Does Competition Really Guarantee a Monopoly?
There was a passing reference to a major economics debate in Dangerous History Podcast Episode 154: Orwell Your Orwell with David Ramsay Steele, and it piqued my interest because I have recently been involved in several discussions with various collectivists on the nature of corporations, competition, and economic progress.
The specific argument mentioned as held by George Orwell is that competition results in the gradual centralization of economic power in fewer and fewer corporations until only a monopoly remains, resulting in systemic plunder of the economy. As a result, government ownership of industry and control over the economy is presented as a reasonable solution. Of course, Orwell was obviously unaware of the Austrian economists who clearly explained the flaws in central planning such as the economic calculation problem.
I would recommend Socialism: An Economic and Sociological Analysis by Ludwig von Mises for a thorough dissection of socialism, but for now, I would like to explore the basic misunderstanding held by Orwell.
The root problem of this analysis is that monopolies never arise out of competition. Monopolies are companies with a government-granted and government-protected exclusive control over the trade or supply of a good or service. In fact, corporations are by definition not merely large companies, but legal entities recognized as "persons" under government law. It is only government protection from competition that allows mega-corporations to grow beyond this point of stagnation. Mega-corporations today arose out of government subsidies, bailouts, protectionism, and regulatory capture, not competition. It is only through political plunder that corporations can be sustained as they externalize the costs of enforcing their market position. And yet, this is somehow conflated with the free market under the umbrella term "capitalism" by sophists.
A sole provider is then not even necessarily a monopoly. However, a sole provider of a good or service is unlikely to retain that sole position without government protection, because the purpose of competition is to better provide goods and services to the market. It is unlikely for a single business to maintain such a sole market position by providing goods of such high quality, low price, and broad variety to satisfy the market, meaning there is always room for competition. Large companies are bloated by bureaucracy and numerous other hurdles to efficiency. This means new opportunities, niche markets, and technological advancements quickly outpace the plodding mega-corporations, and without government protections, they reach a limit for growth or even collapse.
Market competition also does not mean crushing an opponent. Where consumers are free to choose, providers of goods and are competing to best serve the consumer. Value is subjective, and voluntary exchanges are mutually beneficial. Since humanity is not homogeneous, there is room for multiple providers to serve similar audiences with different value scales. The result of competition is a variety of choices, conservation of resources, and a more prosperous economy. In other words, it's not a zero-sum game where one must lose for another to win. The free market is a positive-sum game until political plunder intervenes.
That's right, monopolies are created and maintained by government legislation. Now, those who say that the big businessmen are in charge of capturing the State, and then promote this legislation, I have to tell them that the solution to that problem is to limit the State, if the people are aware, they will prevent the State from putting their hands in the economy, and in that way, monopolies are avoided, it is a difficult task, but it must be done. The solution is to limit the State.
One problem: The government never stays limited.
It should stay like this:
If only they would actually shut it ALL down.
My humble observation is that competition does lead to centralization of power. It does so by doing exactly as you said, it leads to the capture of the government. When a winner arises due to a superior product or some other means it gains financial and political power. The winner than can capture the government to form some level of centralized power. You can see this in the U.S. in almost every industry. I suppose you can argue that a system of government setup to counteract that centralization fairs much better. I would agree with that. However, when I look around the world I see that these governments are ones that implement a lot of socialist policies (Sweden, Germany, etc.). I never took economics so forgive my loose use of terms. Hopefully, you can see what I am saying. What is your response?
But there is the distinction: Competition is part of the productive market process, while government is not. The transition from productivity to political plunder is the key point. It is no longer a market process.
You are saying that the monopolies never arise out of the competition. However, I also hear you saying that they do rise out of competition if they transition to political plunder. Those seem like contradictory statements to me. It seems to me that monopolies do inevitably arise out of competition unless the government is designed to prevent it. Maybe this is just semantics.
Not at all contradictory. It is a complete change in means and methods. And government is the monopoly that parents all other monopolies. Corporations and government are not antagonistic, but symbiotic.
Ok..I think I am understanding you. However, with or without government it seems that a monopoly would occur. Once somebody gains an advantage that allows them to gain financial power over others they then have the ability to create a monopoly. If there was no government at all, somebody would soon rise to the top to control all others. In my view government is the only thing that can prevent a monopoly through regulation. However, it is only able to do this if it designed in a way to prevent its own capture.
How would this occur? In order to gain such power, the company would need it be massive. And with size comes inefficiency and waste. That is why the costs need to be externalized through government enforcement.
Government regulation guarantees regulatory capture and cronyism. They go hand-in-hand. It is the problem masquerading as the solution. Government is as susceptible to the same greed and power thirst you see in corporate CEOs, but completely divorced from any of the economic restraints of the market.
Remember, the government is by definition a territorial monopoly in violence. Everything the government has, it acquires through extortion and fraud. Even the most corrupt companies still need to provide goods and services people choose to purchase, but government merely plunders.
I believe the East India Company is a good example. I think there are a handful of examples in which companies began operating in areas of little to no governance. As they grew in wealth and power through market dominance they began using that wealth and power to protect their monopoly. https://en.wikipedia.org/wiki/East_India_Company
They were granted an exclusive government charter. The East India Company was one of the first government-backed monopolies.
I like your post
What do you like about it? And if you like it, why did you not upvote it?
Lol, I got that too. It can be pretty annoying!!
The Steem Pope hereby authorizes you to flag spammers who leave meaningless comments of praise, and then fail to upvote what they praise.
Haha! I think 95% of my comments are spammers!
For me, a difficult question to answer without first answering the question "as an IDEOLOGY or EFFECTIVELY in today's world?"
A free market is a pretty complex thing. The actual market only occurs at the point where the lowest offer to sell (asking price) intersects with the highest offer price (bid). Everybody else is other offering less than the market is willing to pay, or selling for more than anyone's willing to pay.
The intersect point, thus, is also the one of lowest profit. So in order to remain a "player" in the market (rather than a spectator) people reach for economies of scale so now we end up with "companies." From a competitive standpoint, the companies now have an advantage over individual producers... which puts pressure on the supply curve. Providers have two choices-- either they can differentiate to avoid competition ("niche markets"), or they can form companies of their own to compete... and so there's a movement towards centralization. Eventually-- in order "to become WalMart"-- the next advantage happens by leveraging influence against a government to gain an edge...
What makes the system "broken" doesn't even happen at the production and market level... it happens because we have a population segment called "investors" who are more important than the market or the producer/consumer. I remember this well from my years working in IT-- EVERYthing was about "making the quarterly numbers" so the stock price would go up... and very dubious product was sent to market prematurely in order to boost numbers.
But it's all really technical and more than a comment here can hope to touch on.