Can A Monopoly Be Benevolent?

     Unease has been building over the scope of major Internet organizations such as Amazon, Facebook, Google, Twitter, and YouTube. These companies, the dominant thread in the discussions has run, have attained monopoly or near-monopoly power. That power has allowed them to function as censors over social and political interchange. They might lack the power to punish in the strictest sense, but the do have the power to deny the use of their platforms to speakers of disapproved facts and opinions. Therefore they should be regulated to prevent their misuse of their power.

     I’ve delineated the perverse way in which regulation, no matter how it was intended, stifles the emergence of competition. I’ve mentioned to those promulgating such ideas that there are alternatives to all those organizations. I’ve asked why exploiting those alternatives, for instance moving one’s search activity from Google to Bing or one’s videos from YouTube to BitChute, wouldn’t be preferable to creating a dangerous precedent for government interference in Internet communications. I’ve yet to receive a comprehensible answer.

     Glory be to God, people! Am I the only participant in this fracas who’s read George Stigler? Does no one else have even a passing acquaintance with regulatory capture and the dynamics that bring it about? Is it so hard to relocate one’s activities away from these “evil” firms that otherwise intelligent persons would rather hand essentially unbounded powers over Internet communication and commerce to an already too powerful federal government?

     I could start to foam at the keyboard over such bullheaded stupidity. It bespeaks a desire to punish that overwhelms reason, a blindness to consequences arising from a sense of personal insult.

     Not to put too fine a point on it, those who promote federal regulation of the Internet giants are either ignorant, stupid, or blinded by a desire for vengeance. Especially considering what other nations, not dedicated to freedom of expression, have done to the Internet in their lands.

     Just as the proper remedy for disliked speech isn’t censorship but more speech, the proper remedy for commercial monopoly or oligopoly isn’t government monopoly – that’s what a government is, you know, and whatever domain you hand to government becomes a monopoly – but competition. You say Acme Corp’s policies aren’t to your liking, fuzzball? Then shop at Fidget’s Widgets, and quit yammering. The customer is king of the marketplace. No firm can piss off the customer for long without suffering a dire fate.

     But that’s not what I have in mind for the morning’s topic.

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     The United States has known a few monopolies. Now and then one will persist despite the general recognition that it has little or no competition. Some monopolies are actually government-certified, protected from competition by law; that’s the case with many a local water or electrical power supplier, and with cable television providers in much of the country. And in the usual case, people tolerate them.

     Why? Because top management at the monopolist is sensible. The directors and executives understand that there’s always a way for competitive forces to bring a company crashing down. Those forces take three forms:

1. Direct: Firms producing comparable products that compete on price, features, or service.
2. Parallel: Firms producing products that can substitute for the monopolist’s product.
3. Potential: The potential for Direct or Parallel competition. Robert Ringer called this Invisible competition.

     Alcoa, the monopoly producer of aluminum for many years, was aware that a competitor could arise at any time. So as its techniques improved it lowered its prices:

     Notwithstanding the fact that for years Alcoa had a monopoly on aluminum production in the United States, it lowered its price over the years, so much so that it was charging only $0.20 per pound in the 1930s as compared to $8.00 a pound in 1888. Alcoa recognized the power of invisible competition. [Robert Ringer, Restoring the American Dream]

     When a monopoly acquires government protection, whether by tariffs or regulation, it can ignore Direct competition. However, Parallel competition can never be foreclosed, as Toyota, Nissan, and Honda demonstrated to the American auto makers in the 1970s and 1980s.

     Some companies, aware of their monopoly or near-monopoly status, will deliberately create conditions to foster the emergence of competitors. IBM did this for decades, pricing its products considerably higher than would have been optimal from a marketing and profit standpoint. The resulting “price umbrella” stimulated technological innovation among would-be competitors, which simultaneously protected IBM from legal assault, provided customers with alternatives, and kept Big Blue’s engineers on their toes. Everyone benefited, as IBM’s top management foresaw.

     Regulation can’t do any of that.

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     In an earlier day, monopolies were granted by kings to their favorites. It was evident that a law aimed at individuals would be absurd; the effective course was to prohibit the political power from granting monopolies. But the proposal to “regulate” corporations to prevent monopolies seemed plausible. If it were mere folly, it would leave things no worse than they were; but it contains another element—it reintroduces status law....

     Another aspect of the imposition of political “regulation” on economic effort is the pretext that the corporations had too much power, an economic power which also influenced politics. This is likewise imputed to large private fortunes, as an excuse for heavy death-duties. As a matter of fact, the danger inherent in large fortunes is their weakness against political power. But if it were proved that the corporations did have and exercise such undue power culpably, and a serious proposal made to remedy this condition by handing over the government to the corporation management, would it not be manifestly a lunatic scheme? Yet that is the net effect of government regulation, beyond the enforcement of contract law as it applies to any commercial transaction between private persons. The political and economic powers are merged, brought under a single control. Thereafter it is immaterial which group of persons exercises the joined powers (though the politicians will inevitably get the upper hand); the sum of power will be the same....

     Government cannot “restore competition” or “ensure” it. Government is monopoly; and all it can do is to impose restrictions which may issue in monopoly, when they go so far as to require the permission for the individual to engage in production. This is the essence of the Society of Status.

     [Isabel Paterson, The God of the Machine]

     Paterson’s observations above have a quaint feel to them, applying as they do to companies that make tangible goods. But companies that provide Internet access, Internet services, or publishing outlets obey the same dynamic. Once the government seizes the power to “regulate” such a company, the government becomes the arbiter over how its services can be used, and by whom. Only two outcomes are possible:

1. Government personnel – likely appointed rather than elected – will make all such decisions, and will use that power to favor the ruling class’s objectives.
2. Corporation personnel will seize the regulatory apparatus – i.e., they will become, in that domain and for those purposes, the government – and use it to acquire political privileges and to forestall competition.

     That is the dichotomy the evangelists of Internet regulation are aiming for, whether they’re conscious of it or not. It’s up to you to decide whether to “trust” our Omniscient, Omnipotent, Omnibenevolent federal government with such broad and unprecedented powers. Put me down for the negative position; I’d rather take my chances with Google.

Quickies: The Way Things Improve

     There’s a rather well known book nominally aimed at younger readers, The Way Things Work, that provides a pretty good explanation of the principles and mechanisms behind many important devices. Quite a lot of budding engineers first get their curiosities tickled by this volume.

     It came to mind this morning after I viewed the video embedded here: a humorous “endorsement” of the presidential campaign of Bernie Sanders. I showed it to my wife, who immediately reminded me of an episode involving a friend of ours who immigrated here from Russia in 1991. She’d asked me to recommend a cooling pad for her laptop, so I pointed her to Amazon and the many such devices available there. Her response was an absolute classic:

     “Fran, I come from a socialist country. I can’t be given a choice!”

     She meant it, too.

     Many immigrants to the U.S. from the old Soviet Union were baffled, even appalled, by the array of choices offered in our supermarkets, among such things as bread, coffee, and toilet paper. They couldn’t cope with the choice problem. It paralyzed them; they needed assistance from an American inured to such things. Fortunately, over time even a former Russian becomes accustomed to it, though the acclimatization interval varies among them.

     As with varieties of bread and coffee, so also with everything else available in American stores. The Amazon phenomenon – these days, how likely is it that one who uses the word “amazon” in conversation is referring to the semi-mythical warrior-women? – has multiplied those choices as never before. Vendors who would have quailed at the many details and difficulties involved in running a retail operation now let Amazon handle most of the grubby bits. The result has been an explosion in product variety no one twenty-five years ago could have imagined.

     My friend is a highly capable engineer. She would learn almost nothing from The Way Things Work. Indeed, she could probably find all the errors in it. But were you to ask her, “How do things improve?” she’d have to take her time over it...and might venture a few less relevant guesses before she arrived at competition as a possibility.

     In a socialist, and therefore noncompetitive, context, things improve slowly if at all. Choice pressures don’t function there. The multivariate comparisons among alternatives, where the prospective purchaser balances price, features, quality, durability, and so forth against one another simply don’t occur. You buy the State’s bread or you go without. You buy the State’s coffee or you drink tea...the State’s tea. You buy the State’s toilet paper or you...well, perhaps we shouldn’t go there.

     Every so often it’s good to remind ourselves – especially those of us subject to the stresses of employment in a competitive field – that competition is the most important of all the forces that improves things: that makes them better, cheaper, and more copiously available. It even improves us somewhat. Those of us that don’t go totally, gothically mad at having to learn a new programming language every three months, at least.

Quickies: Competition Conspicuous By Its Absence

     The esteemed Charles Hill makes an important observation this morning:

     What’s the single worst aspect of our current — and probably future — health-care system? If you ask me, it’s the fact that situations like this are possible:

     [A] few months ago a doctor told me I should have a test, an angiogram, just to be safe. How much would it cost? The doctor had no idea. Nobody had any idea. If I wanted I could call up my insurance and be put on call waiting for half an hour to finally be told they had no idea. But, hey! Everybody wants to be safe, right?

     Today I got the bill. Turns out it cost $7300. Who knew?...

     How do they not know this stuff? Do they just make the numbers up afterwards?

     When the price of a service is kept from the purchaser before he commits to buying it, competition on the basis of price becomes impossible. Thus, medical services can compete with one another solely on the grounds of reputation...and reputation can be misleading, for as the brokers’ ads are always telling us, past performance is no guarantee of future results. (Besides, in any malpractice lawsuit the corpse will be at a significant disadvantage against the doctor.) Charles concludes most somberly:

     [A]voiding competitive activity is at the very heart of American health care, a situation which the ACA does absolutely nothing to alleviate — but then, it was never intended to.

     Indeed, if we infer intentions from results, the opposite was intended...and achieved.

     In point of fact, whenever government intrudes into a market, that market becomes less competitive. Whether by licensure, by regulation, by taxation, by subsidization, or by outright nationalization, the intervention of a third party capable of coercing the other two dominates all considerations, including those of price and quality. The history of such interventions is quite clear.

     So why do so many people continue to look to the State as the proper responder to “market failure?” Especially as “market failure” invariably amounts to nothing more than some blowhard’s opinion about what the price of some good or service “ought to be” -- ?

     Food for thought.