Pretty much everyone (certainly the vast majority of regulators and politicians) have no clue about capitalism. The concept that a “free market” should be allowed to operate is theoretical, based on “perfect competition” (which essentially means zero barriers to entry). Obviously the politicians support, not capitalism (which would require regulation of imperfect markets (and certainly not support consolidation past the point of many competing companies), but the idea that those with the gold make the rules. Natural monopolies (like gas distribution, electricity, likely internet infrastructure…) should be fully regulated companies which then have the infrastructure accessed by multiple competitors (none of which own the natural monopoly – of course).
With some market that is even remotely in the area where a capitalist free market was in place, it is very simple to not have to deal with companies that treat customers horribly (like Verizon, Comcast, Time Warner Cable…) you just chose another company to deal with.
But these companies want to have the government allow them to create a monopoly (or something extremely close) and then claim to be in favor of capitalism (and further make ludicrous claims about what capitalism would suggest about regulation in oligopolistic markets). These ideas is so laughable that if politicians had even a sense of economic understanding they would adopt the appropriate capitalist response (for government).
Obviously, regulation is required as the market moves away from the area of “perfect competition.” When some huge company wants to buy some other huge company (say creating greater than 10% of the market combined) this would be rejected. If the market is a natural monopoly where the free market is not the proper capitalist market (such as one where the government would allow the proper capitalist response to players in the market attempting to break the free market by gaining to much control), then, of course a regulated natural monopoly would take on that economic task. This is not really complicated stuff.
The idea that businesses would try to suppress the free market (by gaining power that suppress competition) is not some new brilliant idea. At the creation of capitalist thought this was an obvious flaw in the practical application of free markets recognized by all. The government role was to assure that the market stayed very close to perfect competition (though obviously “perfect” was a high goal).
Adam Smith, in the Wealth of Nations:
His solution was not, as many ignorantly state today, to find a “free market” solution. Government responsibility was to enforce competition and not allow monopolistic, oligopolistic practices to divert public gain to private hands. The idea is to regulate so that the market can function to allocate capital most effectively. Without such regulation, those defining capitalism knew that the powerful would attempt to repress markets and extract private gains from their power to avoid the market place (unless government prevented such consolidation of power).
In reaction to: More Telecom Mergers – Great… (yet another horrible customer service example from the telecommunications oligopoly world).
Related: Not Understanding Capitalism – Using Capitalism to Create a Better World
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14 Comments so far
[…] with no significant response one can only draw the conclusion that they are dealing with another Verizon or Comcast or the long litany of companies that cannot be trusted to treat you well or even […]
I have to disagree about how market regulation is needed in “imperfect markets”. Walrasian equilibrium is based upon perfect competition (no barrier to entry) and perfect knowledge, which is usually implied when people say free markets require such. In practice, no industry can possibly meet these claims. Thus, all markets should be regulated, which is simply another way of saying using authority to prohibit certain contracts and exchanges that would be otherwise voluntarily accepted. I don’t think this is true. Rather, if you look at the work of Mises, he vied for a free market, but based his economic theories on imperfect competition and imperfect knowledge. Even under these limits, his theories still point to a free market being the best form of economic efficiency and benefit to all.
In the case of cartels, apparently the market works better than anti-trust regulation. Of course, government restrictions on competition range greatly throughout the entire economy. We should certainly get rid of all of them. Yet, anti-trust turns out to be another such tool for the monopolistic company in government favor.
Check out Armentano’s analysis of how anti-trust regulation has been used to harm competitors more often than it has broken up cartels:
http://mises.org/books/antitrust.pdf
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If ISPs don’t want to be in the business they should be in – providing internet connectivity. Fine, get out of that business and go into the business they want to be in. But don’t try to take control of a natural monopoly and then use that control to extort money from those that rely on the natural monopoly…
[…] say capitalism did exist. It is true we have corporations using their power (political power and market power [oligopolies, monopolies]) to serve their interests. This would not surprise Adam Smith at all, from the Wealth of Nations: […]
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[…] think many large companies in the USA have executives that practice this simple idea. They seek monopolies so customers can’t hold their bad service against them. Sadly in the USA we have allowed such anti-capitalist practices to grow. We would be better off if […]