First, many monopolies or quasi-monopolies are actually created by the state, rather than resulting from a spontaneous market process. In some cases, the situation is very explicit, including with the public sector quasi-monopolies or when one company is granted an exclusive licence. In other cases, competition is reduced as a by-product of the government proffering advantages to already existing firms. Subsidies, bailouts, strict regulations: all of these are rife, and all help incumbents squeeze out outsiders.
Second, politicians are neither benevolent nor omniscient. The moment they get involved, decisions become politicised. I suspect strongly that the energy market, which is highly regulated in key ways, albeit nominally in private hands, requires more competition. But there are good ways of achieving that – and then there is the solution proposed by the coalition (bad) and that proposed by Labour (terrible).
The regulators themselves often get it wrong. They spent years persecuting Microsoft for its large market share in browsers – yes, browsers – in a spectacular set of miscalculations. Every time that happens, the economy is damaged as large firms become debilitated and end up handing over billions of dollars in dubious fines, rather than investing the money in innovation.
Last but not least, the Marxist view of capitalism is absurdly pessimistic. Time and again, companies that appear set to exercise a permanent grip on a market are toppled, often remarkably quickly, by new technology or innovative competitors. Microsoft was a case in point. The poll-tax financed BBC used to control TV and all radio; it remains a massive player but technology is unleashing ever more competitors. A few years ago, many pundits became convinced that Tesco was about to take over the world; endless books, articles and TV programmes were made decrying the rise of the Tescopoly. But that daft premise was already obsolete, even though the critics didn’t realise it at the time. The giant retailer soon peaked and is now in precipitous decline, unsure how to proceed. Lidl is about to become Europe’s largest grocer, overtaking giant Carrefour.
Banking will be the next industry to be disrupted, not only by new entrants such as Metro Bank but also by the likes of Amazon, Facebook or other, as yet unknown, tech giants, which are bound to eventually reinvent finance. Even political cartels are not immune.
Opec used to terrorise the West; it is now merely a shadow of its former self, thanks to the rise of new producers such as the US, which has embraced shale. State-owned fiat currencies, the ultimate monopoly, are starting to face competition from Bitcoin; eventually, more mainstream digital currencies are bound to emerge. Increasingly mobile workforces mean that nation-states – themselves the ultimate monopolist when it comes to their human and physical resources – are being forced to compete by cutting tax rates or improving services.
Given this, what should governments do? They should focus on eliminating legal barriers to competition, and on trying to recreate proper markets in industries such as consumer energy, water and trains. They should make bank accounts portable, as they previously did with mobile phones. They should encourage entrepreneurship; Lord Saatchi’s Centre for Policy Studies proposal to exempt smaller firms from corporation tax altogether will be worth studying carefully. Forget the neo-Marxist grandstanding and the politicised witch-hunts – we need simple, practical schemes to boost competition wherever it is lacking.
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