February 4, 2011
The Truth about Monopolies
The Truth about Monopolies
I have discussed at length various concerns about monopolies and cartels in the Online Notes.[i] The summary of that discussion is that monopolies are almost always created by governments which shelter certain businesses and prevent others from entering the market. Monopolies and cartels cannot sustain themselves without government support.
In independent India we have seen many monopolies in the public sector. The quota system created private sector monopolies as well by protecting some of them from competition. Indian socialist governments also blocked competition on the basis of infant industries needing shelter, or the market being ‘too small’, or the investor not belonging to our country.[ii] Further, as a rule, business lobbies oppose competition. It is far cheaper for relatively inefficient businesses to persuade the government through a threat of some sort (such as loss of jobs) to regulate it in a boutique manner that shields it from competition. Similarly, it is lucrative for politicians in league with businesses to set up huge bureaucracies to protect their (the politicians and bureaucrat’s) own empires. Letting citizens harvest the rewards of freedom is opposed by many powerful forces in society. In brief, free markets automatically destroy all monopolies and cartels; we therefore don’t need to worry about such things. But we need to be very worried about collusion between business and government.
Leaving aside the red herring of monopoly, there are numerous other actions of business that should draw our attention. Most India businesses are mindless worshippers of Mammon; bribing politicians and bureaucrats, and not paying their taxes, comes naturally to them. Very few of them are values-driven. They are the typical ‘capitalists’ whom Nehru disliked, but from whom he did not hesitate to take money for his political party. In general, Indian businesses have preferred to support corrupt socialist parties and bribe their way to success, rather than allow markets to judge who is better. They have never supported advocates of freedom; at least so far, for they fear that freedom brings along with it justice, which they dislike. And yet in the pursuit of freedom one must advocate even their freedom to produce whatever they like and to set the prices they wish to – so long as they do not practice deception and or injure people.
In order to strike the right balance between freedom of businesses and freedom of their workers and consumers, the government should severely and efficiently penalize businesses for all violations of justice. Tax evasion and corruption by businesses must be stopped. Business owners who injure their workers must be put behind bars. When justice is prevalent in India, the ethical businesses of India will find it easier to succeed, and a virtuous cycle will be generated.
In summary, a free society needs competition, not ‘perfect competition’. India’s challenge is to get its government to focus on delivering justice more broadly than looking at alleged monopolies, and to get out of all needless regulation. Many absurd regulations created by previous socialist governments are being dismantled now, but the battle has barely been joined.
[ii] Governments like to interfere in many subtle ways; e.g. there was a rule in my time that required government officers to use Indian Airlines for official journeys, even as competition was officially allowed to sprout in the Indian market. Such rules clearly violate freedom and fail to provide a level-playing field for business.