Economy
We Need Markets. Not Monopolies with Market Power.
Facebook- Google- Amazon Are Not Capitalists. On the Contrary, They Disrupted Capitalism.
Monopolies with “dominant market power” neither reflect a well-performing market nor a good economy — far from being an indicator of a functional democracy — they are an army of a few with a lethal weapon — called Pricing Power.
Markets can be highly rewarding to all, and not just to a few if used appropriately. Society deserves efficiently leveraged markets for the greater benefit of the community. They don’t exist in the air and are politically strategized to existence — same goes for competition — yes, public policies configure who gets what. More often than not, capitalism is falsely accused of generating inequalities and being responsible for exploiting the weak. No wonder this defines the world we live in but is it the markets or those who are misusing them opportunistically, taking advantage of the means of evasions provided by the legal structure, procedures, and those in positions of authority in public offices? Monopolies are not on their own. They are helped in their wrongdoings, sometimes even encouraged by the governments. States, along with societies, have to craft a moral purpose to recuperate what has been lost. Education is the only means available to us to mend our futures. Through that, a sense of reciprocity and obligation are to be infused in the citizens.
Profits are necessary and the biggest motivator to achieve a purpose. It is not the end in itself — it’s a means to an end — which can vary from organization to organization. Firms may not even have a purpose other than profits. Just profits are also okay. However, it’ll have to be ethical. You cannot disrupt employees, suppliers, customers, and shareholders based on your market power. No.
Achieving profits along with better facilities for employees and justice for shareholders shall not be the best-case scenario — instead, be the basic. It is so, for the reason that even if firms — primarily owners who provide risk capital — see profits as their most significant inducement, employees don’t. And they won’t. They need a more meaningful sense of purpose. Good relationships, building trust, are a few factors which are observed as being impelling.
“You cannot build good businesses or relationships by exploiting temporary advantages. In the end, both parties lose out” — Future of Capitalism, Paul Collier.
Competition keeps firms grounded. It prevents them from blowing up customers with high prices and provides workers’ unions with a say in mediating wages. It is certainly something — that, once set in action — is difficult to overcome. Despite it being difficult to beat, powerful corporations find a way to restrict competition, as it drives their prices to a level where they only receive what they deserve — the return on their investment, including risk premium. Howbeit, they are soliciting higher than what a well-functioning market can offer them. These are called rents, economic rents. They are derived, over and above, from the real return on your investment or effort or innovation.
Here is how they do it.
Competition is key to well-functioning markets. It’s the “check” needed to uphold market equilibrium. Lack of which results in dominance that gets easily translated into — market power, leading to the exploitation of all — employees, consumers, and even shareholders. Economic and political. Both.
Abuse and excess of market power are not part of any construct of a market. How that power is acquired is secondary. If that empowers you to impose higher prices on customers and engage in unilateral negotiations with employees — it needs to be restrained.
Lobbying, abuse of public offices, unjust court judgments are some of the obstructions to competition. Restraining competition is possible as vested interests are well aware of the gaps in the system and the structure, where advantages may get tapped.
Creating an anticompetitive environment is a task undertaken by monopolists — as seriously as their attempt to innovate or develop a new product, even more seriously at times.
Cutting prices so low — lower than average variable cost, and creating barriers to entry to eliminate competition and create monopolies, is predatory and therefore the name — predatory pricing.
Lowering of prices as a result of efficiency and passing down of the same to end consumer need to be proven along with the fact that the anticompetitive environment that follows is just consequential and not the sole reason behind it.
The lowering of prices is just a short-term game to keep the new entrants away, while what lies ahead the road is manipulation. Price cuts resulting from intense negotiations with suppliers — also called monopsony, help them become a monopoly. Sure, it makes consumers better off in the short run but needs to be thought through from the economy’s perspective, too, since the window-dressing gains thrown at the consumers, to win their loyalty, remain less as compared to the loss that economy bears.
Monopolistic firms rip consumers off — of choices that could have existed had they not come in their way.
Governments need to regulate until competition gets restored.
1. Limiting mergers and acquisitions — Mergers leading to scaling up, is often cited as the main reason behind it. However, quite the reverse, if price increases after the merger by increased market power, it is a cue that the firm is heading for the long run exploitation of its consumers. Alliances need to be hindered — if efficiency gains that are leading them can’t be proven.
Acquisition of small start-ups that had the potential to become big — let’s call it “Annexation” as it not only reduces competition but also kills possibilities, is nipping it in the bud, even before it becomes “competition.” While significant monies involved in them lure newbies — Sum as massive as $19 billion in 2015 by Facebook for WhatsApp, they preclude competition and hence markets.
2. Laws against anticompetitive practices — Big giants have an advantage in getting better deals in biddings. On account of generating employment, they get substantial tax benefits, which small firms don’t. Some of these hindrances are technical and pertain to economies of scale and scope — these are more difficult to overcome. Notably, in today’s digital world — as they no longer exist in physical forms — they live digitally in the way of networks and data. Public policies get designed for a particular place, and these corporations are going uncontrollably global. That highlights an even more significant need for specially designed public policies to tackle these global tech giants without ruining their efficiency. Nevertheless, regulators will never know as much about the cost structure of these firms to formulate policies as much as these firms would. And the gap — called information asymmetry in economics — doesn’t allow the problem to get resolved.
3. Managing Intellectual Property rights: Patents usually intend to restrict the entry of those who steal ideas that belong to others. But they are misappropriated the most by big organizations with the might and money to exploit legal loopholes surrounding them. Small firms get severely restricted in freely innovating as they fear trespassing a patent without even being aware of it, only to find themselves meddled in an unequal legal battle. Big firms have already championed their ways around these — to maintain their market power and disallow new entrants to avail the market — they have an equal right over.
How shall it all be done, keeping the society in mind?
Incorporating public interest does not mean firms need to run in a non-profit fashion. No. It just means they need to run more ethically. More compassionately. Keeping employees at the forefront. Customers at the center. Profits at the top. Without failing to forget , they will benefit in the long run simply if they take all of them together and keep a watch on their misconduct — which they conveniently reason out as something carried out to innovate or become more productive.
We need more snitches — let’s call them moral residents — in our society who are ready to forego their interests and identities for the nation's broader interests. They, along with governments, can help remodel corporate behavior. Those who run away, after robbing the public off, outside their countries — need to be pulled back from their mansions or polo grounds — so you can lead by example. It may help restore the lost trust citizens had in their governments and consequently will lead to more reciprocally responsible acts from their side too. All in all, the responsibility to build ethical societies lies with everyone — moral citizens and honest firms — need to be equally engaged with it.
The power monopolies have, is slowly generating resentment against — not just them but also against governments, for not doing enough to reduce their power. The machination of currently struggling class has led to still greater inequality and even more massive social rifts. The growing market power of these large corporations needs to stop. Through antitrust laws, taxation, easy and secure intellectual property rights, to mention a few, otherwise — as history tells us — things might get worse before they get better.