Thursday, March 26, 2015

A change of heart: Government and Monopoly

Anyone who has perused this blog at any length will note my rather extensive libertarian background. Heck I was once a Libertarian, a member of the party. I attended meetings and everything. That was years ago, but I still carry the basic impulse to shun the centralization of power and value freedom over all else.

But over the years, I've explored many other areas. The work of Henry George was what got me started on this path, and the work of Tuure Parkkinen has taken me even further. I've been following the Comcast scandals. I'm deeply concerned both by ISIS and the possible unintended consequences of actively supporting their only marginally preferable opposition. In short, my views have become substantially muddied from my early anti-State origins.

One thing I've decided is that "government" vs. "private" is a false dichotomy. It doesn't really exist. What matters is "monopoly" vs. "competition", and whether a particular service is offered more competitively or monopolistically is dependent not upon the laws of men or the evils of industry, but upon the unique characteristics of that particular industry.

Monopolies will tend to arise in any area where three factors are present.

The best known but, in my opinion, the least important is a high cost of entry, which can slow the emergence of competition. I call it least important because even if it takes time for competition to emerge, if the potential profits of a competitor are high enough, and if the financial system facilitates it, a competitor will emerge.

The second, more important factor (particularly in combination with the first) is network value: when a product is literally more valuable because more people use it. In this case, even if one can bear the expense of entering an uncompetitive industry, it can be very difficult to establish a sufficient customer base to entice customers to switch to their product. Things like communications networks and (patented or copyrighted) computer development environments have this quality.

The third, most important factor is the ability of an existing provider to physically exclude competitors. This would include roads, particularly when space for a route is limited (a mountain pass, for example). It also includes communications networks, due to the fact that the electromagnetic spectrum is not infinite, and neither is space for cables.

Restaurants have a fairly low capital cost to get started: ingredients, cooking tools, skills, and just a little space, and you're good to start. If people like it, then you can expand. But a man can sell sandwiches out of a truck if he wants. And it doesn't really matter how few or how many people favor the restaurateur's services; a meal is just as good (or bad) if only one person eats that type of meal as if thousands, millions, or even billions.

Contrast that with a telecommunications network. Laying cable is expensive. Acquiring the right of way to lay cable is expensive, and potentially exclusive. Even without cable, the electromagnetic spectrum is limited. In short, establishing a network is very, very expensive. On top of that, firms with more customers can, by the very nature of the industry, offer superior service to firms with fewer customers; you can contact more people on the big network than the small network. While any new industry will have a competitive phase, any industry that has these three factors will tend toward the monopolistic, as the largest company can provide the most valuable service, and the costs of competing are prohibitive. There is just too much more profit available to a monopoly than to any other form of organization.

As I mentioned in a previous entry (The Anarchist Underpinnings of The State), protection from violence also tends toward monopoly.

First, a clarification on the nature of "monopoly". "Monopoly" is not a global phenomenon. There has never been a global monopoly on anything. This is not the same thing as saying there has never been a monopoly. Monopoly is a local phenomenon. If there's only one cable company in town, that's a monopoly (and if there's only two ore three, that's an oligopoly). It doesn't matter if the next town over is serviced by a different company. It's the same thing with roads and rails: whoever owns the road that leads to your house has a monopoly. It's the same with whoever owns the only bridge over a particular river in a particular place; the existence of other bridges in other places is irrelevant to the person who must cross that bridge. It's the same thing with health care under the old US model. If your company only does business with one company, and that's your only choice, its a monopoly. It doesn't matter that you could do business with a different insurance company if you had a different employer; if you only have once choice where you are, that's a monopoly. You don't even need to append "local" to the term; all monopoly is local. Even if there was one global company that did all business in a particular industry, it would still be local... to Earth.

And the theory of monopoly is the reality of monopoly: the customer gets screwed, in price, in service, or, most likely, both. Whether we call it "government" or a "private company", the unaccountable provider of a vital service has no real incentive to treat its customer with respect. And while the monopoly provider of violent protection can, if it chooses to do so (and it often does), create artificial monopolies, oligopolies, and otherwise zones of restricted competition, there are industries where a certain level of monopoly is unavoidable, without some form of violent intervention.

And this is the traditional (Modern tradition, anyway) response to the threat of private monopoly: regulation and anti-trust law. Break up the monopoly, put them under the partial control of some (tax funded) government agency. And though it doesn't work that well in my opinion, it's still better that the alternative: totally unaccountable monopoly. But is it the best alternative?

My libertarian past cannot explain why my favorite sources of news are the BBC, the CBC, and NPR. My libertarian past cannot explain my disappointment with the behavior of companies in non-competitive industries. My libertarian past cannot explain how to avoid the inevitable monopoly on the provision of violent protection. My libertarian past can explain my Geoist beliefs... but I haven't found that explanation very useful for anyone other than myself.

I reject my libertarian past.

The chief difference, I think, between what we call "private" and what we call "government" is that government, at least in theory, has responsibilities beyond providing profit to principals. It is enmeshed in an ancient tangle of reciprocal responsibility, most recently expressed through the popular election of representatives in the West. It must consistently balance its desire to provide benefits to its factional supporters with its need to avoid provoking a loss of legitimacy among the masses. The monopoly on violence is a tenuous thing, and its most important asset.

What I figure is that, if monopoly is inevitable in a given industry, if we're pretty well guaranteed to get screwed by whatever company has control in a given area, why should we consent to both pay the expense of doing business with an oligopoly (since that seems to be the best government can manage) and the expense of paying for a regulatory infrastructure? What if, instead, we got screwed by government owned monopolies (in those industries that are going to inevitably be monopolistic) in exchange for more public services and/or lower taxes?

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