Anti-Capitalist Meetup: Sustainability, capitalism, and the tendency to oligopoly by Don Mikulecky
It has been said many times that “sustainable capitalism” is an oxymoron. There are reasons why people believe this. The nature of capitalism has the need for growth built in. If there were any really strong contradictions in Tuesdays SOTU speech they rest right here. The call for economic growth and some sort of action toward addressing the climate change problem are really at odds with each other in their present context. Here is one example of the claim that capitalism is not in harmony with sustainability: Is Sustainable Capitalism an Oxymoron?
The root problem with capitalism is not that individual firms are incentivized to grow, but that the economy as a whole must grow…
When oligopolies are the form of economic structure the need for regulation and the effect of regulation on growth is even more important.On the Need for Regulation of Oligopoly and Oligopsony
This is the important point. Unregulated oligopy, with its extra normal profits, when it becomes extensive, arrests the growth of the entire economy. Indeed, the situation is actually worse, because by continuing to purge the rest of the economy of its normal income, it can cause the rest of the economy’s revenue to be less than its expenses. Thus, the remainder of the economy, the oligopist’s market, may actually be forced into contraction. But this is bad for the oligopist as well.
This is a familiar theme and would be resented by those who detest regulation. Maybe if their wishes are not followed the result is more favorable for growth, but what will that growth do to sustainability?
The nature of oligopolies
Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies)–for example, in some industries there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.
In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater when there are more firms in an industry than if, for example, the firms were only regionally based and did not compete directly with each other.
The way these things are discussed in economic theory would lead you to believe that these are just another form of business groupings. Yet is seems clear that they are a natural way for a capitalist system to develop. Read on below and I will try to make this clear.
Here are some of the attributes of oligopolies:
Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs.
Ability to set price: Oligopolies are price setters rather than price takers.
Entry and exit: Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market.
Number of firms: “Few” – a “handful” of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms.
Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering market to capture excess profits.
Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).
Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality.
Interdependence: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm’s market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm’s counter-moves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and counter-moves in determining how to achieve his or her objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm’s effects on market conditions is so negligible as to be safely ignored by competitors.
Non-Price Competition: Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition.
Here are some examples in our economy:
Many media industries today are essentially oligopolies.
Six movie studios receive 90% of American film revenues.
The television and high speed internet industry is mostly an oligopoly of seven companies: The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation. See Concentration of media ownership.
Four wireless providers (AT&T Mobility, Verizon Wireless, T-Mobile, Sprint Nextel) control 89% of the cellular telephone service market. This is not to be confused with cellular telephone manufacturing, an integral portion of the cellular telephone market as a whole.
Healthcare insurance in the United States consists of very few insurance companies controlling major market share in most states. For example, California’s insured population of 20 million is the most competitive in the nation and 44% of that market is dominated by two insurance companies, Anthem and Kaiser Permanente.
Anheuser-Busch and MillerCoors control about 80% of the beer industry.
In March 2012, the United States Department of Justice announced that it would sue six major publishers for price fixing in the sale of electronic books. The accused publishers are Apple, Simon & Schuster Inc, Hachette Book Group, Penguin Group, Macmillan, and HarperCollins Publishers.
In today’s global economy there are far more:The world’s seed oligopoly
PLAYERS: A fistful of transnational firms, the Gene Giants, dominates global seed sales. Monsanto, DuPont, Syngenta – all among the world’s top-ranking pesticide firms – lead the pack.
The fossil fuel oligopoly has its special qualities:Capitalism = Corporatism = Oligopoly = Rentier Stagnation
I contend that corporations have always been the main instrument of this drive toward oligopoly, and they have been the only significant modern form of it. It would have been difficult if not impossible for Oil Age economic actors to achieve oligopoly if not for the way the corporate form tilted the playing field and rigged the markets. Cheap, plentiful oil in itself would have been a radically democratizing force. (Who knows? Perhaps textbook “free markets” could even have thrived.) Only a severe artificial restriction on economic freedom could ever have enabled oligopolies to cohere. This artifice was the corporation.
Similarly, modern technology, whatever its other issues, would have been a tremendously liberating egalitarian force if not artificially enclosed and controlled. The corporate form was the main mode of this enclosure.
In all ways legally and politically possible, corporations have monopolized the vast bounty and freedom which fossil fuels and the modern human mind held in potential. Privatization of public commons like the resources of the earth, including fossil fuels, is at one, physical extreme. The radical extension of the IP regime to the point that it constitutes a new enclosure of a potentially infinite public commons is at the other extreme of intellect and spirit. In both cases, and all in between, there’s been little of private individual involvement. In every case I can think of, the corporate form is preferred. Certainly if the genius of capitalism could conceive of a non-corporatized way to compete, someone would be doing it.
Not only is the corporation the most efficient wealth-extracting machine. By design it’s forbidden to do anything but all it can to maximize its extractions. According to the responsibility of management to shareholders, a corporation is required to subvert the rules of capitalist competition. If the more effective expenditure for short-term gain in lobbying for anti-competitive legislation or regulatory treatment, that must be chosen over longer-term research investment. Same for the mergers and acquisitions and offshoring which we know are so destructive and serve no purpose even from the “capitalist” point of view, but which can accomplish a short-term goosing of the stock price.
It’s clear that in reality capitalism always seeks oligopoly; that corporatism is the only viable form of oligopoly under the conditions of the Oil Age and now energy descent; and therefore that capitalism is synonymous with corporatism.
Economic theory is one thing. Actual practice is another. We are witnessing what is being said above in many ways right now. The corporations with successful oligopolies are quite content with what we have. They will only welcome changes (growth) that increases their profit. They will distribute propaganda that projects various myths about the role of government to protect themselves. These groupings of corporations are one reason for limits on growth that are systemic. Changing this is a goal that can only lead to a better situation if the changes are done in an intelligent manner with planning and ongoing monitoring to change course when the outcome conflicts with desired goals. As we make fun of republican obstruction it may pay to ask ourselves if they are really as dumb as we paint them. Clearly profits are high and their world is grinding along very securely. Meanwhile speeches from the Whitehouse seem to speak to a fictitious world.
The economy we have is locked into well established patterns of resource depletion, needless consumption, and deadly waste production. Clearly we do not want that economy to grow. We do not need growth we need change. We need to build a sustainable system and to create jobs for both the unemployed and those who now work in places that are doing us harm. If people are to live a decent life they need to earn wages to make that possible. Excess profits and needless consumption can be eliminated to make this happen. Manufacturing those things we need to last and in a form that is repairable is imperative. Growing food in sane ways locally whenever possible is also a part of such a transformation. Such measures would include green energy sources and life styles that cut back on energy and other resource consumption.
No, it is not possible to ask a sitting president to start such a revolution. Yet if you understand what is really needed the kind of theater we are given in our political world is not even close to satisfying. We need better weathermen to tell the people which way the wind is blowing. And we need them soon.