September 29, 2012

Oligopolies Income Disparity & jobs

The principal federal statutory provision governing mergers is Section 7 of the Clayton Act, which provides:
No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.
There are more consequences to oligopolies gaining control over industries than a rise in prices to the consumer. These include less innovation and reduction of quality, fewer jobs, wider income disparity, and greater concentration of political power. This is all caused by the erosion of free markets. The economy will not get on track until these issues are addressed. It is the role of government to be the referee of free markets to assure everyone is playing by the rules. No one can imagine an NFL football game without competent referees and this is where we are in many industries and multinational companies.

Less innovation and quality reduction: The history of the American auto industry is a good example of this. In the sixties and much of the seventies the "big three" and the U.A.W. were king. There was no foreign  competition and and these four entities ruled the auto industry. This oligopoly conspired as described by Adam Smith in 1775 in the book Wealth of Nations.
‘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.’
The industry became lethargic and lost its edge. The end result was that it needed to be bailed out in 2008. Quality decreased as did motivation. The foreign auto makers saw an opening and took it.

The stewards of the oligopoly are no longer looking out for the interest of the consumer; but rather looking to keep the oligopoly in control of the market.

Fewer Jobs: As our industries become less competitive, we will have fewer jobs. It is generally agreed that small business creates jobs.
"Small business creates most of the jobs.", Paul Ryan, Republican Congressman, Fox News Sunday, 8/7/11
This being the case, every time an oligopoly is allowed to exist jobs are squeezed out of our economy. Larger corporations find it easier to export jobs oversees, an an oligopoly can afford to let its service slip to the consumer because there are fewer competitors and job seekers have fewer options as to where to work.



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