I am talking about economics, not cooking. When you have lots of companies all competing for your business, you get great products, great prices, and lots of jobs. You get economic diversity. Biological diversity produces healthy environments that are more resilient to changing conditions. Even though the plants and animals in the region compete for many of the same resources, they also contribute to the overall welfare of the whole. I think the same is true of economies. When you have lots of businesses that are all competing, everyone does better, overall. But such an economy cannot exist where there are monopolies. Giant corporations distort the economic and political structures around them.
Like a monoculture of plants that can be wiped out by a single disease organism, mega corporations and monopolies are more fragile than they appear. Look at Enron. A few greedy individuals were able to destroy a company that employed thousands.
Lets look at it using a thought experiment. Lets assume we live in a town where there are a dozen soup vendors. All of our soup vendors make their own varieties of soup. Your favorite soup is Freddy’s French onion, but there are a lot more chicken noodle lovers than French onion lovers. Over time, Charlie’s Chicken Noodle, Inc. makes higher profits and gradually buys up the competition, including Freddy’s French Onion. For a while, they produce all the soups from all the companies they’ve taken over, but then, Charlie’s Chicken Noodle, Inc. is purchased by the mega soup conglomerate Soups R Us. In order to make the purchase, Soups R Us has to take on a lot of debt.
The CEO of Soups R Us, Sam, has to find a way to cut operating costs, so he can pay off the huge debts incurred during recent acquisitions. An analysis by the accounting department shows that Freddy’s French Onion, while having an incredibly loyal following, just isn’t nearly as popular as Charlie’s Chicken Noodle. Sam decides to do away with French onion soup to save money. It’s the right decision for the company, but not for all the lovers of French onion soup.
Some people unthinkingly applaud the concentration of wealth, claiming that it’s only by the concentration of wealth that great things can happen. They insist that we have to have super wealthy people and corporations in order to compete on the world stage. I think they are wrong.
Accumulation of great wealth comes at a cost. In order to produce a profit, there has to be a differential between the money for materials, infrastructure, and labor; and the price charged for the product. One of the major expenses in any business is labor, so great energy is expended in keeping labor costs down.
But here’s the thing, money paid out to workers isn’t just a cost. It’s also an investment in the future of the community. If you pay no more than a worker needs to survive, the options that worker has to help the community to grow economically are very limited. It’s only the workers that can save enough money and/or find investors that can start up new businesses. It’s those new business that reinvigorate the economy and provide new jobs in the community.
When you have one super rich person, like Bill Gates, that person makes the decisions about how a very large amount of money will be spent. That one person will be guided primarily by his/her own interests, values, and prejudices. The diversity of that persons investments is unlikely to be nearly as great as if the money was distributed among sixty or seventy individuals.
Large corporations, as a rule, don’t respond well to change. They find it difficult to respond quickly. Often companies have a vested interest in the status quo, so they actively resist change.
A number of years ago, I was at a telecommunications convention where there was a speaker giving a presentation on what VoIP, or Voice over IP, would mean to the telecommunications industry. When he was done speaking, the first comment from anyone was “We have to get this outlawed.” It was the kneejerk reaction of an industry that has always been protected from competition.
The U.S. is falling farther and farther behind in the deployment of broadband internet services. It’s pretty clear why, there are typically only three choices for consumers in any given market: DSL, Satellite, and Cable. It’s rare to find more than on cable provider unless it’s the local municipality. In places where cities have started efforts to provide free WiFi access to all citizens, telecommunications companies have actively worked to get such efforts outlawed at the federal and state level.
Do you have a cell phone? If you have an advanced one, chances are there are several features that you’d love to use, but they’ve been locked out. My phone, from Sprint, won’t allow me to download my calling list, or photos, even though I can connect to my phone with a USB cable. The reason I can’t is that Sprint has a deal with the manufacturer to lock out those features so Sprint can charge me for them. I have to pay to email pictures from my phone to my computer. I have to pay more to have my calling list backed up and even more to get a copy of my calling list for myself.
People in Europe don’t have this problem, because there is competition, and because the telecommunications companies there apparently understand that when you purchase a phone, you are entitled to use all the features on the phone. In Europe, if you want a new phone, you buy it, pop the GSM chip out of the old phone, put it in the new phone, and you’re ready to go. Last time I changed phones with Sprint, it took two hours. I wanted to scream.
We could debate on which mistakes were the worst when it comes to dealing with the telecommunications industry. Personally, I find the idea of auctioning off radio spectrum bandwidth, which is clearly a natural resource held in common by all of our citizens, to be treason of the worst sort. I also think that allowing our telecommunications companies to merge into conglomerates larger than the original AT&T is absolute folly, as well. We’ve already seen cases where large sections of the Internet were disrupted because of foolish decisions made by the managers of these corporations.
When you have dozens of companies competing, you have dozens of management teams making decisions. That makes it far more likely that one of them will happen on the right decision. Every time you consolidate, you reduce the number of decider and decisions, so that a single mistake is magnified greatly.
People wonder why our economy is so lackluster. They blame our poor performance on foreign competition, on oil prices, and a number of other factors. I believe the answer is simple. We’ve allowed the growth of two many monopolies, and near monopolies. As a result, we’ve seen the destruction of small and medium-sized businesses that would reinvigorate our economy. There are fewer places for new ideas to come from.
Our government needs to reacquaint itself with the laws about monopolies and vigorously prosecute companies that are in violation. Our congress needs to specifically outlaw the use of consent decrees to allow monopolies to continue. Microsoft is a perfect example of why. MS has never met a consent decree it didn’t like and couldn’t ignore. (Ironically, I believe Bill Gates and all the shareholders of Microsoft would actually be wealthier if the company had been broken up as discussed, since I think it would have resulted in a far more energetic software industry.)
Free markets are great. Monopolies, by their very nature, are damaging to the health and wellbeing of free markets and economies that depend on free markets. We’ve got great challenges ahead of us. We need all the economic diversity we can get, if we want to see ourselves through to the other side.
