Capitalism versus the Philosophers: An Interview with Stephen Hicks was published at The Foundation for Economic Education. Grégoire Canlorbe, a French intellectual entrepreneur residing in Paris conducted the interview. An excerpt follows.
Grégoire Canlorbe: According to a popular opinion, left to its own devices, capitalism inevitably tends to a monopoly economy — an economy in which there is no competition. In a monopoly environment, the dominant companies can freeze competition and entrepreneurial initiative. In this regard, any monopoly is problematic, even the monopoly of the local baker or shoemaker. Without competition, the quality of service slips. And innovation becomes an expensive nuisance unless it wildly jacks up profits.
As a fine connoisseur and renowned debunker of anti-capitalist arguments, how would you assess this widespread analysis?
Stephen Hicks: Free-market capitalism is the most anti-monopolistic system there is, as entrepreneurs are creative in developing new products and improving old ones. The profit motive of course incentivizes that creativity, as does the natural creativity that individuals exhibit when they are free to pursue their own lives.
Think of the music and electronic industries, for example, in the last one hundred years—how endlessly innovative they have been and how prices have gone down, precisely because they’ve been mostly free markets.
Problematic monopolies have only existed when governments made them—either by granting exclusive charters or other special favors.
Under feudalism, the king as head of government has the power to make monopolies and forbid competition. The same is true to a lesser degree under mercantilism. And of course for socialism the economy is one giant government monopoly.
Only market liberalism gives people the freedom to start new businesses without permission, to experiment as much as they want, to trade or not trade with whomever they choose, and to compete along multiple dimensions—price, quantity, quality, innovation.
In the United States, for example, the Postal Service has a government-granted monopoly on first-class mail. It has been stagnant, a huge money-loser, and its agents regularly shut down any individual who tries to start a competitive mail-delivery service.
Sometimes I test the seriousness of those who worry about monopolies by asking them: Do you agree that government postal monopolies are bad and should be eliminated? If they say No, then that tells me they’re not serious about real monopolies. If they say Yes, then we can start a productive discussion.
Here is a PDF of the full interview.
Related: Manne & Stapp, “Unassailable Monopolies That Were, in Hindsight, Eminently Assailable,” 2019.
Argubly, FedEx, UPS, and similar companies (does Airborne still exist? DHL?) are competitors of the USPS.
At the same time, those companies rely heavily on the USPS because the “last mile” of deliveries to doors are the most expensive. I have seen mail carriers driving on Sunday delivering FedEx a/o UPS packages, though I believe that’s more common in more rural areas than where I live, far away from much business.
I have seen where FedEx and UPS praise the USPS and I have seen USPS public relations talk that USPS relies on those two companies to some extent.
“Think of the music and electronic industries, for example, in the last one hundred years—how endlessly innovative they have been and how prices have gone down, precisely because they’ve been mostly free markets.”
Hasn’t cheap electronics been largely due to outsourcing digital manufacturing to 3rd world countries, i.e. China and then smaller Asian countries?
This outsourcing was a Govt-assisted program to western capitalists, with years of diplomatic discussions at the highest level with Mao and others, most obviously Nixon launching the breakthrough … and there’s still current contentions over intellectual property (that is, patent monopoly) agreements reaching the President.
Same for music and other media, with “scarcity” falling and therefore prices falling due to technological innovation, but with that technological innovation largely being initiated by the US military, on behalf of the US military by contracts that permitted extensive “computer” R&D for decades, innovations that quite clearly were NOT part of the vision of bottom-line and short-term ROI capitalist investors. The goliath, IBM, that CEO famously stated that he saw no possibility of a future market for home computers.
The postal service is profitable, so the premise of the statement about not wishing to engage with someone if they don’t believe it should be abandon is a little arrogant or maybe more generously uniformed. See link on postal service profitability.
https://www.washingtonpost.com/opinions/the-postal-service-is-operating-at-a-profit/2018/04/26/1300cfa6-48b2-11e8-8082-105a446d19b8_story.html
If you look at how Bell was broken up by the government and then reformed under free-market conditions into the oligopoly we have today, this could be seen as an argument for saving that free markets naturally lead to a reduced number of players and monopolies. The cost efficiencies of reducing duplicating functions such as HR, Finance, Operations etc as well as other synergies creates short term financial benefits for stakeholders which can’t be ignored and lead to consolidation towards monopolies or at least significantly reduced players in the market.
While I would position that not all monopolies or oligopolies are inevitable under free-market capitalism, some are desirable, roads, water, police, basic education, health care. It is wasteful for multiple companies to offer competing services for basic ‘common-goods’. Without which free-markets become survival of the richest, full on hunger-games, social unrest and a reset.
From the USPS’s own financial statement for 2018:
“The Postal Service reported a net loss for the year of $3.9 billion, an increase in net loss of $1.2 billion compared to 2017. The controllable loss for the year was $2.0 billion, an increase of $1.1 billion.”
Source: https://tinyurl.com/yayuke5w.
I’d be very interested to hear what your take on the big Tech companies and their position in the market is. I don’t believe any government regulation led to their dominance
” Free-market capitalism is the most anti-monopolistic system there is, as entrepreneurs are creative in developing new products and improving old ones. The profit motive of course incentivizes that creativity, as does the natural creativity that individuals exhibit when they are free to pursue their own lives.”
But, the entrepreneur often loses control of the company or product to a larger entity via a buyout or squeeze. As for the postal service, it was mandated with the founding of the country. Let’s say we eliminate the USPS. There are still only 3 or 4 major players that can take their place. OLIGOPOLY, where a limited number of players control prices and dominate the market, paying off legislators to get favorable laws passed. This is the natural end result of capitalism without competition.
I used to have a similar faith in the omnipotence of lassiez-faire free markets when I was a schoolchild, but once I grew up (and actually studied economics as a major in university too), my perspective broadened.
First of all, trying to write off all bad monopolies as products of government intervention is a cop out. It’s the “No True Scotsman” fallacy. By the same token of logic, one could write off the horrors of the Soviet Union as “not true communism.” True capitalism is what it is in practice, not theory; in practice, you will not find any market economy that does not have significant regulations–for good reasons usually–and these will be susceptible to corporate lobbyists biasing those regulations in their own favor.
Secondly, I don’t agree that free markets themselves are perfect, even in cases where we assume they are truly competitive. There are cases of negative externalities, such as pollution is the classical example, where the parties engaged in trade both benefit, yet their trade presents additional negative costs to third parties not a party to the exchange. Cheaper products may be beneficial for the consumer and produce better sales for the seller, but if the cost is greater smog pollution in our e.g., the market fails to take that negative externality into account.
Finally, markets themselves are only effective and responsive so long as they remain competitive. In the long term, competition reduces market participants and creates oligopolies, which are not competitive and give consumers less power and choice and sellers more leeway to abuse their market share for excessive profits at society’s expense. The oxymoronic paradox of capitalism, is that the very same competition which drives sellers to make the best possible product at the best prices for consumers also inevitably decreases the number of players in the market. If you’re going to run a race, races have winners and losers. When the less efficient companies either fail or get bought out, the market becomes smaller, and it becomes increasingly more difficult for new businesses to enter, since the existing larger corporations benefit from economies of scale. This process repeats iteratively until finally you are left with just one or a small handful of mega-corporations that own the vast majority of market share (monopolies or oligopolies) which is basically the situation you have in almost ever major industry today.
This is why government intervention is a necessity to counter-act the immense power corporate monopolies exert over the public; yet governments are equally toothless in anti-trust realm because who has the most money to spend lobbying Congress in their favor? The very same corporate monopolies. So anti-trust is rarely used, and even when it is, its bite does little to impact the monopolists’ power or wealth.
Does this all mean I’m in favor of nationalizing/socializing industries? Of course not. As you say, there is no better system for the growth and creation of wealth for all than the market economy. But one should be realistic that no system is perfect. Competitive, free markets will eventually devolve into anti-competitive oligopolies or monopolies, just due to the nature of economies of scale. The only thing that ends these monopolies is severe technological change that completely upends the industries like when the internet/world wide web was new, but then the cycle repeats anew, and within 10-15 years, we’re back to having a new oligopoly under a handful of tech overlords.
Your reading skills need work, Pseudo. The words “faith,” “omnipotence,” etc. are entirely yours and not in the text. When you find yourself making up stuff like that, slow down and process more carefully, or introspect to discover in yourself why you’re imagining straw men.