The one thing I know government is good for is countervailing against monopoly. It’s not great at that either, but it is the only force I know that is fairly reliable. But if you’ve got a truly free market you only have a free market for a while before it becomes completely regulated by those aspects of it that have employed power laws to gain a complete monopoly.
The above paragraph appears in the latest edition of libertarian magazine Reason, one of the best and most thought-provoking mags out there in my opinion. The quote is taken from John Perry Barlow, veteran campaigner for civil liberties issues, scourge of government attempts to invade privacy, and a writer of lyrics for none other than the Grateful Dead.
And yet the above quotation is to my mind a piece of economic illiteracy so bad that I was rather surprised that the Reason interviewer, Brian Doherty, let him get away with his assertion about the free market so easily. However, where Reason failed, Samizdata can step in.
First off, when Barlow talks of ‘power laws’, what exactly does he mean? If he means stuff like draconian copyright laws, or licencing privileges to shaft potential competitors, then surely such things are the creation of governments and not a feature of a ‘free market’! Most of the restrictions on competition which bar entrepreneurs from entering a field were created by governments in response to business lobbying. That is clearly a bad thing, but it is weird for Barlow to suggest that the remedy to such abuse of power is to ‘re-regulate’ the market to somehow make it freer. The solution to the problem is surely to cut the state down to size so that it cannot disburse such corporate welfare privileges to vested interests in the first place.
In holding this view, Barlow makes the classic mistake of so many folk who think they have discovered a fatal flaw in capitalism in that some sectors of an economy get to be dominated by one or two major businesses such as Microsoft or the aluminium firm Alcoa. “Monopoly!”, they cry, before demanding anti-trust style laws to break up businesses into smaller, supposedly more ‘perfectly’ competing bits. (Yes, I know Microsoft’s particular circumstances are open to many legitimate attacks – I am not an apologist for them, in case commenters bring this up). This view is based on the failure to grasp that just because a firm has X percent of a market share and is very big, it is therefore somehow able to coerce folk into buying its products. However inconvenient it may be for me to avoid using the products of Bill Gates, say, I can do so. Microsoft or General Motors do not force me to buy their services at the point of a gun.
Another mistake linked to this confusion about monopoly is the failure to see that competition is not a state of affairs desirable for its own sake, but rather a dynamic process in which economic actors like businessmen are trying to figure out new and better ways to satisfy demands and also to come up with goods and services previously unthought of. At any one freeze-frame of an economy, there will be big, mature businesses fighting to hold their ground and operating on thin profit margins; medium-scale firms still posting sharp growth, and embryonic small fry waiting to burst into the scene. If a big firm with a large market share takes its eye off the ball for a second, it quickly can be overtaken by a previously unkown upstart, as indeed happened to IBM and other firms once thought to be invincible by critics like Barlow.
Big businesses are often the worst defenders of free markets, and are often only too keen on spending millions of their shareholders’ money in lobbying for tariffs and other cushy deals from the State. But to expect the State, given its terrible track record, to make the market more “free” is one of the dumbest delusions there is.
Addendum: Thomas Sowell’s excellent Basic Economics is a good place to clear up the sort of economic fallacies such as Barlow’s.