Freedom or Competition: make your choice

The seemingly ever increasing numbers of innocent followers of Mises, Hayek and Friedman, in their devoted pursuit of the free market ideal, have overlooked the fact that markets, which typically start out as competitive, naturally tend to become monopolistic.

Adam Smith first made the case for free markets, when he argued that the butcher, brewer, baker etc, working purely for their own interst in competitive markets, freed from government regulation and interference, would also add to the aggregate wealth of the population. However, he also recognized that, whenever people of the same trade meet, their ‘conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

But it is not just the deliberate conspiracy that turns competitive markets monopolistic. They have a natural and inevitable tendency that way, as Marx and Michael Porter have suggested. In the classical economic model, once one competitor achieves an advantage over the rest, there is no way of preventing that winner from dominating the whole market. Marx imagined the emergent monopolist as the capitalist, ‘Mr Moneybags’, exploiting the workers. But that didn’t happen quite as he envisaged it. Peter Drucker in Post-Capitalist Society had the benefit of an additional 100 years or more overview and what he saw was the owners were not wealthy individuals so much as pension funds and financial institutions who were meant to be investing on behalf of their members, the mass of ordinary people. It was not till quite recently that the controllers of these institutions became so exploitative that something of what Marx had predicted actually came about.

Porter’s perspective on how industries develop, from the highly populated competitive high growth early stages to the more concentrated, less competitive, low growth mature phases, is more analytical than political. But it shows the falsity of the economists’ static analysis of markets which are assumed actually to be ‘perfectly’ competitive with all the nonsense that entails.

Well intentioned free marketeers, sustained by the Austrian School of economists, have become ever more concerned about government involvement in the economy, either as participant or regulator. As participant, government stands accused, by Friedman at least, of being twice as expensive and inefficient as private enterprise; and as regulators they are widely seen as the bureaucratic authors of endless enterprise stifling red tape.

Entrepreneurs may want to be the best in the market, to beat competitors, and to make the most profit, but, like most people, they are corruptible. If that same result can be achieved easier and at lower cost by abusing the market, through the exercise of monopolistic power or straightforward fixing, then abused it will be, whether it is through traditional price control, cartelisation of corporate directorships, the exploitation of positions which are too-big-to-fail, or the spider-wasp parasitic activities of monopolised financial institutions. The result is that the people, including the well intended free marketeers, will be exploited as a result

Government, and the law it creates, are the only protections against this would-be market abuse. You can have freedom from government interference in markets. Or you can have competition. But you can’t have both. It is surely more important to preserve competitive markets which serve the best interests of the consumer and thereby society as a whole, rather than freedom from regulation which encourages monopolies to prosper. Which would only serve the interests of the monopolist, whether it be legal or criminal.

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