Thursday, October 13, 2005

Why Monopolies are by their Nature Government Controlled Economies

I constantly find myself in debates in which the words "free markets" are thrown at me like holy water at a vampire. The conception of many seems to be that 1) free market capitalism means captialism without serous interference from government, and 2) that monopolies are some sort of fluke of the market that only occurs when something goes wrong.

First, let me define a free market. I conceive a market to be free when it meets the following characteristsics:

1) The market is accessible to all who wish to participate.
2)The market is not under positive control of a political entity.
3)There are no negative controls placed on entry into the market.

Thus, by my definition, the USSR was not a free market (criterion 2), nor is the NYSE (criterion 3).

Secondly let me define a monopoly. I believe that an industry has become monopolized when:

1)One company controls enough of the market in a region, a particular industry, an infrastructure as to generate a collapse in competitiveness between companies. This begins to occur at around 30% of the market.
2)One company controls physical infrastructure that relates to products it sells that use that infrastructure, such as an airline that owns airports or a telephone company that owns an ISP.
3) One company controls a means of production from raw material to retail, giving it a huge advantage in terms of pricing, such as an oil company that pumps oil, refines it, wholesales it, and owns gas stations.

These are rough and working definitions that are somewhat open to revision, but what I would like to focus on is how monopolies meeting these criterea cause markets to become unfree. The monopolization of an industry, infrastructure, or region is an inherently political act. Markets can be thought of as a form of territory, and in fact most companies view market share as turf. Every company's aim is to control as much market share as possible, but at a certain point their control ceases to be economic and becomes political in nature. For example, when a Telco finds that it is losing revenue because Vonage and Skype are taking away traditional telephone consumers using infrastructure that they control (whether they actually paid for it or not is another question) their first response is to infringe on the use of VoIP. The infrastructure has become territory, and the traditional proprieter of the territory has become a political actor seeking to manipulate the market in conflict with all three criteria for market freedom. Simply being an economic entity does not prevent one from becoming a political entity as well.

It is in these situations that it is the responsibility of the duly elected government to consider that there are non-democratic political entities operating inside of its borders and dispense of them appropriately. The most viable method seems to be trustbusting, de-politicizing the industry by removing the monopoly. With regard to infrastructural monopolies this becomes more complex, because breaking the companies up does not ensure competion as they simply become regional monopolies. The answer in that situation could be as extreme as repatriation/annexation of the territory/infrastructure in question as government administered, or to ensure that the infrastructural monopoly remains entirely neutral through regulation of its activites outside of building, selling, and administering the infrastructure.

Hmm... I'm sounding Sweedish again.

Redefining Freedom

I've been reading the work of Dr. Amartya Sen, Nobel Prize winner for Economics, as of late, and his work has enabled me to verbalize something that I've been trying to put my finger on for some time now. My problem with traditional libertarians and neo-liberals has been a constant focus on the economic sphere when that always seemed to me a focus on a means rather than an end. Beyond that, I've always found that while using traditional economic indicators makes measuring progress and development very easy, it doesn't really define what it is measuring in substantive terms. What does a per captia income of $20,000 in an area with a median income of $40,000 mean? In some places, places like Sweeden, it means that your house is smaller and you drive a VW Beetle rather than a Saab, but in most parts of the U.S. it means that you are unable to raise a family in a manner consistent with good childrearing methods, that you can't get good healthcare, and that you are probably in debt simply to pay the bills.

What I have discovered is that we Americans have traditionally defined our freedoms neagtively. That is to say that we deal in terms of what we are free from rather than what we are free to do. We are free from government interference in our speech, but we are not free to communicate by the most common and widely accepted means unless we posess the wealth to purchase the needed communications technology.

It seems that in the begining of our country's life we did not define freedom this way. We wrote our definitions this way as a group of people who remembered being interfered with by a foreign government, but we also sought to expand the real freedoms of people by establishing public libraries and a postal system with standardized postage. As time passes, though, private systems have far outstripped the public ones. There are obvious market related reasons for this, but in certain areas, especially health care, communications and utility infrastructure, and security and emergency response it seems to me that we must begin to reconceive of these freedoms positively. The right to life should mean a right to health. The right to liberty should mean the right to have access to all of the same markets and information available to anyone else, and the right to the pursuit of happiness should mean that the opportunity to gain an education free of economic burden should be present for any member of society.

Many will argue, I'm sure, that this is leftist, bleeding-heart nonsense. It is, but it's leftist, bleeding-heart nonsense that will generate a more productive (not to mention meaningful) economy worldwide, raising the standard of living of all human beings and lowering crime rates and violence worldwide.