Monday, August 25, 2014

August 2014. I first visited the U.S. in the early Seventies—over 40 years ago. Although I didn’t know it at the time, it was the start of a period of transition for the American Business Model. The competitive free market model was about to head–slowly but surely—towards monopoly. As of 2014, it is well on its way. So much for the Anti-Trust laws. Hello price increases.

Cable companies aren't bad because they're parts of unwieldy media conglomerates. They're bad because they're monopolies (even where they are no longer legally exclusive) and because the government policies that made them monopolies rewarded lobbying over customer service.

Virginia Postrel

How come there's only one Monopolies Commission?

Nigel Rees

When I was a kid growing up in Ireland and the UK, phone calls were so expensive there, they were less than common. Local calls were not so pricey, but long distance was another matter. A long distance call was an investment decision.

Do I exaggerate? Probably. But my general point is that back in the day, the cost of a phone call was vastly cheaper in the U.S. Indeed there was a rumor that local calls in America were even free. Good grief! What an extraordinary and rather marvelous idea. But a myth, of course (only it wasn’t)!

The U.S. was synonymous with the low prices and excellent service that stem from a genuinely competitive free market economy in those days (although paradoxically the telephone system was effectively an AT&T monopoly—but a relatively benevolent one). Economics can be damnably confusing.

A couple of generations plus later, something of a role reversal has taken place. Whereas European markets have been opened up—thanks to the EU—and competition encouraged, there has been a disconcerting trend towards monopolization in the U.S.—or if not absolute monopolization, cartelization. More and more market sectors are dominated by fewer and fewer major corporations. In fact, you would be hard pressed to find a sector where this has not happened. Agribusiness, Food, Insurance, Chemicals, the Media, Banking, Oil, Cable, Publishing, Airlines—they are all oligopolies now. There has been a massive concentration of corporate power—and the trend continues.

Do such concentrated corporations  collude to push prices up? Officially, no. That would be illegal. Unofficially, the effect is the same. Having only a few corporations own a market sector never serves the best interests of the consumer. Investment and service decline and prices go up. CEO pay goes up. Wages are forced down. It is the natural order of things.

Why does investment go down? Because, in a monopoly situation corporations don’t need to try as hard. They don’t need to innovate as much. They don’t need to look after customers as well. They don’t need to produce as efficiently. Instead they can use their resources on such things as share buybacks and higher dividends. These push the share prices up—which benefit CEOs and senior executives who are largely paid through share options.

Is that what is actually happening? Yes, it is. True, this underinvestment may harm the corporation long term (and adversely affect the overall economy immediately)—but such matters are scarcely the CEO’s concern.

But surely there are anti-trust laws against monopolies? Yes, there are—but they are not enforced. Corporate power is now more than sufficient to keep the Executive in check. After all, it is corporate money that got the party in question—whatever be its label—into office in the first place. Thanks to a series of decisions by the Supreme Court, economic power in the U.S. translates into political power virtually seamlessly. Dollar power dominates—and it pays off.

I was reminded how much things had changed by a story in the New York Times of August 23 2014 comparing two phone bills

  • The British cost—from Three UK, including tax—came to $67.97 a month at current exchange rates, for unlimited data.
  • The U.S. cost—from Verizon Wireless, including tax—came to $109.47 for a lower quantity of data—and could be a great deal more.

Factor in the cost of data, and the U.S. monthly cost is roughly twice that of the British.

The de facto monopolization of the U.S. economy—which is happening at a rapid rate—is a singularly disturbing trend—and makes a nonsense of the notion that this is a free market economy. Real competition is crucial to such a market.

Real competition is vanishing fast. Restraints of trade are commonplace—and it is especially concerning that monopolistic corporate power has captured both the legislature and the Supreme Court—not to mention state and local equivalents.

Where is this all going? Up to now price increases have been heavily constrained by the Great Recession and the slow pace of the recovery. However, as the economy appears to improve (an issue unto itself) it seems likely that there will be significant prices increases—without commensurate increases in earning power for most of us

Growth in GDP—when accompanied by price increases—could well leave you worse off. Yet this is the measurement our leaders use to monitor economic progress—and which our corporate owned media seem to accept without question..


No comments:

Post a Comment