Close Close

Regulation and Compliance > Federal Regulation

Monopolies Don't Give Us Nice Things

Your article was successfully shared with the contacts you provided.

I missed the Democratic debate last 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 U.S. 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 U.S. in the past few years (see total labor 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. (You can hear Siegel discuss this in our Masters in Business radio podcast this coming weekend).

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 U.S. does in regulating industries to which it grants monopoly or oligopoly status. Consider the following chart:

Click to enlarge

It raises the question of why 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 U.S. 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 U.S. 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 pretty much name any intractable problem in the U.S. 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.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.