January 28, 2011

Dstructiveness of Oligopolies

‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.’ (Adam Smith, The Wealth of Nations, 1776
Oligopolies destroy free markets. Until we do something about their destructiveness we will never bring back the glory of our economy to the heights of yesteryear. Below is a list of some of things that happen as a result of our government failing to do its job as protector of our "free markets"

  • Prices rise. With less competition a small band of companies that control a market and get away with raising prices.
  •  Less innovation. If a company is not pushed by "free" competitors it tends to get lazy and stop innovating. This is what happened to the American automobile industry from 1960 through the turn to the present century. They saw no need to innovate. Why bother; the consumer had no place else to go. This opened the door to foreign competition and the ultimate destruction of our industries.
  •  Egregious salaries at the top and uneven distribution of wealth. Boards of Directors responsibility is to see to it that management maximizes the wealth of its shareholders. This is a good objective as long as the corporation is operating in an ethical and legal manner.Our laws contain restrictions on destroying the competitiveness of our "free markets". Recently, the last 30-years, this is a law that has not been enforced. As a result, the Board of Directors see fit to pay exorbitant wages to senior management  to control markets. At first these high salaries may seem contrary to the Board's role of maximizing the wealth of shareholders. However, if these extra costs are more than offset by more control over their respective market, the additional revenue more than offsets the extra cost.
  • Less competitive in world-wide markets. Life has become too easy to compete.
  • Consolidation of political power.  These oligopolies are in a great position to buy votes with contibutions to your favorite politician.
It does not seem like America is willing to change this. As a result we will never be the economic machine that we once were.

1 comment:

  1. Paradoxically, this is all the product of the free market.

    If the market is to work for the greater good of society it needs rules and regulation to prevent self interest prevailing.

    The naive chaotic free market does indeed work, but it evolves to become a mature and sophisticated machine to milk society for the benefit of the controlling class.l

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