Chief amongst arguments made against the free market economics we all know and love is the argument that the government is necessary as a preventative measure against monopolies. The core of this argument, while it holds some merits I will cover below, is a bad argument. From historical precedents to flat out logical fallacies, today on Bad Arguments we’ll review the notion that government prevents monopolies, and why it’s a false assumption.
First off let’s look at the baseline fallacy here: The Two Wrongs Fallacy. The two wrongs fallacy is as straightforward as you might expect. Two wrongs don’t make a right, fighting fire with fire (generally) just makes more fire, and forming a monopoly to fight monopolies makes as little sense as the other two examples. This latter example is exactly what the pro-government types are stating when they say government prevents monopolies.
Historically the state doesn’t have a great record preventing monopolies either. Outside of the exceptionally rare monopolies that come from vast land ownership, most forms of market monopolies come from IP law, state restrictions, and smaller private firms selling out to larger companies.
With IP law we find companies being able to own something immaterial which would otherwise be practically impossible. This allows companies such as Microsoft to develop a revolutionary set of technologies, and no one anywhere can replicate, or too closely follow, the technology else they would risk an infringement. Without, as we see with open source software, there becomes tons of market opportunity for everyone to work from an open source and develop their new and innovative ideas to their heart’s content.
Further, we can see the state restrictions enabling the very monopolies that they are supposed to prevent just by looking at, well, nearly every industry really. For the case in point, I’ll use ISPs. In many parts of the country, there are areas wherein you can only sign up for one ISP; it’s either that company or you simply go without. Why does this happen? Because of state restrictions on the required infrastructure. There’s a limit to how much infrastructure can be built in an area, and even when it’s approved costs a fortune between the actual construction costs, but more so the regulatory fees and taxes; costs which are constantly increasing at the requests of the ISP lobbyists.
The last area is one of the few wherein the state actually prevents monopolies…by stepping on the rights of the business owners involved. I’ll use an example from Canada to illustrate my point. Up here we have 3 major telecom companies. A fourth company started up and made a major shakeup in the industry with their lower prices, and one of the “Big Three” were interested in buying them out. The government stepped in and prevented the trade, and the company, not wanting to foreclose, ended up continuing to operate at a loss (and by extension a tax break) for several years before finally selling to a different large media company and rebranding.
In this case, it kept competition in the market and prevented an oligarchy of the three companies, but it did so at the expense of the owners of both companies, their rights to trade, and the validity of their ownerships. All of which is more laughable when you consider that the oligarchy only formed due to the initial regulations on the market, and control of wireless spectrum and infrastructure.
What gets forgotten here is that the state is, by default, a monopoly. They have the monopoly on judicial powers enforced by their monopoly on force. Sure, there are private arbitrators and private security options available, but they have to operate under the rules and restrictions laid out by the holders of the monopoly. It would be as if Starbucks had the right to forcibly take money from the general public for their products, and also command other coffee franchises to operate the way they expect, and never to the same capacity. We wouldn’t let a single other entity hold that kind of power, so why do we allow the government to?
Read more articles from Killian on Think Liberty here.