Asked Adam Smith’s editor. Thus, an ancient economic practice was given a more euphemistic name, which Americans have used ever since to promote their economic philosophy also called “capitalism.” Smith’s new terminology became accepted by our industrious forefathers, and his ideas influenced them to support a laissez faire attitude toward “the rugged individualist.”
Over the years the entrepreneurial spirit in the adventuresome has been encouraged along with what some conservative investors might consider taking inordinate risks with huge amounts of debt. The continuous material and technological progress attributed to America’s Free Enterprise “system” would make it the model in our young nation for future businessmen and women to copy in their endeavor to achieve financial success and avoid individual poverty.
Two hundred years later it is quite obvious that too little government restriction of free enterprise in the U.S. and too much government intervention in the regulated economies of communist and socialist countries created serious social and economic trouble. The socially desired “level economic playing field” that has been politically endorsed is a myth that will never be achieved. In reality, every playing field will tilt either left or right from time to time depending on who runs things. The happy “have-alots” are few and very powerful, while the unhappy “have-nots” are abundant, powerless, and multiplying rapidly.
Modern economic professors who fear the inequitable distribution of income derived from non-level playing fields warn us about monopolies in our Econ 101 classes, but the more practical politicians ignore that teaching. And for a very good reason. The rich “support” the political parties of a capitalistic democracy with their donations and votes, while the poor “support” them only with their votes. Consequently, becoming rich and therefore politically powerful is the prime objective sought by many in our sophisticated, materialistic society.
Today, the negative connotations of the word “monopoly” only pertain to the huge monopolies that possess the market share and financial capital to deal with the government’s “trust busters” as Microsoft has shown recently. Unobserved, the silent little monopolies, or micro-monopolies, rule the world of small business in the local communities. It’s an accepted economic fact of life that to obtain a job, an individual must present himself as the most competent of all the available candidates in the marketplace. A similar confident attitude motivates the small entrepreneurs who are usually undercapitalized and over-burdened with debt. Each of them must strive to reduce or eliminate their competition somehow so that their competitors can’t become dominant in their micro-markets.
We don’t consider doctors, dentists, the local hospital, plumbers, electricians, gardeners, and other professional service providers as dangerous monopolists. However, these small, friendly, “trusted” monopolists adopt the same business habits as the large monopolies: price fixing or gouging (under the premise that they are charging what “the traffic will bear”), extending very limited warranties (that only the courts can validate), discounting if necessary to get their foot in the door and hurt weaker competitors, “copying” innovative ideas and advanced technology, “stealing” trained employees, and doing “whatever it takes” to squelch competition, if they can manage to do so. It’s a ruthless world out there! To the victors go the taxable profits.
What’s the basic economic message, then? Be the best you can be in building a loyal clientele and satisfying your customers by offering them supposedly quality products and services at reasonable prices. The bigger the business, the better, supposedly; and the only business, the best! What happy customer is going to challenge a small local monopolist taking care of his business? No one I know.
So, let’s examine how the idea of monopoly grew and why it isn’t all that bad. The concept was launched when society determined that individual citizens had the right to possess something that was theirs and no one else’s, like land. (Of course, a government can confiscate all real estate possessions for whatever reason they choose.) But, once the right to own something outright was confirmed, people bought land. By that simple act they made themselves into monopolists overnight. Today, this is done with borrowed money. Most of us don’t look at this act as a monopolistic ploy, because there is still a lot of cheap land available. Land lacking access via public roads, water lines, electricity, and tax supported “infrastructure,” however.
By buying desirable property close to a populous market, the owner enables himself to develop a business in an advantageous location. He determines what service or product he can provide that is needed in the local community near his property. The fewer competitors offering that product or service in the immediate area, the better of course. At the initial stage of investing his capital, the desire to exploit this subtle monopolistic advantage dominates the planning going on in the mind of the calculating and energetic entrepreneur!
As a property increases in value, the owner can rent it out, mortgage it in order to buy more, or sell what he has and move his business to a more suitable location. Whatever he decides to do, he is always seeking to improve his monopolistic advantage or gain “market share.” When he dies, the beneficiaries of his will take title to the property. No one is being hurt by all this, right? It’s perfectly legal. But, someone is benefitted, because the monopolistic control remains in private hands. The scarceness of the supply of desirable land makes a new generation wealthy and able to continue the monopolistic use of that particular space for the direct benefit of that individual and the indirect benefit of society.
The idea of being the best individual provider of the services society thinks it wants drives many humans to excel, hoping that their efforts will be rewarded sooner or later with financial security. Such stimulation is considered admirable for individual workers, but not for large companies who are expected to take advantage of their customers, because so many businessmen have done just that over the years unfortunately. Or fortunately, depending on how you view the results of monopolistic practices. Can we say that the wages of athletes in certain sports are excessive? Or that the salaries of TV and movie stars are exaggerated for the entertaining services these folks provide? Do doctors and lawyers overcharge? Are CEOs of large companies (or small) properly rewarded for their leadership in times of economic booms and recessions? And what is the “fair” price of electricity, water, and toll bridges?
Monopolies are inherent in any economic system. Markets are manipulated in many different ways. Supply seldom balances demand for any lengthy period of time. Many humans in the workplace tend to succumb to “human nature” which is covetous, avaricious, and self-interested. That is the economic reality. What’s bad for an individual in any economy is being out of work or out of credit, a poorly paid worker of a financially weak and inefficient company, a sloppy producer of a faulty product, or a care-less supplier of a defective component.
A monopoly at any level in itself is not automatically bad. It can be an ethical employer, a concerned citizen of its community, an efficient manufacturer or distributor of needed goods and services, and an honest taxpayer just like any individual. More often than not, it is a legal entity creating jobs and hopefully an adequate return on the shareholders’ investment.
When it fails to do that, and when it abuses its market and takes advantages of its customers, the public should be concerned and their government officials should take action. Human nature being what it is, businessmen and women are frequently tempted to exploit their monopolistic situation. The general public is powerless to do anything, and the government representatives respond slowly and reluctantly because the rich control their political future.
Guns don’t kill, people do. Monopolies don’t abuse, the people who run them do. The professors who teach the dismal science encourage our leaders to regulate “monopolies,” when they should be more concerned about disciplining the individual human decision-makers. Monopolistic companies may be sued, and when they are convicted, they are fined for their repugnant acts. But do the CEOs go to jail for their questionable leadership? Was Bill Gates or any of his subordinates at Microsoft on trial? Not that I recall.
Free Enterprise can be good or bad for a tolerant society such as ours. It’s the entrepreneurial people involved that you have to watch. They are quite prone to be whatever society allows them to be, ethical monopolists or crooked, amoral businessmen and women.