Monopolies & Double Standards….

  The BP Gulf Oil Disaster (aka Deepwater Horizon oil spill): 4-20-2010

 

Monopolies & Double Standards…

By  J.M. Hamilton  6-19-2010

A little over thirty years ago, Jeane Kirkpatrick, the first woman U.S. ambassador to the U.N., wrote her master work, Dictatorships and Double Standards.   The work was brilliant, and she soon became a key member of the Reagan foreign policy establishment, and her analysis from Dictatorships and Double Standards became a cornerstone in Reagan’s foreign policy.   In it, Doctor Kirkpatrick posited that the Carter administration, and indeed members of the Democratic establishment, were prone to coddle leftist dictatorships (who were anti-American), while castigating right-wing dictatorships (who were often neutral to American interests).   Ms. Kirkpatrick went on to argue that left wing dictatorships were prone to, marching towards, or already socialist in nature, and therefore, far more oppressive to their citizens, than most right wing dictatorships.  Remember this was written during the crucible on the cold war, when it was feared that Communism’s stated goal of global hegemony, still might be achieved.

Republicans and the political right rallied around Mr. Reagan, and his new found apostle, Doctor Kirkpatrick, and the rest is history. Republicans were right to oppose both communism and left wing dictatorship, and history would seem to support their assertions that private enterprise and freedom produce greater amounts of prosperity, per capita, than the economic misery created under, say a socialist regime.  Even China, the last of the communist hold outs, appears on board with this notion.

This begs the question:  Why then have Republicans turned their back on their march against socialism, by embracing democracy’s equivalent, or the private sector equivalent to socialism, monopoly?

Anyone who has taken Econ 101 knows the inherent evils of socialism and monopoly, and indeed, if we review what those evils are, they are not dissimilar:  they include, but are not limited to, inefficiencies in production and the utilization of scarce resources; services and products tend to be shoddy, as there is no competition; and creativity, innovation and merit are not rewarded and are stifled, as there is only one game in town.  Consumers, employees, and society suffer under both socialism and monopoly.  Socialism by definition, and its cousin monopoly, also lead to, or are a product of, outsized political control over the citizens of the state.

Therefore, Americans, correctly enough, has been taught to abhor socialism; but on monopoly, rarely discussed, the conversation in democracies goes rather quiet.

During the Reagan, and Thatcher revolutions, and over the last thirty years, we have been fed an ideological diet expressing the virtues of the free market, private enterprise and laissez faire doctrine.  Rightfully so, but again, little is said against the evils of monopoly.

If we look closely at the writings of Adam Smith, we discover that he abhorred monopolies, probably for the very reason Mr. Smith would have disdained socialism.  Even Mr. Hayek, founder of the Austrian and Chicago school’s of economics (and a Free Market deity), had his concerns and issues with laissez faire capitalism.

Why(?), because laissez faire unchecked leads to the jungle, and the elimination of competition, and hence, monopoly.

In a nation governed under the rule of law, and as we do not operate in the jungle, monopolies do not occur naturally.   The referee of the private sector, government, allows monopolies to occur and allows them to operate.  And there are legitimate/societal reasons for monopolies to exist.   The classic example is utility services and power companies, because of the massive infrastructure involved, there is merit and societal value in monopoly, in this instance.  But what about other sectors of the economy where monopolies operate for no good societal reason?  What we find is that combination has been allowed to occur for the enrichment of a few,  the ruling class, and the private citizens in whose hands the grant of monopoly has been placed, all to the detriment of society.

So if socialism is bad, and monopoly is bad, why have the last thirty years seen an increase in the concentration of economic power, and a record number of mergers and acquisition, all granted and authorized by the U.S. and Western European governments?

One rationalization for the combinations authorized by democracies is economies of scale, efficiencies in production, and synergies in supporting departments and management.  However, we also know that too much concentration leads to diseconomies of scale, that is the organization is so big that management loses control, risk management falls apart, and chaos ensues.

But this is rarely discussed, or written about, and that is because in this country anyone who speaks out against corporate combination is immediately branded a communist, socialist or worse.  The reality, however, is one can be pro- capitalist, pro- democracy, and pro-free enterprise and have a complete disdain for monopoly and oligopoly for the very same reasons one would oppose socialism.

If we look very closely at the situation, we discover that monopoly is socialism by private proxy.

Corporate endeavor has become synonymous with free enterprise, and in many instances, it is an absolute truism; but when corporations pass the Rubicon, and by government sanction, become monopolies or oligopolies, it is then that citizens of a democracy should exercise their duties, query their elected leaders, and vote accordingly – as it is those elected leaders who are trusted to protect society from the deprivations of socialism and monopoly.

Americans witnessed both the subservience to untrammeled economic power, and the inefficiencies of combination this week, as the drama between Representative Barton and B.P. continues to unfold.   By now, nearly all Americans, and indeed much of the world, are well aware of the total lack of risk management and corporate control executive management (to hear the CEO tell it) exerted over B.P.  B.P. is the classic example of a corporation growing so big that it no longer operates in the interest of society, or itself, but rather, to the complete and absolute detriment of society, its shareholders and partners.  Rep. Barton is tragically confused, apparently, between allegiance to the citizens he serves, free enterprise that benefits his constituents, and absolute subservience to the B.P. corporation.  The latter is not alligned with the former!

As we witness diseconomies of scale play out in the gulf, and the abdication of responsibility – and the failure of sound risk management principles – by B.P.’s management, it’s important to remember the systematic risk and catastrophe imposed on the citizens of the world by another oligopoly, and that would be the Wall Street banks.  The economies of the world are still reeling from the total lack of accountability by the biggest concentration of power known in the Western world, and that is by the banking sector.  Unfortunately, democracies have done little to rein in the worst tendencies of the banking cartels they have created; and if a government does attempt to do something, say in the case of the Obama administration, said government is immediately branded as socialist or anti-business.

Let’s be clear on this issue: monopolies, cartels and oligopolies are not pro-business or even capitalist structures, but are the antithesis of the same.  They are by their very natures anti-competitive, predatory and government authorized or created.  Monopolies play out the economic double standard by wrapping themselves in the cloak of the free market, while doing everything in their power to eliminate competition and obtain extraordinary profits.

Corporations are but one of many vehicles/organizations for democracies to achieve their economic hopes and dreams, and great good can come from corporations (for society, management, stockholders, governments and employees); but blind subservience to the worst tendencies of corporations (e.g. combination for the elimination of competition) are something that prudent and responsible governments must hold in check, manage, supervise, and guard against.   And if government does allow monopolies and oligopolies to exist, the price that those entities should pay for economic concentration is government oversight, regulation, and vigilance, all the better to guard against socialism by private proxy!

Jeane Kirkpatrick, on the international stage, was noted to have said, “Russia is playing chess, while we are playing Monopoly. The only question is whether they will checkmate us before we bankrupt them.”

Such irony that multi-national monopolies, in the form of too big to fail banks, and the oil industry (through its diseconomies of scale playing out it the Gulf), may do what the Soviets never could do, and that is bankrupt the great Western democracies.  Both oligopolies operate behind the facade of the free market.

 Copyright JM Hamilton Publishing 2013