One of the great lies told by "libertarians" (even bigger than the one that they’re not Republicans) is the idea that government should ignore market power.
The truth of capitalism is that the system moves inexorably toward monopoly, duopoly, or oligopoly, a "climax state" in which one, two or a few players have power over customers and the supply chain.
Such power is temporary, the "libertarians" argue. In the long run Sears falls, Microsoft is falling, and if government tries to "pick winners" it will simply wind up picking losers.
Well, in the long run we’re all dead. Market power, by its nature, is inefficient. It leads to bureaucracy, to a hardening of business arteries. It’s bad for the business, and thus bad for the economy which allows it.
Market power, by its nature, is coercive. Dominant players can squeeze suppliers until they sell-out or go under, even smart ones. They can take monopoly rents from customers, which may be hidden by depressing wages and declining service.
Market power is in no one’s interest. It’s not in the economy’s interest, it’s not in competition’s interest, and (perhaps most important) it’s not even in the interest of the company exerting it. Companies with market power become sluggish market performers.
Thus government, in the name of keeping an economy competitive, needs to be on the look-out for market power, and fight it. At minimum, provide a counter-balance. Keeping competition alive is key to long-term competitiveness. Getting in bed with it is a recipe for disaster.
One of my favorite scenes from business history takes place on a golf
course, where John D. Rockefeller is told, in 1911, that the U.S.
Supreme Court has disbanded his Standard Oil monopoly. Asked for a
comment, he doesn’t look up from his putt. "Buy Standard," he says. And
he’s right. Those who invested in Standard in 1909 had much more value 10 years later.
Those who bought AT&T before its break-up, and held the pieces
through the enactment of the 1996 Telecommunications Act, did quite
well. Those who kept their pieces as the industry consolidated and
AT&T was brought together again have done poorly.
There is a lesson in this. Ideology is poor policy. Any -ism is just an excuse for lazy thinking.
As in life, so in economics. Balance and flexibility are the keys to long term success.
The argument of “let the market decide” reminds me of the argument that a dictatorship is better than a democracy. The idea is that a dictatorship is far more efficient, so as long as you had a dictator that was both benevolent and intelligent the most good would be done for the people. Where the whole thing falls apart is when you end up with a dictator who is not both intelligent and benevolent. Such is the case with allowing too much concentration of market power. Anyone who payed any attention in Econ 101 should know that a oligopoly/monopoly maximizes profits not through volume, but through margin. In other words, screw the low end of the market and focus on the premium customers. Thus a company that gained its power through being a great competitor will, through the very nature of the game, imediately ramp up prices and lower service as soon as it has gotten itself into a dominant market position. The great thing about the US system of government is not that it is a democracy (especially since it really isn’t) but that it was designed with checks and balances. Checks and balances are good.
The argument of “let the market decide” reminds me of the argument that a dictatorship is better than a democracy. The idea is that a dictatorship is far more efficient, so as long as you had a dictator that was both benevolent and intelligent the most good would be done for the people. Where the whole thing falls apart is when you end up with a dictator who is not both intelligent and benevolent. Such is the case with allowing too much concentration of market power. Anyone who payed any attention in Econ 101 should know that a oligopoly/monopoly maximizes profits not through volume, but through margin. In other words, screw the low end of the market and focus on the premium customers. Thus a company that gained its power through being a great competitor will, through the very nature of the game, imediately ramp up prices and lower service as soon as it has gotten itself into a dominant market position. The great thing about the US system of government is not that it is a democracy (especially since it really isn’t) but that it was designed with checks and balances. Checks and balances are good.