Welcome, friends, to another edition of Economic
Update, a weekly program devoted to the economic
dimensions of our lives – jobs, debts, incomes,
all of that – as it affects us, our families,
our children, now and into the future.
I'm your host, Richard Wolff.
Today I'm going to devote the program to something
many of you have asked me to present, to talk
about, to analyze, and that is the question
of monopoly.
It has to do with the assertions we hear often
these days that somehow our capitalist system,
here in the United States and beyond, is being
negatively affected because monopolies have
replaced or displaced competition.
The idea here is if only we can get competition
back, recreate a competitive capitalism, why
then the problems we face will go away.
Today's program is a design to show you how
and why that is not the case, to think about
these things in a different way from this
nice story that capitalism is basically fine;
it's just the monopoly form we have to get
rid of so we get back to the competition which
we're all supposed to believe is wonderful
and presents us with no problems to solve.
So let's go, and let's do it in a systematic
way.
First, it is of course easier, faced with
a declining capitalism, a capitalism that's
all around us with its extreme inequalities,
with its instabilities – here we are, trying
to cope with the effects of the Great Crash
of 2008, even while we anticipate the next
downturn coming down the road soon – an
economic system that has shown (that is, capitalism)
that it is not respectful of the natural environment;
it is not, as the words now go, sustainable
in a reasonable way.
Yeah, we're surrounded by problems of capitalism.
So it's comforting in that situation to get
the idea from somewhere that this really isn't
a problem of capitalism as a system but rather
the problem brought in somehow from the outside
– monopoly – a situation in which competition
among many companies gives way in some way
we're not quite sure about to a domination
by one or a small handful of companies.
And so the argument goes, we don't have to
be critical of capitalism; we don't have to
think about an alternative system.
No, no, we just have to deal with this little
detail, the monopoly problem.
And if we can deal with that, well, we'll
get back to a competition, to a competitive
capitalism that is good.
There are three big mistakes involved in this
way of thinking, which is nonetheless very
widespread and very popular, more so now than
in quite some years.
First mistake: Capitalism has been wrestling
with the problem of monopoly from day one.
We have had repeated periods of monopoly.
They have eventually led to movements, often
of many people, to destroy or remove monopoly.
We used to call that in America trust-busting,
or antitrust.
We even have a department within the Department
of Justice in Washington devoted to antitrust
activities.
Yeah, we've been waging battles against monopoly
over and over again, and you know why?
Because we keep having monopolies over and
over again.
Google is a monopoly.
Amazon is a monopoly.
They're all around us: companies that have
effectively no real competition.
This is a problem that capitalism has always
displayed.
And that ought to lead you to wonder whether
thinking about it as something we can do away
with isn't maybe the best possible example
of wishful thinking.
The second big mistake is to imagine that
competition is some unmixed blessing.
It never was, and it isn't today.
A competitive market is a human institution.
Like every other human institution, it has
strengths, and flaws, and weaknesses.
To think of competition as some magical perfection
is a silly abnegation of your own rational
capability to evaluate something.
It's sort of advertising thinking.
By that, I mean the advertiser tells you what's
good about the product they've been told to
advertise; they don't tell you what's bad
about it.
If you want to evaluate it, you don't talk
to an advertiser because they only give you
one side.
The people who promote competition use advertising
logic.
We're not going to do that here.
Competition is no unmixed blessing.
And finally, I'm going to show you that competition
is itself the major cause of monopoly.
So that even if we ever got back to a competitive
capitalism, all that would mean is we're back
in the process that produces monopoly – as
it always has.
All right, so let's begin.
I'm going to start with explaining how competition
has all kinds of consequences that most of
you, like me, don't like, don't want.
It's a discussion, if you like, of competition's
other side: you know, the part that the advertiser
doesn't tell you about.
The used-car salesman who wants you to buy
that junk doesn't tell you about what happened
last week in the car crash that that was part
of, etc., etc.
All right, let's begin.
One of the major reasons that American corporations
shut down their operations in the United States
and moved them to China, among other places,
is because of – you guessed it – competition.
They wanted to make more money than they had
been before.
They were afraid of other companies beating
them in the competitive game, so they said
wow, let's go to China, because there you
can pay workers a lot less.
There you don't have the same rules to obey.
There they don't care that much about pollution
as they do here.
So we can save on all kinds of costs, and
that will allow us to undercut our competitors.
Yeah, one of the consequences of competition
was the exodus of American companies to other
parts of the world, and the enormous unemployment
that resulted from it.
Yeah, that was a result, among other things,
of competition.
Here's another one: Capitalists, employers,
seeking to compete with one another, often
engage in what we call automation.
They bring in machines that are cheaper to
use than human laborers, and that gets them
a step ahead of their competitors.
Okay, if we replace people with machines,
we throw those people out of work.
That has an impact on them, their self-esteem,
their relationship to their spouse, their
relationship to their children, their relationship
to alcohol – should I continue?
What are the social costs of automation?
They're huge.
They've been documented over and over again.
Competition provokes and produces automation.
Let me give you another example: Companies
are competing, say, in the food business – you
know, trying to get a customer like you or
me to buy this kind of cereal rather than
another.
So they get their labs to go to work, and
they discover we can replace wheat, which
we used to put in our little flakes, with
– Lord help us – some chemical that is
cheaper than wheat.
We're not going to worry about what that chemical
does to your chemistry in your body because
we can now lower the price of our cereal,
because we're saving on wheat, and undercut
the competitor.
The human beings who eat this stuff will suffer,
now and in the future, but competition left
our producer of cereal no choice.
And in case you think I'm making some up,
let me give you some concrete ones.
The Boeing Corporation, the major producer
of airplanes in this country, is in a crisis
as a corporation.
You know why?
Because the 737 Max crashed a couple of times,
killing hundreds of people.
And you know why?
It turns out they economized on safety measures,
and training measures.
And you know why they did that?
Because they're in a very tight competition
with European and other airplane manufacturers,
and that leads them – as it usually does
– to look to cut corners: that race for,
quote, "efficiency."
Yeah, it was competition that contributed
to those deaths and to that problem.
That's competition too.
You can't whitewash this story; they're real.
One of the ways Amazon beats its competition
is it speeds up the work process.
It has figured out ways to make people work
much more intensely, using up their brains,
their muscles, their nerves, in ways that
cause real long-term physical damage to working
people.
That, too, is a result of the competitive
effort.
And you know, it wasn't so long ago that children
were part of the labor force.
That's right, kids as young as five and six
years of age.
We were told they have little fingers, you
see.
They can be more productive than people who
are adults with big fat fingers, you know
– that doesn't work.
And by the way, you should be grateful because
poor kids are the ones we hire, and that gives
their poor families more income than they
would otherwise have.
We heard those arguments.
Competition, the companies said, required
them to use the more productive, and the lower-wage,
children rather than adults.
So child labor was also a result of competition.
It was so ugly and so troubling to so many
people that finally there were movements in
the United States and many other countries
simply to outlaw child labor.
So it became a crime for any employer to use
a worker who was under 16 or 18 years of age.
That was a way in which people said we are
not going to allow competition among capitalists
to destroy our children.
They were recognizing that competition has
an awful effect in what it does to children.
Well, it has many awful effects.
So let's be clear: In the history of capitalism,
the monopoly problem (which we're going to
get to in the second half of today's program)
is no worse, it's just different, from the
competition problems.
Capitalism goes through phases of competition
and monopoly, going from one to the other,
as I will explain.
But we shouldn't bemoan the one in favor of
the other, any more than vice-versa.
These are neither of them solutions; they
are both phases of the problem.
And the problem is capitalism, which does
its number on us both in the period when it's
competitive and in the period when it's monopoly.
People who want us to engage one more time
in an anti-monopoly crusade are doing something
that in the end evades the problem, which
is the system – capitalism – not this
or that form of that system, such as competition
and monopoly.
We've come to the end of the first half of
today's Economic Update.
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My final, very final for this first half,
is about a new book that we have just produced
and released.
It's a follow-up to an earlier volume I have
spoken to you about that was called Understanding
Marxism.
For the same reason, we have now produced
a brand-new book, just out, called Understanding
Socialism.
It is a response, as this program is, to issues,
questions, comments you have sent to us in
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It's an attempt to give an overview of the
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Please, if you're interested and want to follow
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And I will be right back; stay with us.
Welcome back, friends, to the second half
of today's Economic Update.
This program, as I explained, is devoted to
the analysis of competition and monopoly as
two interactive, sequential phases of capitalism
as a system.
The first part of the program was devoted
mostly to competition, so let's turn now to
monopoly.
What is the basic definition and criticism
of monopoly?
Strictly speaking, monopoly is defined simply
as a situation in which the producers of a
particular commodity – shoes, software programs,
haircuts, it doesn't matter – have been
reduced to only one.
Literally one seller – a monopolist.
But in general language, it includes also
situations where many producers who once competed
with one another have been reduced to only
a handful.
The strict term for only a handful is "oligopoly,"
but we don't have to split hairs about this.
"Monopoly" will be the word we use for either
one or a very small number.
For example, there were once dozens of automobile
companies, but very quickly their competition
reduced them to basically three for much of
the post-World War II period, and you know
their names: Ford, General Motors, and Chrysler.
And likewise there were once many cigarette
producers, there were once many television-set
producers, and they became very few, whose
names, therefore, we all know.
What's the criticism of a monopoly or oligopoly
situation?
Again, very simple: The idea is, if there's
only one seller of something, that seller
can jack up the price way above what he might
have otherwise because he doesn't have any
competitor.
If he had a competitor, if he raised the price,
the competitor would get all the business
because we'd all go to the competitor who
hadn't raised the price rather than buy it
at a higher price from the monopolist.
So we don't like monopolies, because they
can jack up their prices and their profits
because they don't have a competitor.
And if it's a few, a handful, well then we
talk about things like cartels: arrangements
when a few get together over dinner, or out
on the golf course, and tell us what the price
is.
If you ever wondered why the prices of different
cars, different cigarettes, and so on, are
so close to one another – mm-hmm – that's
because there are few sellers, and somehow
they worked it all out.
But the basic criticism is that a monopoly
is a situation in which the seller of something
jacks the price up way beyond what they could
otherwise get because there are no more competitors.
So let's talk about this monopoly problem
and where the monopolies come from.
Well, the first and most important lesson
is this: Competition produces monopoly.
It's not something external, imposed on competition.
It has nothing to do with human greed or anything
else.
Are people greedy?
You betcha – some more, some less – but
that's really a separate matter.
It's competition that produces monopoly, and
let me show you how that works.
In competition, we have, by definition, a
whole bunch of producers.
They all produce the same thing.
They compete with one another, hoping we,
the consumer, will buy from one rather than
the other.
They compete in the quality of what they produce
and in the price of what they produce.
And we are supposed, as consumers, to go look
for the best quality at the lowest price,
and to patronize that one who offers that
to us better than the others that we could
buy from but choose not to.
Okay, that's a fair definition.
Now let's follow the logic.
Company A produces – however it manages
it – a better quality and/or a lower price
than Company B. So we all go to Company A.
Company B can't find any buyers because it's
not competitive.
Or to say the same thing in other words, Company
A outcompetes Company B. Here's what happens:
Company B collapses.
Because it can't sell its goods, we're all
going to Company A. So Company B sooner or
later declares bankruptcy.
It can't continue.
It lays off its employees, it stops buying
inputs, because it can't compete.
Good.
Now what happens in Company A?
Company A says hey, there's a whole bunch
of workers that have just lost their job at
Company B; they're trained in producing what
we produce; let's go hire some of them.
And likewise, Company A says, they're not
using their computers, or their trucks, or
their other inputs.
They're going to have to sell them on the
secondhand market.
We can get some important inputs we need at
a lower price than we would have to pay if
we bought them new.
So what begins to happen is, where before
there were two companies, A and B, there's
now one larger A, and B has disappeared.
Or to say the same thing in simple English,
A – the winner in the competitive struggle
– eats, absorbs into itself, what's left
of Company B.
And this process is repeated over and over,
until 30, or 300, companies have become one,
or two, or three.
That's the result of competition.
That's how competition is supposed to work.
That's how competition does work.
It's important to understand: Monopoly is
where competition leads.
And as if that weren't enough, let me make
sure you understand this from the business
point of view: It is the great dream of every
entrepreneur to become the last one standing
in the competition, to win the competition,
not just because it makes you feel good you
outmaneuvered your competitors, but because
if you're the last one standing, you're the
monopolist.
The reward for having outcompeted the others
is that you're now in a position to jack up
the profits, and the prices, way beyond what
you could have done before.
So we have a system that produces monopoly,
and all the incentives for every entrepreneur
in competition to work as hard as possible
to become the monopolist.
So why is anyone surprised that monopolies
keep happening, because they're the whole
point and purpose of capitalist competition.
If you ever were – and we never have, but
if you ever were – able to get rid of all
the monopolies and re-establish competition,
all you would be doing is setting this same
process in motion again for the umpteenth
historical time.
In other words, fighting against monopoly
is pointless as long as you have capitalism,
because it is the endless reproducer of this
problem – as it always has been.
Now, how do monopolies maintain themselves?
If you're the only one standing, you're a
monopolist.
Or you're an oligopoly, you're a few, and
you get together and jack up your prices together.
The question becomes look, a monopolist makes
very high profits – much higher than a competitor
can achieve – and isn't that an enormous
incentive for other capitalists to get in
on that business?
Because look at the profits they're earning,
because they're the only one.
Apple, Amazon, Google – the profits are
staggering.
Everybody wants to get in.
So the way a monopolist has to think is, I've
got to create obstacles that block other people
from coming in to get a piece of the enormous
profits my monopoly allows me to get.
We call that in economics "barriers to entry."
Monopolists need to create barriers.
Let me give you a couple of examples.
The major soft drink makers in the United
States – basically Coca-Cola and Pepsi Cola
– they produce a drink that has sugar and
coloring in it, and lots and lots of water.
Let me assure you, there is nothing difficult
or complicated about producing a mixture of
sugar, color, and water.
It doesn't take a genius; it never did.
Pepsi and Coca-Cola make a fortune off of
their product, as we know, and they have for
decades.
They have a virtual monopoly.
Now, lots of other people could produce water,
sugar, and color close to, if not identical
with, whatever they produce, but they can't
break through.
They can't really get to that status.
And you know why?
Because Coca-Cola and Pepsi erected a barrier
to entry.
And the way they did that was with advertising.
Every billboard, every magazine cover, every
doorway of every institution you've ever been
to has a picture of smiling, happy people
drinking one or the other.
You've learned: that's the drink, that's the
drink.
Another company might make a perfect substitute,
but they can't afford the enormous cost of
advertising.
The advertising costs more than the water,
and the sugar, and the color.
What you pay for when you buy Pepsi and Coke
is the advertising that got you to buy it.
You're paying for being hustled.
But it works, because it means other companies
know that they can't get in there by cheaply
producing an alternative, because you have
to produce the advertising that goes with
it, or else you can't do it.
And so their monopoly is maintained.
Here's another way to maintain a monopoly:
Get the government to step in.
Here the famous example is the milk producers.
Some years ago, there was a crisis with milk.
There was contamination; people were getting
sick.
So the clever milk monopolies came in and
said, we're going to support the enormously
expensive, special equipment to guarantee
pasteurization, and so on, of milk.
Why did they support it?
Because your small farmer, your small dairy
producer, can't afford it, so they go out
of business.
Only the big, rich few that are left can afford
the enormous equipment.
They used governmental rules to create a barrier
to entry.
Here's another way: corrupt public officials.
President Trump denounces Huawei corporation
because it compromises our national security.
It denounces European car producers because
somehow their shipping cars here compromises
our security.
Who cares?
As long as the president blocks other companies
from getting into the business that might
compete with an American, a barrier to entry
exists.
Monopolists have been very creative in coming
up with ways to preserve their monopolies.
I don't want to lose the basic point.
The basic point is: Capitalism oscillates,
back and forth between competition and monopoly
– first this industry, then that one.
For a while, Ford, General Motors, and Chrysler
were the monopolies – or the oligopoly,
if you like – in automobiles.
But eventually, Toyota, and Nissan, and Peugeot,
and Fiat broke the monopoly.
In that case, it was foreigners who did it.
And then we had some competition, and that,
then, is now shrinking.
The French – the last two producers in France
– have just agreed to merge.
You get the picture.
Industry by industry, first this one, then
that one, go through one phase or another.
The important point is: The phases are not
our problem.
They merge into, and incentivize, each other.
Each provokes movement in the other direction.
The point to understand is that the problems
of a capitalist system are not about this
oscillation of phases.
We're not going to solve the problem of monopoly
by getting rid of them and re-establishing
competition.
We've been there; we've done that; it reproduces
monopoly; and it doesn't change the basic
inequality, unsustainability, instability
of capitalism.
We need to get beyond that stale, old debate
– competition versus monopoly – and face
the underlying reality: Capitalism is the
problem, and getting beyond it is the solution.
Thank you for your attention.
We've come to the end of this program, and
I look forward to speaking with you again
next week.
