Monthly Archives: January 2011

The present state of global economies

Free trade is postulated on an absurdity, namely that the world will no longer see wars which will significantly disrupt trade, or at least the trade of the First World. It is a fool’s paradise.

 Those with memories greater than that of a goldfish may recall the help and support Britain received from her supposed EU “partners” in the Falklands. Remember how  France supplied military equipment in the form of missiles to the Argentine during that war. Imagine what would have happened if Britain at the time had relied largely on equipment which was either wholly or partly produced abroad. Suppose, for example,  her  main fighter aircraft had been produced by an EU consortium (as it soon will be), what guarantee could Britain have had of fresh supplies of spare parts and weapons during the Falklands war?

 The dependence on foreign suppliers affects even the greatest states. The New York Times (29 Sept 2005 – “More US weapons have foreign roots”) documents the reliance of the US military on foreign suppliers. This is still small as a percentage of the whole defence budget but it is growing and already encompasses important areas such as bio-chemical warfare protective suits. 

The reality is that what we have does not even fall within the  arbitrary and narrow definitions of “free markets” and “free trade” which most of the developed world’s  elites  espouse under the banner of globalism.   States still protect their economies with state subsidies, favourable tax regimes, quotas and tariffs. Nonetheless, protectionist barriers have been reduced sufficiently to severely damage first world industries through products from the developing world with their absence of labour laws and wages many times less than those of developed economies.

 First World economies have also exported vast numbers of jobs to the developing world. These range from manufacturing to skilled white collar work such many IT functions. The old middle-class belief that they were immune from the effects of globalisation has received a rude buffeting.

At the same time as jobs and industries  have been exported, the industrialised world has increasingly allowed the purchase of native companies by foreigners. Perhaps the most dramatic example of this has been the complete transfer of London merchant banks to foreign ownership.

The fourth strand in the modern “free trade” web is immigration. Since 1945, with the exception of Japan,  the First World  has allowed through a mixture of design and neglect of border controls, vast numbers of immigrants into their territories,  most of whom have been unskilled or low-skilled.

The primary consequences of the slowly evolving post war international economic regime have been two. The first has been the gradual  growth of dependence on the imports of vital goods and services by the developed world and a loss of governmental control of companies within their borders, not least because any large multi-national can hold the threat of upping sticks to another country if a government does not play ball.

The second consequence has been the degradation of the economic circumstances of those whose jobs were most at threat from the internationalisation of trade.  Those effected are mainly the poorer and less qualified workers and their dependents. They have found their opportunities for work much reduced and the pay and conditions for the suitable work which remains eroded by extra competition from both native  workers chasing fewer jobs and immigrants competing for the same jobs.

Those whose jobs opportunities have been degraded have suffered a form of theft. Had mass immigration and the export of jobs been prevented, the wages  for the jobs taken by immigrants would have been higher than they are when subjected to the additional competition of immigrant labour and the exported jobs would not have been exported, which in itself would have tightened the labour market. In societies of rising aspiration, this could result in jobs considered menial being  better rewarded than those which enjoy high status under  “free trade” circumstances. It might be necessary to pay a sewage worker as much as a doctor. Doubtless many would throw their hands up at this. But there is no logic to such a response, because in a society with a large private enterprise component a wage is simply a response to the value the market puts on a job. Unskilled workers may not earn as much as the average  doctor or lawyer at present, but skilled tradesmen such as plumbers and builders often do.

Waking up to the threat of the Second World

The Second World: Empires and Influence in the New Global Order: How Emerging Powers Are Redefining Global Competition in the Twenty-first Century

 by Parag Khanna

Publisher: Penguin
Published: 30 April 2009

I would urge everyone who wants to get a grip on exactly what the rapidly developing nations and especially the Chinese are up to read this book.

Khanna writes from a liberal internationalist viewpoint in one sense – for him the EU is the light to follow  as the world hardens into three empires, the American, the EU and the Chinese – but in another sense he is not because he is far from being a hardline laissez faire follower. 

The scope and ambition of China is truly breathtaking. Most will have probably heard of their forays into Africa and their attempts to buy strategic first world assets such as Rio Tinto Zinc and a decent lump of the major US port system, but that is just the tip of the iceberg. They have built a ring of client states around them from Burma to North Korea who are to All intents and purposes as much part of China as is  Tibet.  Their influence extends throughout all of South and central Asia and across to Latin America. Only the developed world is still largely untouched by their policy of giving massive amounts of Aid to get them into a country and then using that country for their own purposes. 

They are being immensely clever. Aid is giving without strings, unlike that doled out by the West. It is on a truly gigantic scale. They build infrastructure in Third and Second world countries for free but this infrastructure is very often to promote their own direct purposes such as transporting materials and manufactured goods. The deal is, we will give you money and material help and you will give us food and materials and allow our cheap manufactures to come into your markets. No moralising, just and exchange of goods and services. Resource wars may become a defining feature of the century. In particular, Khanna  identifies the  potential for serious warfare in the medium term between Russia and China as the Asian provinces of Russia are denuded of Russians and Chinese immigrants take their place.

Interestingly, as the extract from the book I reproduce below shows, Khanna rates the Chinese development and potential  vastly beyond that of India, despite the latter having the “correct” political system and China the “incorrect” one from the Western point of view.  I foresee a re-run of the Fascist-Liberal democracy argument in the 1920s and 1930s over which is the more efficient system and whether the First World can afford what we now call democracy (in reality elective oligarchy). 

But the book is about far more than China and India. It paints a vivid picture of of the potential of Asia and Latin America and the potential  threat this presents for the currently developed world. The time of laissez faire is almost done as governments in the developed world suddenly wake up to what is happening among the five sixths of the world which do not live in the First World.  Their  elites still instinctively think in protectionist terms. The elites of the developed world will have to begin to  do the same if the nations of the developed world are not to be overwhelmed by the sheer numbers and growing material strength of the developing world.

The Second World 
Parag  Khanna’s 

CHINA’S FIRST-WORLD SEDUCTION pp275 -277 
INDIA LOOKS EAST 
The devastating 2004 tsunami, which centered on Indonesian Sumatra and swelled over islands and coasts from India to Somalia, reinforced the 
reality of a seamless oceanic space in the world’s Eastern Hemisphere. As lunar gravity dictates the tides, however; the Indian 
Ocean increasingly serves as the western bay of a greater Pacific space centered on East Asia. Its western shores—Africa, Arabia, and 
Iran—increasingly send their natural resources eastward, even as the area provides investment and export markets for booming Asia. The 
majority of the world’s shipping now traverses this integrated Indo-Pacific realm, making all of South Asia the third-world western 
subsystem of the China-centered Asian order. Over 50 percent of India’s trade is with East Asia, while Japan, South Korea, and 
Singapore are its largest foreign investors. 
Under the British Raj, India was the most powerful territory between the Suez Canal and the Straits of Malacca, but its influence in the Arab world and Central Asia also ended with the Raj. Hemmed in by the world’s highest mountain range and a vast ocean, power projection (even with nuclear weapons) is highly circumscribed for India’s modest army and navy. The United States explicitly seeks to sponsor India’s rise as “the first large, economically powerful, culturally vibrant, multiethnic, multireligious democracy outside of the geographic West”—not to mention as a hedge against China. But India has transitioned from its Cold War nonalignment to multi-alignment. It declares itself and the United States to be the “twin towers of democracy” while announcing with China plans to “reshape world order. ‘ To lure India, America has offered high-tech investment, civilian nuclear technology, defense agreements such as joint F-18   production, and more visas for immigrants. China has emphasized their common positions in trade negotiations, joint oil exploration, commercial corridors through the Himalayas, $20 billion in annual trade, 
and a civilian nuclear deal as well. Indian IT firms must import hardware from China to produce their software; that the largest outsourcing operations in China are Indian-owned shows its growing integration with China. 
But China’s soft cooperation with India has facilitated its grand strategic goal of encircling and containing it through a naval “string of pearls” in order to reach the Arabian Sea without relying on the Straits of Malacca. Once part of colonial India, Burma is now entrenched in China’s orbit, with India’s proposed east-west gas pipelines 
dropped in favor of north-south pipelines to China. Where India has built a fence to prevent Bangladeshi migration, China has built a modern Bangladesh- China Friendship Conference Center in Dhaka. While India threatens to divert the Brahmaputra River (on which Bangladesh depends) into the Ganges, China has muscled in, since it is the source country of  the Brahmaputra. Against Indian wishes, China has become an observer in the South Asian Association for Regional Cooperation (SAARC), while Indian influence in the evolving East Asian Community is marginal. 

“Nobody in the region really cares what India   thinks,” confided a Malaysian diplomat involved with regional diplomacy. India is big but not yet important. Outsourcing has made it a  leading back office for Western firms, but except for a few segregated twenty-first-century oases of development, India is almost completely third-world, most of its billion-plus people living in poverty. In Mumbai (once known as Bombay), which accounts for over one-third of the national economy, some residents pay among the world’s highest rents while the city’s slums of over ten million inhabitants are also the world’s largest. Clogged Indian cities still have three-way streets: 
Two directions for automobiles, with pedestrians and stray cattle  meandering in between. India’s bonanza of IPOs, impressive corporate profits, and billionaires galore show the dynamic potential of its private sector, but its growth will remain spectacularly uneven until the government catches up—perhaps over the next two decades—with its promises of infrastructure development. India’s continued high   population growth ensures that even with high economic growth it will remain the poorest large country in the world for decades to come. 

Though agriculture constitutes only 30 percent of the economy, seven hundred million people depend on seasonal monsoons and harvests—yet India’s groundwater is depleting rapidly. Unable to pay their debts, many farmers have committed suicide, while indentured servitude continues in many backward areas. Most of India’s population growth is occurring in the northern states, which have the weakest infrastructure, the worst governance, the poorest education, and the highest rate of 
HIV/AIDS infection, all while also being the epicenter of a resurgence of the polio epidemic. 
China has order and may one day have democracy. India has democracy but achieves less because it is chaotic. The link between trade and development that China exemplifies is almost absent in India. Relative to its geographical and population size, India’s government is almost invisibly weak, with a federal budget the size of Norway’s. Unlike China, unified India is a British creation, and its unity often appears more geographical than psychological; it is a cramped peninsula where 
Tamils and Assamese have nowhere else to go—yet still they try. It could also be argued that China is a freer country than democratic India: Literacy is far higher, the poverty rate far lower. Also, it takes longer to start a business in India, one-third as many Indians have Internet access, and only one-fifth as many have cell phones. 
India’s democracy may never have experienced a famine, but over half of India’s children are malnourished. Because most Indians lack economic freedom, other freedoms are that much more difficult to enjoy. 

The difference between India and China is thus not just the time lag between the advents of their current economic reform eras but also a fundamental matter of national organizational ability. Even if India rises, it will be according to Chinese rules.

“Free markets”, “free trade” and the emasculation of democratic control

 “I just think that a lot of modern corporate capitalists — the managerial class basically — has no loyalty to any country anymore, or any particular values other than the bottom line.” (Pat Buchanan quoted by Daniel Brandt in his article “Class Warfare” in issue 13 of Namebase Newsline -http//www.namebase.org/news13.html).

Buchanan is grasping a demon which he only dimly apprehends. What is happening is vastly more significant. We are presently witnessing the creation of an international class of plutocrats who care for nothing but their own class and self-interest.  They have the potential to form a true international aristocracy. If that happens, the imperfect democratic control the masses have been able to exert over their elites in the past century will end. The prime tool for the creation of such an international aristocracy is “free trade”.

There are parts of Western elites which are more or less reluctant to embrace “free markets” and “free trade”, but the general economic trend is clear: the internationalist, globalist creed is the dominant philosophy when it comes to trade and increasingly the idea of “free markets” in the domestic sphere is being accepted in practice if not in overt political policy.

Why have these elites moved from their previous socially oriented nationalism to internationalism?  The answer to this question reveals the nature  both of elites generally and the particular philosophy they currently support.

In most circumstances throughout history the wishes of the mass of a population have been of little or no account in any formal  sense. The masses made their presence felt through rioting and social disturbance or as pawns in the service of elite members who wished to rebel. An elite took note only when they were frightened enough – the creation of a form of national public assistance by the Poor Law of 1601 is a classic example of such behaviour.

Eventually, representative government evolved to the point where the masses began to have a direct say in the political process through the vote. The elite as a group did not welcome this but felt it could not be resisted. It was not democracy to be sure but elective oligarchy, which was buttressed by elite constructed devices  to exclude new entrants into the political process such as first past the post voting, election deposits and a very strong party system. Nonetheless, once the franchise was broadened the masses were able to exercise a large degree of democratic control because politics was still national and a political party had to respond to the electors’ wishes. The elite resented this control over their behaviour as all elites do and looked around for a way to diminish democratic influence. They found the means to do it through internationalism.

In a sovereign country elected politicians cannot readily say this or that cannot be done if it is practical to do whatever it is.  That is a considerable block on elite misbehaviour. So elites decided that the way round this unfortunate fact was to commit to treaties which would remove the opportunity for the electorate to exercise control. The most notable example is the Treaty of Rome and the subsequent treaties which have tied Britain into the EU.

Vast swathes of policy are no longer within the control of the British Parliament because of these treaties. Add in the treaties tying Britain to the UN and the WTO and the commitment of every mainstream British party to them, and democratic control has essentially gone.

 To the anti-democratic  consequences of  Treaty obligations such as those tying  Britain to the UK are added those of more open international markets. “Free trade”   damages democracy by confining economic policy within narrow limits. The present “free trade” agreements mean that no political party can easily stand on a platform of extending  state intervention, whether by nationalisation, trade restrictions such as embargoes or the subsidy of its own industries.  A party which wished to do any of these things could of course propose to withdraw from the treaties, but that would be in practice a very difficult course to follow, especially where the treaty obligations go beyond mere trade such as those involved in membership of the European Union. 

Loss of democratic control is obviously to the disadvantage of the masses. However, it also has implications for competition.  The prevention of the formation of monopolies and cartels can be done at the national level, but it is impossible when companies become supranational. You offend against America’s anti-trust laws?  No problem, you remove your manufacturing abroad to countries which are happy to have you (or at least their clients are) regardless of what arrangements you may have made with competitors or the any monopoly position.

But internationalism is not simply a bureaucratic  elite device to weaken democratic control, it is a sociological event in itself.  An elite thinks of itself as a separate group, a group which may in some circumstances  extend beyond national boundaries and jurisdictions. The medieval aristocracies of Western Europe thought themselves part of a chivalric whole.  When Charles I of England was executed in 1649 the monarchs of Europe were horrified because they thought it would set an example for other royal killings.

The ruling elites in the First World today have a class interest which binds them more closely to one another than to the people they rule. Indeed, there  is arguably a greater sense of international elite solidarity than ever before.  This is because modern communications allow people, goods and ideas to move with an unmatched ease. Because of this the international class can constantly revitalise and  extend their group solidarity.

The advantage to the elites of this culturally based  international solidarity underwritten by many personal elite relationships across national boundaries,  is that it allows them to weaken even further their dependence upon their immediate (native) populations, because not only does a particular national elite have a ready made excuse for not doing something – our treaty obligations will not permit it – but the personal relationships and the growing sense of class solidarity increases the confidence and hence the willingness of the various national elites to act ever more in the international elite class interest. Indeed, the more they are together and the more they act together, the more natural it will seem.

 It is important to understand that elites are not engaged as a group in a conscious conspiracy against the masses. What happens is that the psychological and sociological forces which press upon us all lead the  elite to adopt policies which always lead to their retention of power. It is not difficult to see how this happens.

All human beings have a powerful ability to write a narrative in their heads which will persuade them that they act not from self-serving or disreputable reasons but honourable and socially useful ones.  The consequence of this is that while individual members of an elite will consciously comprehend  the likely effect of their ideology,  the majority will simply accept their ideology at face value. This helps to bolster and stabilise the elite’s position because no elite ideology ever overtly states that the masses will be disadvantaged if the ideology is followed, and in the case of formal democracies, the ideology positively claims to materially better society as a whole. This will emotionally reassure most elite members, who will bolster their acceptance of the ideology through inter-elite conversations – if most or  all those in a group are positive about something,  that is most powerful social reinforcer.

 The best way of judging any political ideology is to ask cui bono? (who benefits?) The obvious answer in the case of “free markets” and “free trade”  are those who believe (with good reason) that they nor their dependants will never be amongst those who will suffer the ill-effects of free trade. These people are and will continue to be overwhelmingly drawn from the middle and upper classes for the same reasons that such classes have always maintained their superiority, namely that such people will have inherited wealth, social connections and  superior opportunities for education which are denied to the majority.

 The new international elite is neither left nor right. Its ideology is simply designed to promote the interests of the elite. It has aspects of right and left, but they are merely the policies which allow the elite to both disguise their true intention and to give a pseudo-moral  camouflage  to their ends.  They speak  of  the internationalist  equivalent of “motherhood and apple pie”  with exhortations to “end world poverty” and fund a  “war on disease worldwide”. If I had to find a term to describe this elite I think I would settle for neo-Fascist because so much of what is proposed is reminiscent of fascism. 

It is also telling that Western businessmen who ostensibly support the idea of the positive effects of competition arising from “free markets” and “free trade”  never want it for themselves. They always happily grab  a state subsidy or an embargo if it is to their advantage. None of the US airlines had any hesitation in grabbing billions of dollars from the Federal government after 911. Large companies  publicly complain of government regulation while secretly welcoming it because they  can bear the cost of it more easily than their smaller competitors. Multinationals shamelessly play one country off against another in their search for massive subsidies and other favours before they deign to operate in a country. 

Countries play the same game, cheating wherever they can. And the more powerful the state the greater the cheating, both in terms of helping particular industries with direct state aid and in the formulation of the treaties governing world trade. Hence, the USA presents itself as the ultimate champion of free enterprise whilst being both now and throughout its history one of the greatest of protectionists and state subsidisers of its industries – that it is  seen widely as an enterprise society is one of the great propaganda triumphs of history. Its behaviour after 911 is symptomatic of the unequal nature of modern “free trade”.

The US not only handed billions to its ailing private airlines, but put up protective tariffs to protect its steel produces. It has been ever thus. The two greatest names of the early Industrial Revolution, Josiah Wedgewood and Matthew Boulton, were  happy to climb on the Enlightenment bandwagon with its beliefs in the universality of Mankind  and advocate lesser tariffs and freer trade – until the proposed freeing threatened their own businesses.  What goes for businessmen goes for the individual worker. Who has ever met someone whose job was threatened by “free trade” speaking in favour of it?

 Abe Lincoln’s  used to put this question to pro-slavers who said slavery was a boon for the slave because they were provided for and were free of normal responsibilities: “What is this good thing that no one wants for himself?”  An equivalent question should be put to the “free traders”. 

The truth is simple: “free markets” and “free trade” are simply part of an elite ideology and like all elite ideologies they serve the purposes of the elite first, second and last. Those not of the elite who espouse it act merely as useful idiots to promote the interests of the elite.

Opposition to globalisation should not be a Left or Right issue.  The socialist and the Conservative should both resist it because it removes the ability of the electorate to control those with power and  the power of their political movements to realise their ends.

Relative poverty, wealth and power

Even if  most people or even all people were in absolute terms better off as a consequence “free trade”,  that does not mean that their general situation has improved in power terms.

Wealth is not merely an advantage for what it can directly buy but also for the power it brings. The poor are doubly disadvantaged by their poverty by their restricted ability to purchase what they want  and their subordination to those who can purchase anything they desire. Consequently, the ordinary man or woman may well be happier and freer in a society which is materially poorer overall but which is less oppressive through the absence of great differences in wealth. Charles Darwin in the Voyage of the Beagle describes a port in South America which suffered an earthquake while the Beagle was there in harbour. The town attached to the port was virtually destroyed and its inhabitants  were reduced at least temporarily to the same material level. Darwin noted the happiness, almost gaiety, of the population after this happened.

The example of Britain is instructive when it comes to relative wealth. Until the 1970s inequalities in wealth were narrowing. Despite all the puffing of the “trickle down” of wealth which supposedly results from Thatcherite “free market” practices, wealth  distribution has not changed dramatically over the past quarter century of “free market” policies by successive British governments.

A Royal Commission (1976-79) on the distribution of income and wealth found that in 1976 the top 1 per cent of the population owned 25% of all personal wealth, the top ten percent raked in 60% and the bottom eighty per cent  had a measly 23% (Penguin Dictionary of Sociologyp72). The Inland Revenue figures for wealth distribution in 2002are show  the top 1 per cent own 23% of national  wealth  and the bottom fifty per cent of the population have a staggeringly small 6% (Office of  National Statistics (ONS) website –  published 2004). Those figures,  eye-opening as they are, conceal the fact that wealth inequality in 2002 would be much greater than 1976 were it not for the increase in home ownership and the rise in house prices.

Another ONS report (2005) entitled “The long shadow of childhood” (TLSOC) based on research by the London School of Economics  concludes that there has been remarkably little change in social mobility in Britain over the past 30 years. The study was based on census records between 1971 and 2001.  TLSOC also demonstrated how the social and economic status of children is very much tied to that of the parents. For example, more than two thirds of those with parents in professional or  managerial jobs managed to take a degree: of those with  semi-skilled/unskilled parents, 14 per cent had a degree.

Thinbgs have not improved since 2005 and may have got worse. An Organisation for Economic Co-operation and Development  report in  2010 found that  amongst industrialised nations Britain  had greater wealth inequality and  less social mobility than all but all but a few nations. For example,  ‘The researchers found that in Britain people whose fathers have a university degree earn on average 62% more than the children of men whose education ended at upper-secondary level. In Europe, only in Portugal is that gap wider.

While there was little difference between the qualifications of the children of graduates and non-graduates, this did not translate into higher wages.

“Britain does not fit the normal analysis here. It is about average in terms of educational social mobility. People can attain a tertiary education but it is doing a lot worse in terms of wage mobility,” Duval said. “What you see is a gap between education mobility and wage mobility.”

Many experts said the findings showed that Britain was still a stratified society, in which different classes are brought up to follow different rules about how to think, talk and behave.

“I think there are two lessons here. One is the extent of hoarding of opportunities by the middle classes in Britain. These kick away the ladder for the poor,” said Richard Reeves of the thinktank Demos. “The other is that we have to begin to measure the so-called soft skills of networking and communications … I think we have to understand why the middle classes put so much time and effort to teach their kids how to speak properly and look someone in the eye when they shake their hand. They know it’s worth something.”‘ http://www.guardian.co.uk/society/2010/feb/11/britain-earnings-mobility-oecd

Man does not live by bread alone 

Even if the “free traders'” claims of an overall increase in the wealth of a society were true, there would still be strong arguments against the policy because a society is more than its crude economic relationships.

Human beings do not like too much uncertainty. A certain amount of stress is good for them, but only so much. Like masochists and physical pain, human beings are comfortable with stress only in so far as they feel it is within their control. Manifestly, for many people the uncertainty they experience is utterly outside their control. This widespread insecurity  leads not merely to individual suffering but damages the social fabric by generally diminishing  confidence in the future and the ability to cope in the here and now.

 A 2005 study (Molly Watson Western Mail 31 9 2005) by a Cardiff University Department of Psychology team led by Prof Aylward Mansel suggests  that the general level of happiness in the Depression  was greater than it is now (the team analysed  data  from surveys of assessing happiness and contentment from the past 70 years.)  This conclusion might seem absurd to most people living today who, if they have any conception of the Depression, it is one of a dire time packed with the most horrendous stress. Yet the findings of the report have a certain plausibility because in the 1930s there was undoubtedly a greater sense of social solidarity,  especially amongst the working class, than there is now and civil society was far stronger then – the working class not only lived in close-knit communities which offered  support to those who fell on hard times, but they were woven into supportive institutions such as the co-operative movement and  unions. They were anything but socially isolated whereas today  people are often isolated. Social involvement, the Cardiff University study found, was the single most important cause of happiness or unhappiness. One must be cautious with such studies because  however scrupulous the researchers a degree of subjectivity is inevitable. Nonetheless the equation of isolation with unhappiness will, I think, strike a strong chord with most.

There is also the question of a people’s self-confidence. If a nation’s visible and everyday manufactures are predominantly foreign, it tends to produce a sense of dependence in the individual. A man looks around and can find next to nothing he can identify as produced either in his own country or made by companies owned by his countrymen. Not unnaturally he begins to lose confidence in the ability of his own country to stand alone. Peoples throughout history have allowed themselves to be conquered simply because they believed themselves to be generally inferior to those who confronted them and slaves have been routinely controlled by owners who deliberately attempted to reinforce their sense of inferiority.

The logical end of a free market is monopoly

The logical end of a truly  free market, that is, a market without any state interference,  is monopoly .The reason is obvious:  competition tends to reduce the number of competitors through the natural process of success and failure and the takeover of one firm by another.  In some trades this does not create an obvious  serious anti-competitive difficulty because the initial capital investment is small and entry to the trade within the reach of many. But entry to a considerable and growing number of areas of manufacturing and service provision is too expensive for all but a few. 

In a significant minority of trades starting a business from scratch is practically impossible for any one individual or even a group of private investors.  The car industry is a first rate example, the number of companies now being small (and becoming smaller) compared with the number of even 40 years ago. Moreover, many of the car companies which do still exist do so only because of state subsidy and protection.

Because the natural end of a truly free market is monopoly the self-proclaimed laissez faire believers have introduced the most potent of state interferences into the market, namely, anti-monopoly laws. However,  anti-monopoly laws operate within the constraints of other laissez faire sanctioned interferences with the market such as patent rights and limited liability and widely differing national taxation and social welfare schemes.  In addition, anti-monopoly legislation generally  only effectively attacks the problem from one end. A company can  be prevented from growing its market share by taking over other companies but there is normally no meaningful restriction on a company growing its market share simply by expanding the existing company.  Microsoft and the domination of Windows is a classic example.  Those limitations  alone means anti-monopoly laws  are  limited in what they can achieve  and situations of oligopoly if not monopoly commonly arise.

But even where expansion is by takeover or merger,   experience shows that those charged with applying the legislation allow very large parts of a market – 25% or more – to be held by a single company. The consequence is that a market which would seem to be an obvious candidate for competition, for example, food and domestic supplies retailing, can easily  come to be dominated by three or four  major players (as is the case in Britain).

 There are also those products which are either natural monopolies because of the physical location of their infrastructure – railways, roads, the utilities such as gas – or which are inevitably going to have few entrants in the field because of reasons of cost, for example, aerospace, motor cars, ship building. Finally, there are those rare markets which are dominated by one company simply because of the nature of their business. The classic example of this is Microsoft and their Windows operating system.

The upshot of anti-monopoly laws,  state-granted privileges such as patents and the failure of anti-monopoly laws in practice is an economic ideology which is incoherent and a practical situation of markets which are neither free in the sense of being without state control or free in the sense that there is meaningful competition.  

 Microsoft and Windows – a natural monopoly

 In South Park: The Movie, there is a glorious scene where, under martial law, Bill Gates is executed for falsely promising that Windows 98 would be “faster,  easier to use and more reliable”.  Many long-suffering Windows users doubtless wish that life had imitated art in that instance.  Yet despite widespread dissatisfaction  Windows remains the overwhelming dominant operating system.

 At first glance it might seem that operating systems should be just the type of product which is open to fierce competition because software is a market which potentially has low entry costs. It is true that most areas of programming are competitive – within the constraint of the dominant operating system (OS) –  but operating systems are the odd man out. The reason is simple. Once a single OS gained dominance, the chances of any other system effectively competing were very small.  This is because the weight of programs available to run under the dominant OS soon became much greater than those which could be run under any other OS.  Thus, it becomes inefficient to choose any other OS.  That in turn means most of the software is written in a way to make in “friendly” to the dominant OS systems’ users. This further excludes OS competitors and the software to run under them because users, especially employers, do not want to spend the time training their employees on completely new systems, converting data etc.

The consequence is that Microsoft still has a stranglehold on the pc market.  Moreover, if anyone wants to write any other software, they are constrained by the practical need for it to run under the Microsoft OS if they wish to reach the mass computer user market.

 The near monopoly has lasted a long time.  It has done this despite considerable attempts by both rivals and the US government to diminish their market position. Windows’ dominance  looks secure for the foreseeable future.

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