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Updated 18 Oct, 2015 12:03pm

Why monopolies don’t give nice things

NEW YORK: I missed the Democratic debate on Tuesday evening, occupied as I was with listening to classic rock from the 1970s. What would have interested me in that debate was the discussion of the proper role of regulation in modern capitalism.

The US doesn’t seem to engage in the topic like one might expect in a mature, developed economy. There is little intelligent discussion about the costs of too much regulation on the one hand, and the excesses of capitalism on the other. That is a shame, because both sides of those issues create real economic frictions with substantial societal costs.

Consider the slowdown in productivity in the US in the past few years (see total labour productivity, via Federal Reserve Bank of St. Louis). Wharton School professor Jeremy Siegel has wondered if regulation isn’t a major reason behind the decline. I suspect that’s one of many factors, although much of it might be accounted for by measurement flaws.

I will defer the issue of saving capitalism from itself to some future column. But a related issue I would like to address is how poor a job the US does in regulating industries to which it grants monopoly or oligopoly status.

Why have prices for every major tech product and service have fallen, except cable and satellite television? The answer comes to us from Economics 101: it is a function of competition, of which there is very little in that industry.

Add to that the cost in time and energy of switching providers; it’s so aggravating to drop Comcast as your cable provider that a new service will spare you the pain and charge $5 to do it for you.

As a nation we do a very poor job of managing competition and adopting the needed standards to improve market efficiency. Television services are just one example. Consider how inadequate mobile-phone service is in the US versus Europe and much of Asia.

Instead of assuming competition would create better coverage and connectivity, those regions mandated a minimum level of quality in exchange for leasing public airwaves.

The same is true for Internet service: it’s much more reliable, faster and cheaper overseas. Because we don’t fully grasp the limits of competition and the profit motive, we end up with inferior services in technologies that the US invented.

It seems impossible, however, to have a serious conversation about this as long as rich companies buy off elected officials who grant special tax breaks, dispensations and exemptions. You can name pretty much any intractable problem in the US and you can trace it back to the money corrupting the political process.

Competition is a wonderful thing, making most of today’s products and services better and cheaper. But where there are monopolies, especially those that entail use of public resources, minimum standards are needed.

The alternative is what we have: Expensive, slow Internet connections, costly cable TV with unresponsive customer service and perhaps the world’s worst mobile-phone networks.

There’s no reason we should be satisfied with any of it.

By arrangement with Bloomberg

Published in Dawn, October 18th , 2015

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