The Socialism vs Capitalism Debate
How Monopolies & Oligopolies are Hurting Competition and Capitalism
Last month, I published an article about how recently, polls have indicated that many in the younger generations are just as positive about socialism as they are about capitalism. More to the point, capitalism is ‘losing its luster’ in the views of our younger generations.
My article explored some possible root causes for this, with the challenge to all of us to begin engaging in this topic with others in different generations, to better understand their points of view, instead of complaining within our own generations about how illogical the other generations are.
One topic I listed as a possible cause was that some in the younger generations may have witnessed their parents or parent sacrifice a lot for their employer, only to have their jobs eliminated or lost due to cutbacks, lack of profit, cost escalation, mergers, etc.
I have just read a book (‘The Myth of Capitalism’ by Jonathan Tepper with Denise Hearn) that hypothesizes that a key root cause of ‘capitalism alienation’ is that there are many more monopolies (one company dominating in the industry) or oligopolies (2 or 3 large companies dominating the industry) today than in the past.
Examples of companies and industries that may be monopolies or oligopolies
Examples the author discusses include:
Google (search engines) Visa and Mastercard (credit cards)
Facebook (social media) Amazon and Walmart (retail),
DeBeers (diamond mining) Moody’s and Standard & Poor’s (rating agencies)
Anheuser-Busch (beer) UPS and FedEx (deliveries and shipping)
Local cable companies The U.S. airline industry
Hospital systems The concrete industry
Warehouse clubs Drug wholesalers
Drug store chains Mobile phone service
Airplane manufacturing Pension fund administrators
The book discusses that a core tenet of a successful capitalist system is competition. The author then demonstrates, via some very interesting statistics, that there is much less competition than just a few decades ago, and that this reduced level of competition creates many stresses upon our entire economic system and individuals.
What are the negative ramifications of reduced competition, if indeed, this is a real trend?
The author explains that with increased market power and reduced competition, dominant companies can more easily:
1 – Increase prices
This creates additional profits for the dominant companies, which can use those profits to keep out competition via acquisitions of competitors, invest in barriers to entry to keep out new entrants, or provide financial assistance to politicians who will possibly ‘turn a blind eye’ to monopolies or oligopolies forming in their industries.
2 – Manage labor costs
Since there are few if any competitors, workers are less mobile and less able to take their skills to competitor firms. As a result, worker power declines while employer power increases, creating a dampening effect on wages and benefits, potentially lowering the standard of living for many employees of those firms.
3 – Escalate executive compensation
With increasing profits, CEO’s and boards of publicly traded companies can logically explain increasing salaries and bonuses to executives who are leading their companies to increasing levels of success and shareholder value. Executive compensation increases have far exceeded the pay increases of the general labor force of these same companies. This can result in increasing income inequality, a topic often in the news today that frustrates many workers.
4 – Drive down supplier costs and supplier profits
As a powerful company in an industry, monopolist or duopolistic companies can mandate certain supplier behavior which benefits them as a customer, including demanding contracts, limited supplier cost increase opportunities, or agreements to ensure that the supplier continues to drive down costs year after year, increasing profits for the purchasing company.
Why the Increasing Monopolistic Trends?
So, let’s just assume for arguments sake, that competition is a declining phenomenon in our capitalist system. Why might this be the case? The answer must lie in the actions, or inactions, of the federal government.
In a capitalist system, it is natural that companies will try win versus the competition, via investing in new technology, creating better products at lower cost, creating barriers to entry for new competitors, increasing market share at the expense of competitors, etc. Why? The over-riding mission of publicly traded companies in a capitalist system is to create long-term shareholder (owner) value, and the keys to doing that are serving customers well, increasing market share and growing profits at the expense of competitors.
What happens when a company succeeds to an extreme (monopoly or oligopoly) and becomes the sole or leading player in an industry, to the point that they begin to increase prices significantly and to take advantage of customers and/or employees?
Government is supposed to step in and take actions to create competition in the interest of customers and the economy in general. They can achieve this by ‘breaking up’ companies and creating new competitors, fining companies that take anti-consumer actions such as price-fixing or collusion with competitors, and stopping competitor acquisitions or mergers that will result in less competition.
Why would the government stop, or limit, playing this key role in our capitalist system?
For the government to perform its responsibility related to reversing monopolistic trends, it must remain neutral, that is, unattached to businesses in any significant way. This can be difficult given the influence, reputation, and financial assets of very large companies which have been successful. Lobbying is legal, campaign contributions (within limits) are legal, and clearly our government needs to have discussions with businesses to understand trends and competitiveness issues, so relationships do develop between businesses and antitrust leaders. However, when our government officials get too close to the interests of businesses, and too far away to the impacts on consumers, it is all-too-easy for the government to stand on the sideline and let businesses do as they wish related to competition.
I do not want to throw stones at any company accused of having too much industry power, because every company story, and industry story, is complex and different. However, I will discuss how one industry that is commonly viewed as having oligopoly power is linked to a recent news story.
The Keystone Pipeline in the News
Our new president just cancelled the permit for the Keystone Phase IV Pipeline, a project that has been underway for many years. The permit was first cancelled under the Obama administration, then the Trump administration approved it in 2017. The goal of the pipeline was to safely and ecologically deliver oil from the tar sands of Alberta, Canada, to the Texas coast (and other targets areas in the U.S.) to be refined, further increasing U.S. energy independence and reducing oil and gasoline costs for consumers.
Why would our new president kill this project and the estimated 10,000+ jobs that go with it, along with the benefits of the pipeline? The main reasoning shared by the press, and the new administration, is the impact on the environment. Some environmentalists claim that the disruption to nature in running new pipeline is a significant negative, and there can be, longer term, some minor spills that occur from aging pipeline infrastructure.
But consider this: the alternative to get this oil to Texas refineries and other locations is to transport it by rail. Most experts agree that well-built pipelines are safer than railcars, in that spill accidents are fewer, and pipelines are safer for the environment. In addition, railroads burn fossil fuels (diesel fuel) to power the trains. So, President Biden’s decision is going to kill a pipeline infrastructure and, in its place, burn more fossil fuels (locomotive engines) to deliver more fossil fuels to the refineries, all the while increasing ecological risk of spills and accidents.
So, it would seem that this is simply an issue of debating environmental concerns versus the efficiency and energy-independence benefits of the pipeline.
But if pipelines are such a risk to the environment, why do we allow just about all communities and cities to run underground water supply lines, gas lines, underground sewage systems, cable systems, and underground electrical supply? Aren’t these all different forms of ‘pipelines’ that once completed, provide years and decades of benefits?
Any ‘pipeline’ should be considered as an investment in infrastructure, to streamline deliveries of commodities to customers. They reduce energy consumption, increase reliability, reduce risk of spills and accidents, and reduce costs for consumers. Are there disruptions and messes while the infrastructure is being put in place? Of course, but afterwards, things get back to normal.
How does all of this relate to government inaction to stop monopolistic industries? Well, there is one more factor that could be playing a role in the decision.
Warren Buffet leads Berkshire Hathaway, and he is worth about $75B per reports. According to Influence Watch (https://www.influencewatch.org/person/warren-buffett/) he served on Barack Obama’s transition team, and donated $25,000 to Hillary Clinton. He has donated hundreds of millions of dollars in stock value to the Democracy Alliance as well as the Bill and Melinda Gates Foundation. He clearly is a supporter of the democratic party.
Berkshire Hathaway owns Burlington Northern Santa Fe (BNSF), one of the largest rail systems in the country. Most would agree that the rail industry is a duopoly (two dominant players) led by BNSF and Union Pacific. BNSF holds over 50% market share in the U.S.
Subsidiaries of Berkshire Hathaway also make significant political contributions to liberal organizations and campaigns.
OK, this is all fine, there is nothing illegal about this, except that the Keystone Pipeline cancellation does not smell right, given who benefits from this. All that oil will need to be transported to the same refineries, and rail is the only option. BNSF will benefit by huge increases in revenues and profits from this decision, since geographically, it ‘owns’ certain territories that it serves within the U.S.
Again, I have no inside information about this, but the fact that the leading rail company ownership has donated significant sums to the party currently in power, and that our federal government has allowed our railroads to consolidate to the point of an oligopoly situation, creates bad will when certain government decisions are made that benefit one or more rail industry leaders.
To me, this decision does not make sense when you only compare the tradeoffs of environmental vs. pipeline benefits, so you begin to wonder what else is at play.
This is just one of hundreds of examples of the negative implications of large company contributions to political causes. In many cases, these contributions can have the effect, or at least temptation, of swaying our politicians from doing their job to increase industry competition and to break-up monopolies.
Perhaps this book (The Myth of Capitalism) is hitting a key point that could be a contributor to how the younger generations feel about socialism and capitalism. The increase in monopolies and oligopolies could be contributing to a widening income gap, excessive compensation for company owners, executives and board members, lower wages and total compensation for the workforce, and increasing frustration of our younger generations when they see that financially successful companies can have an influence over specific outcomes, and individuals have little or no control. In addition, concentrated power within industries can have other negative effects that younger generations can feel every day. Just watch the news for a day and listen to the debates about social media and how concentrated power is affecting rights of free speech.
What Actions Can We Take to Reverse This?
Our government representatives need to hear from us about our views of their role to stop monopolies or oligopolies, and to hear from us that we are not going to tolerate their inaction. The government needs to better scrutinize acquisitions that move industries to less competition, and to take the lead to explore options to break apart companies that are too large and too dominant in their industries. They also need to take a fresh look at allowable party or candidate contributions, and shrink these amounts considerably.
I will continue to explore and discuss this current issue of socialism versus capitalism, and continue to research various causes for changes in views of our citizens.
Either way, I would recommend a quick read of this book, and to continue your learning and investigation of what is going on. Engage with other generations about this and see what you can find out! Stay tuned……
Parts of this article were excerpted from several chapters in my new book “Changing Collars: Lessons in Transitioning from Blue-Collar Roots to White-Collar Success”.
Daniel Muller is a business executive, expert on white-collar culture and soft skills, and author. To learn more, to contact him, to purchase the book, or to sign-up to his subscriber list, visit his website.
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This best-selling book has hit #1 on his publisher's website in non-fiction. He has spoken to corporations, professional groups, students and clubs about this and other business topics, and is available for podcasts, team or individual consultations, seminars, and speaking engagements, including corporate training programs.