country club buddies who pulled the strings to get them the former state run company or if they will open it up to where any company can provide services with the former monopoly allowed to charge a fee to maintain the infrastructure like is common in the States?
Is there a way to privatise a state-run monopoly so that it doesn't automatically become a private monopoly? If so, what are the options?
Electricity or gas (methane gas, used in ovens, not gasoline) is a relevant field, but also a difficult one since there is only one set of gas pipes or only one set of wires that run through buildings (at least in my country).
Another worry in my country is that, even in fields where there is competition innitialy (such as cable providers or mobile phones), once they have stable profits, the companies will decide to make a cartel. Is this a realistic scenario? Are companies better off if they play safe and modify prices and services in unison than they would be if they had to put more effort in to compete (by charging lower fees and by providing better services)?
xSFx:Is there a way to privatise a state-run monopoly so that it doesn't automatically become a private monopoly? If so, what are the options?
I hear that when the Brits privitized the railroads they sold all the different pieces to different companies. There are problems with this model too I've heard.
The main problem I have with the privatizing companies is the State doesn't really have a valid claim to sell them since they consist of stolen goods. Giving it back to the original owners isn't really an option since they are probably all dead now (thanks to Stalin) so how does a government go about liquidating their stolen assets? Haven't really come across an answer to that one yet I'm afraid.
xSFx:Electricity or gas (methane gas, used in ovens, not gasoline) is a relevant field, but also a difficult one since there is only one set of gas pipes or only one set of wires that run through buildings (at least in my country).
Yeah, that's a problem especially if the producers and owners of the delivery network are the same entity. In the States you can (theoretically) purchase gas or electricity from any producer on the market and the company that owns the pipes or wires gets to charge a delivery fee to help pay for upkeep.
This is one of the questions I have with a pure an-cap society, how does one stop rent seeking when there is a natural monopoly as with gas and electricity delivery.
xSFx:Another worry in my country is that, even in fields where there is competition innitialy (such as cable providers or mobile phones), once they have stable profits, the companies will decide to make a cartel. Is this a realistic scenario? Are companies better off if they play safe and modify prices and services in unison than they would be if they had to put more effort in to compete (by charging lower fees and by providing better services)?
I think that all depends on how high the barrier to entry is. If they start rent seeking and some company in a neighboring country is barred from the market because of protectionist measures then all you can do is hope the State gets around to some old fashioned trust busting.
But if you get pan-European companies all competing in the mobile phone and cable markets then is shouldn't be any worse that the rest of the semi-free societies.
I doubt that cartels like you mention would be stable without State backing because the companies who could out compete the others would have too much incentive to do so instead of being happy with their static slice of the market. Cartels always benefit the most inefficient members.
I hear that when the Brits privitized the railroads they sold all the different pieces to different companies. There are problems with this model too I've heard. The main problem I have with the privatizing companies is the State doesn't really have a valid claim to sell them since they consist of stolen goods. Giving it back to the original owners isn't really an option since they are probably all dead now (thanks to Stalin) so how does a government go about liquidating their stolen assets? Haven't really come across an answer to that one yet I'm afraid.
You have clearly identified the problem with most privatization schemes (especially the part about the state not having a right to sell stolen goods as if it were a legitimate owner). The answer was actually proposed in the late 60's by Rothbard in "Confiscation and the Homestead principle": homestead it.
There's actually an article dealing with privatization in Romania here. On the neoclassical bogeymen of cartels, monopolies &c. (the result of poor armchair theorizing plus static theories of the market) there's Dominick Armentano's various works, and articles such as these and these.
-Jon
Freedom of markets is positively correlated with the degree of evolution in any society...
I just got slammed with this "the belief that privatisation of a monopoly will make it better is just a religion. There is no evidence that that is the case"
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Any enterprise that rents labor risk-free is capitalist, whoever owns it, private, corporate, government or otherwise.
The fallacies of intellectual communism, a compilation - On the nature of power
xSFx: I just got slammed with this "the belief that privatisation of a monopoly will make it better is just a religion. There is no evidence that that is the case"
Any monopolist sets his supply where marginal returns reach zero. A private owner, being more efficient, has lower marginal costs and will thus produce a bigger supply at lower prices.
Stranger: Any enterprise that rents labor risk-free is capitalist, whoever owns it, private, corporate, government or otherwise.
So the state can be considered part of laissez-faire? The state can be considered a legitimate and voluntary "private" entity? Huh? Why do you include the state in this? State ownership is "capitalist"? You have officially confused me.
Stranger: Any monopolist sets his supply where marginal returns reach zero. A private owner, being more efficient, has lower marginal costs and will thus produce a bigger supply at lower prices.
I hope it is understood that monopoly means : a firm whose competitors had been outlawed by the state.
That's in fact different from what the word means (or at least once meant) in economics, where monopolies were state-granted privileges, i.e. legal barriers to entry.
Jon Irenicus: That's in fact different from what the word means (or at least once meant) in economics, where monopolies were state-granted privileges, i.e. legal barriers to entry. -Jon
That's interesting, didn't know that.
I guess it goes hand in hand with the Newspeak of inflation then. Orwell is turning in his grave...
Such a monopolist will not evade the laws of profit maximization.
Brainpolice: Stranger: Any enterprise that rents labor risk-free is capitalist, whoever owns it, private, corporate, government or otherwise. So the state can be considered part of laissez-faire? The state can be considered a legitimate and voluntary "private" entity? Huh? Why do you include the state in this? State ownership is "capitalist"? You have officially confused me.
I did not mention anything concerning laissez-faire.
Of course not - just making a note on the linguistic history of the term.
Stranger: Jon: monopolies were state-granted privileges, i.e. legal barriers to entry. Such a monopolist will not evade the laws of profit maximization.
Jon: monopolies were state-granted privileges, i.e. legal barriers to entry.
Mises also argues that although most monopolies and monopoly prices are made possible by government intervention in the free market (tariffs, licenses, etc.), there are certain instances in which monopoly (and monopoly prices) arise in the unhampered market. He specifically mentions natural resource monopoly,[12] geographic monopoly,[13] limited-space monopoly
Juan:The second definition actually is the definition of private property...
Precisely. As Walter Williams likes to say, "I hold a monopoly on the affections of Mrs. Williams. She holds a monopoly on mine." If we use that definition of monopoly, we're forced to admit that there's nothing wrong, in general, with monopolies. If we insist that monopolies are bad, then we need a different definition.
Rothbard argues that we should define monopoly in terms of the power to exclude competition forcibly, partly due to the above consideration, but mainly because the economic consequences of monopoly really belong to that phenomenon particularly. For example, I can't demand and price I want for oil, even if I have the world's only oil well, unless I can also prevent people from using biodiesel, coal, coal, nuclear and other alternative energy sources.
Today people will pay $7/gallon if they must for gas, but they won't pay $1,000,000/gallon. They'll walk, stay home or go by steamboat first. If gas does hit $50/gallon, say, it will primarily be the government's fault for stifling alternatives with overregulation.
--Len
Juan:Longman Dictionary of contemporary English.Monopoly : first definition : a right or power held by one single person or a group to provide a service, produce something, etc. "The postal service is a government monopoly" (=no one else is allowed to provide this service)2. possession of, or control over something wich is not shared by others. The second definition actually is the definition of private property...
Are you so sure that the 2nd definition is the definition of private property? Because I could own something that is not shared by others and have stolen it. You might call it "private property" but it certainly is not "private property" in terms of a libertarian theory of justice in property aquisition. It's not a product of labor and it wasn't voluntarily exchanged for and it wasn't a gift. Using that definition of private property, the state is private property, since it most certainly is exclusively controlled.
Brainpolice:Are you so sure that the 2nd definition is the definition of private property?
Depends whether you're referring to de facto or de jure control. Just as I would never call a thief an "owner" (though Stranger has done so in the past), so I automatically interpolate "legitimate" in the right spots in the definition. A'course, that sort of thing sometimes results in confusion. I was recently reminded on another forum that FDR can't be a "criminal," since he was never in fact convicted...
Len Budney: Juan:The second definition actually is the definition of private property... Precisely. As Walter Williams likes to say, "I hold a monopoly on the affections of Mrs. Williams. She holds a monopoly on mine." If we use that definition of monopoly, we're forced to admit that there's nothing wrong, in general, with monopolies. If we insist that monopolies are bad, then we need a different definition. Rothbard argues that we should define monopoly in terms of the power to exclude competition forcibly, partly due to the above consideration, but mainly because the economic consequences of monopoly really belong to that phenomenon particularly. For example, I can't demand and price I want for oil, even if I have the world's only oil well, unless I can also prevent people from using biodiesel, coal, coal, nuclear and other alternative energy sources. Today people will pay $7/gallon if they must for gas, but they won't pay $1,000,000/gallon. They'll walk, stay home or go by steamboat first. If gas does hit $50/gallon, say, it will primarily be the government's fault for stifling alternatives with overregulation. --Len
It seems to me that the disputed and more common definition of monopoly as a single provider of a good or service within a territory logically follows from the Rothbardian one. If the forced exclusion or restriction of competition is consistantly followed through, what you eventually are left with is a single provider of the good or service within a territory. The state itself is a singular provider of certain services within a territory as a consequence of its power to restrict all of the competition within the territory. So in a certain sense perhaps both definitions make sense in relation to eachother.
BrainPolice: Are you so sure that the 2nd definition is the definition of private property? Because I could own something that is not shared by others and have stolen it
You might call it "private property" but it certainly is not "private property" in terms of a libertarian theory of justice in property aquisition.
Brainpolice:It seems to me that the disputed and more common definition of monopoly as a single provider of a good or service within a territory logically follows from the Rothbardian one...
Yes, but not vice versa. One could be the only provider of some good without forcibly excluding competitors. In that case, the economic consequences that follow from having a monopoly, don't follow.
Juan: BrainPolice: Are you so sure that the 2nd definition is the definition of private property? Because I could own something that is not shared by others and have stolen it Of course you're right. My comment was a bit sloppy - or at least incomplete. You might call it "private property" but it certainly is not "private property" in terms of a libertarian theory of justice in property aquisition. Right. So I wouldn't =]
I didn't mean to nitpick or anything but it did seem that the definition was a bit too broad.
Len Budney: Brainpolice:It seems to me that the disputed and more common definition of monopoly as a single provider of a good or service within a territory logically follows from the Rothbardian one... Yes, but not vice versa. One could be the only provider of some good without forcibly excluding competitors. In that case, the economic consequences that follow from having a monopoly, don't follow. --Len
Agreed. Although in a free market I think that a singular provider would find it hard to sustain themselves in the long-term.
xSFx: I hear this complain a lot in my country: Romania. "The state electrical/gas/etc company was sold to a private investor and we didn't get any real benefits, there is no real competition."
This is a common argument. Some will argue that the state shouldn't even sell the property because they never legitimately owned it. I'm not such a stickler for such things. The idea is to get to a state of freedom quickly and efficiently. I find no reason why the state shouldn't be allowed to sell off something to a private person for the sake of expediency. It's not a perfect solution but it works. Homesteading, in my opinion, for certain things simply cannot work efficiently. It's a fine process for something that was never owned (and yes, a lot of people will argue the state never owns anything anyway) but I don't ever see it as a real solution to privatizing state owned operations. It isn't efficient and it will cause problems.
I think the best route to take in privatizing anything is for the state to set up a public company with temporary officers and then sell stock in it on the stock exchange until 100% of the company is owned. The money raised from the sale of the stock should be used for the capital expenditures and expenses of the new company. The new stock holders could then elect new Board members who would then appoint new officers for the company. Of course we have now just gone from a public (state owned) monopoly to a private one but that isn't a big issue really. As long as the state is no longer regulating that industry and giving special privileges to the newly formed company free market competitors will emerge to offer better more efficient service.
No, it is not a perfect and pure anarcho-capitalist way of getting the job done (such as using the homesteading theory) but then again no one ever said the world is perfect and pure. The goal is to get the state out of the way so the market can start functioning as quickly as possible. By going the route of simply establishing a public company which anyone can buy into we can quickly and efficiently remove the state. Competition will quickly emerge and a real free market will soon exist.
xSFx: There's also the accusation that laissez-faire capitalism will automatically lead to monopoly. Law of the jungle stuff. How should I best address that?
It could under certain conditions but not likely. Most monopolies have been created because of interference in market by the state. With the state out of the picture the free market will ensure that monopolies can't exist because there is always someone who can do it cheaper and better. The only way for a natural monopoly to exist, from what I understand (and I could be wrong), is they must control every stage of production. The only way Standard Oil could be a natural monopoly is if they controlled every oil field in the nation and in the world. That is an impossibility. The famed Standard Oil wasn't a real monopoly. Yes, it controlled large amounts of distribution networks (about 85-90%) but only controlled something like 11% of the market for the exploration and pumping of oil. By the time the government stepped in to break Standard up it's market share was falling as competition was growing. If the government had stayed out of the picture other competitors would have naturally developed taking larger shares of the market.
Likewise, Microsoft isn't a monopoly even though their operating system is on about 90% of the computers in the world. There is plenty of competition from companies such as Apple and other OS's such as Linux. Apple is continuing to grow in market share and will continue as will Linux. So while it is possible for monopolies to occur it is not likely as there will always be someone who is willing to compete.
"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds. " -- Samuel Adams.
Juan: Stranger: Jon: monopolies were state-granted privileges, i.e. legal barriers to entry. Such a monopolist will not evade the laws of profit maximization. Except that the term 'profit' here means 'stolen goods'. Monopoly is just a fancy name for a gang of robbers. So, I really don't see your point. Are you saying that monopolies will try to steal as much as they can, thereby maximizing 'profits' ? Agreed. Or are you trying to paint the 'private' monopolies who run utilities as somehow capitalistic ? (well, of course, they are not)
Any form of enterprise where risk is concentrated in the owner is capitalistic.
Monopolists do have to sell goods to the market in order to profit from their monopoly. It cannot be said that their income is stolen.
Monopolists do have to sell goods to the market
Stranger's definitions seem to be so broad and vague that it appears like he's legitimizing monopolism and the state. I'm officially confused as to what the heck he is trying to say. From what I can tell, it appears like he's saying that monopolies and states are "capitalist"!
Juan: Monopolists do have to sell goods to the market IF an activity has been monopolized(using force) THEN there is NO market for that activity. Are you saying that socialism is actually capitalism ?
No I am saying that monopolists do have to sell goods to the market, regardless of the fact that other producers are banned from supplying the same good as them.
Brainpolice: Stranger's definitions seem to be so broad and vague that it appears like he's legitimizing monopolism and the state. I'm officially confused as to what the heck he is trying to say. From what I can tell, it appears like he's saying that monopolies and states are "capitalist"!
I am using the definition of capitalism that Bohm-Bawerk used in his defense of capitalism.
Stranger: No I am saying that monopolists do have to sell goods to the market,
Juan: Stranger: No I am saying that monopolists do have to sell goods to the market, They don't "have to". They do it because it's a smokescreen for their true activity - their true activity is 'legal' plunder.
I'm pretty sure the activity of a monopoly telecom company is telecommunications.
I am trying to answer the economic question asked in an economic forum, that is whether a private monopoly is better than a public monopoly. I am not interested in debating the ideological purity police.
Stranger:I am trying to answer the economic question asked in an economic forum, that is whether a private monopoly is better than a public monopoly.
Are you using the correct definition of monopoly? It's hard to tell from your posts in this thread. A monopoly is defined by forcible exclusion of competition. A "private monopolist" must use either legal or illegal force, which in extant polities means that he must either shoot competitors himself, risking punishment, or get the police to shoot them for him.
If you have some other definition of monopoly in mind, if affects the meaning of your question.