Breaking up Monopolies

In a comment to a recent post on monopolies, Viveka wrote, “I will cheer the day a Google or Amazon is broken up into a bunch companies. That day is not far off.”

As the old witticism goes, be careful what you wish for because you may get it. Don’t assume that the breaking up of very large corporations because they have market dominance is necessarily a  good thing. Large corporations are large for reasons that we may not appreciate — especially if we think like engineers. Engineering is a fine and necessary profession, and engineers have enriched the world in countless ways. But it has its limitations.

Thinking like an engineer works wonders in designing and inventing machines. Thanks to engineers and inventors, we have washing machines, commercial jetliners and smartphones. Those have to be engineered from inanimate matter. But engineering of society is a different matter altogether. Society is not a machine that is amenable to design and engineering.

The problem is that society is composed of people, and people are not just animate but they also have their own will and volition. The curious task of economics, as Friedrich August von Hayek pointed out, is to demonstrate to men how little they really know about what they imagine they can design. A passing familiarity with the fundamental “laws” of economics would do wonders in moderating the infinite arrogance that social engineers have in their ability to reform society.

Society evolves via a process that most closely reflects biological evolution. That involves innumerable trials none of which are consciously designed to improve the system and most of which end up badly. Through sheer luck, a few of the trails work out for the best and the results are transmitted to the succeeding generations. In the words of Adam Fergusson, the advances of society “were the result of human action but not the execution of human design.” (1782)

The core idea is of un-designed order. Order emerging without orders.

What’s the relevance of that idea in the context of what if anything should be done to break up monopolies? It is simply this: let monopolies and market-dominant firms alone. Don’t try to improve the situation by breaking them up. Trust the processes which brought them into existence to take them out when the time is right for them to go out of existence.

What justifies our trust? First, monopolies die. They always have. But just because they have done so in the past doesn’t guarantee that they will die in the indefinite future. Here we have to not just rely on empirical evidence but have to explain that empirical fact. Our explanation of the past demise of monopolies will provide the justification for the claim that monopolies of the future will not persist indefinitely.

The explanation turns on the fact that the system is dynamic, not static. The world is contingent and therefore fundamentally unpredictable. Novel technologies emerge. Those novel technologies disrupt and create opportunities for entrants that challenge the dominance of the incumbents. Those disruptions are external shocks to the system. They are unpredictable. We cannot predict what they will be but we can be confident that they will occur because that’s the nature of the universe. It’s the nature of the natural universe and also of human society.

The dinosaurs appeared 200 million years ago and ruled the earth for 135 million years. One day roughly 66 million years ago, a 10-km wide asteroid hit the earth and created the Chicxulub crater in the Yucatán Peninsula in Mexico. That was unpredictable.

The climate changed and that led to the Cretaceous–Paleogene (K-Pg) extinction event which saw the mass extinction of 75% of plant and animal species on Earth. Until then, the dinosaurs had “market domination” and then all the non-avian dinosaurs died for no fault of their own. Thanks to that K-Pg event, mammals began to flourish, and eventually we humans are geo-engineering the earth now.

The earth received an external shock. After a shock, the system settles down to a new equilibrium — until the next shock. Something similar happens to the order that generally prevails in our economic system. Small firms become big and some even dominate the sector. But eventually, technological advances deliver the external shock that take them out. Just like the non-avian dinosaurs.

Should governments not take them out by design and not wait for unpredictable “external shocks”? The simple answer is no because governments are not superhumanly wise and foresighted. They actually do more harm than good.

(This is long enough and I will continue the rest later.)

 

 

3 thoughts on “Breaking up Monopolies

  1. Prabhudesai Monday August 2, 2021 / 1:54 am

    None of us have to love Amazon or Google. But I pity those souls who can’t pause for a moment, leave all their political opinions aside and just feel AMAZED at what some of these companies have achieved in an incredible small amount of time.

    Amazon delivers some very niche items right into my garage within 24 hours of me ordering it. I am not even talking about outside garage. They are literally able to open my garage and keep it inside and send me a photo. Some of these items are supposed to come from distant lands and even other countries. Amazon continues its deliveries even in the middle of pandemic.

    Google is even more incredible. Almost all collective knowledge of humanity is available for you for FREE at any time. You can see the greatest work of art in any major art gallery in the world, check if you health symptoms are a reason for worry or see how a 4 stroke engine works.

    Both Amazon and Google might appear like “large” companies. They are not. In fact they are too tiny compared to the US federal government. It took both these companies decades to get at merely 2 trillian dollar valuation. US federal government burns around 10 trillian dollars every single year. AND YET every moron and his brother talks about breaking Google or Amazon and how “too powerful” these folks are.

    One has to be really a retard to not see Federal government as a bigger threat to people.

    Liked by 1 person

  2. baransam1 Wednesday August 11, 2021 / 3:27 am

    Amazon, through its door to door delivery, has saved countless lives. Without Amazon Inc saving the day, Wuhan Flu would have claimed many more lives on Earth.
    Ironically, instead of thanking Amazon for this impact, some people bristle at Amazon’s ‘profit’. I consider Amazon’s increased profits and market cap as the thank you gesture from humanity to Amazon Inc and Jeff Bezos.

    Like

  3. Viveka Sunday August 15, 2021 / 6:31 pm

    Prabhu Desai, you said: “AND YET every moron and his brother talks about breaking Google or Amazon and how “too powerful” these folks are”. If you had read my moronic comment, I was not lamenting their power in unqualified terms, nor was I envying their success. Neither was I making an argument for “greater good” or accusing them stifling innovation/competition and hurting the consumer which are the classic refrains used to justify breakimg monopolies.

    I was concerned about the real possibility of misuse of the data they collect.

    Atanu, I am not sure this distinction came through to you either. So let me please repeat the reason I would cheer for the break up, were it to occur.

    I said: “I will cheer because the data about me that they have compiled is scary to even contemplate.” …. “The flip side to this is it is impractical to live without them as they stand today. It is a Hobson’s choice. Data misuse looms in ways we may not (and even these companies may not) be able to fully contemplate yet, given the break neck pace of innovation in data collection and data science.”

    The breakup I was alluding too may not be fair to Google’s business and even set back consumer advantages given their scale and the attractive price point to the consumer that they operate at. But it will fragment data collection and information collected about us which is a protection from harm when misused. These companies are themselves stunned at the data points available and how clear a picture it paints and the predictors possible. The apparatus for gross misuse and irreparable harm is in place. My stance is not some economic benefit argument, it is 100% privacy and profiling related. It isn’t clear to me at all that technology and business opportunities will “take care of everything” so it is net positive to society, if only governments don’t interfere. That might be true with a long enough time horizon. But that horizon could exceed my natural lifespan, which means I could be collateral damage. There is not much doubt privacy regulations will have to come, but they badly lag the pace of innovation.

    The way data is being collected, you have Google’s and Amazon’s best engineers setting up rules of access, logging and auditing, employing encryption — and they put in a lot of effort to avoid anyone within the company building so-called “rainbow tables” that allow joining all the data. This is because they share the same fear as me with unsanctioned interlinking of all the information and profiling and avoiding the danger of a terribly compromising data leak. But this is fragile when everything is housed under a single roof/cloud. Their safeguards can be rolled back and stood down by future management, so even they can’t sufficiently feel assured of what the legacy of all this will be. It is much like the story of our nuclear weapons. Our scientists at Los Alamos were our finest. But they were the first to realize the danger of their creation and wanted curbs. I don’t see sensible regulations on data use coming in before the horse has bolted the stable. In the very long run this won’t matter, but it seems like a serious enough threat to a generation or two.

    Like

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