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Capitalism without real competition is simply oligarchy

February 20, 2013

I think Yglesias completely misses the crucial point in his recent post on the consolidation of the airline industry.  Noting that the era of competition beginning in the late 1970’s lowered fares for travelers but has led to heavy losses, he correctly observes that we are now witnessing an inevitable fallout from this bout of competition as the industry consolidates into just four firms that control a whopping 70% of the US market.

The problem is that Yglesias essentially accepts this development and ignores the fact that every industry in the world operates under the exact same oligopolistic principle; a principle diametrically opposed to the fundamental ideas of fair play that provide the very groundwork of public support for the system itself.  If profits are not to be won through wide and open competition but are to be managed instead through consolidated power, then the whole justification for the “market system” collapses.

The iron law of oligopoly harks back to the competitive frenzy at the end of the 19th century which demonstrated to everyone that unfettered competition among many price-taking businesses can only lead to depressed profits and deflation.  The result was the emergence of the large firm and a corresponding decline in the number of competitors within each industry.  What’s happened in the airline industry, then, is nothing other than a replay of the standard theme that “price wars” simply don’t work.  Industries must be controlled and competition strictly limited in order for there to be “reasonable” profit.  (The only exception, of course, is the “labor market” which must conform as precisely as possible to the textbook standards of open and free competition.)

Yglesias oddly sees the airlines as a bunch of saintly do-gooders for even competing at all, and that “travelers have been essentially reaping the benefits of corporate charity.”  Corporate charity?  I wonder on what basis profit is justified in Yglesias’s world if not through competition.  The only charity I see operating here is public acquiescence to oligopolistic power.

Yglesias asserts that “in the long run, airfares have to be high enough for the airline industry as a whole to turn a profit”.  Maybe this sounds reasonable.  But then again, why should anyone gain private profit if its sole basis comes from the elimination of competition?  This is clear antisocial behavior – “sabotage” per Veblen.

Yglesias concludes that “this deal is probably bad news for you, and the even worse news is there’s probably no better alternative. Get ready for higher prices and less service.”  But far beyond just the airline industry, the whole stinking system of oligopoly is bad news for you.  And there is a much better alternative to corporate profits through oligopolistically determined “higher prices and less service” – how about tight democratically oriented regulation over all oligopoly industries or outright public ownership and direction?

The essential point isn’t about any specific firm – it’s about the public utility of non-competitively determined profit.  Capitalism clearly can’t provide high profits with extensive real competition.  The proper democratic solution, though, isn’t remotely down the lines of allowing the powerful firms which control every industry to extract unearned profit through the sabotage of competition.  Capitalism without real competition is simply oligarchy.

From → Dynamics, Suppression

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