Quotulatiousness

February 26, 2015

Free trade is for consumers, not producers

Filed under: Britain,Business,Economics,Europe,History — Tags: , , — Nicholas @ 03:00

Matt Ridley gives a potted history of the rise of free trade in the nineteenth century, bringing great benefit to workers and consumers:

… the point about free trade is and always should be that it is good for consumers. “Consumption is the sole end and purpose of all production”, said Adam Smith. The genius of the Corn Law radicals was to turn the debate upside down and give the consumers a voice. Between 1660 and 1846, the British government passed 127 Corn Laws, imposing tariffs as well as rules about the storage, sale, import, export and quality of grain and bread. The justification was much like today’s opposition to TTIP: maintaining our supposedly high standards against foreign, cheapskate corner-cutters.

In 1815, Parliament banned the import of all grain if the price fell below 80 shillings a quarter — to protect landowners. Rioters vandalised the house of Lord Castlereagh and other supporters. David Ricardo wrote a pamphlet against the laws, but in vain. It was not until the 1840s that the railways and the penny post enabled Richard Cobden and John Bright to stir up a successful mass campaign against the laws on behalf of the working class’s right to buy cheap bread from abroad if they wished.

Cobden did not stop there. Elected to parliament but refusing office and honours, this pacifist radical was as responsible as anybody for accelerating global economic growth. He persuaded Gladstone to abolish many tariffs unilaterally, and personally negotiated the first international free trade treaty in 1860, the so-called Cobden-Chevalier treaty with France, which established the unconditional “most-favoured nation” principle, leading to the dismantling of tariffs all over Europe. “Peace will come to earth when the people have more to do with each other and governments less,” he said.

Only when Bismarck began rebuilding tariffs in 1879 did the tide begin to turn, and competitive protectionism slowly throttled free trade, eventually contributing to half a century of war. Britain held out longest, enacting a general tariff only in 1932 under Neville Chamberlain as chancellor. Trade barriers undoubtedly helped precipitate war: they shut the Japanese out of resource markets that they then decided to seize by force instead, while Germany’s Lebensraum argument would have carried less force in a free-trading world.

The argument for free trade is paradoxical and much misunderstood. Free trade benefits consumers because it is the scourge of expensive or monopolistic national suppliers. It benefits both sides: yet it works unilaterally. Your citizens benefit if you let them buy cheap goods from abroad, while foreigners are punished if their government does not reciprocate. This creates more demand for local services and hence more growth and jobs in the importing country.

January 23, 2015

QotD: Taxicab cartels

Filed under: Government,Quotations,USA — Tags: , , , , — Nicholas @ 01:00

Around the world, the government-charted monopolies and cartels that run the taxi business responded with protests and violence to the emergence of technology-empowered competitors such as Uber, which does not undercut traditional taxis on cost — in New York, its drivers earn about three times what a traditional cabbie makes — but is much more convenient for those who do not live or work in areas that are generally well-served by traditional taxis. As in most cities, New York law imposes price uniformity on taxis and long protected them from most competition, with the entirely predictable result that consumers are the worst-served parties in the taxi business. (It does not help matters that, unlike their London counterparts, famously steeped in “the Knowledge,” the typical New York cabbie cannot find the Brooklyn Bridge without GPS or turn-by-turn instructions from the passenger.) The lack of consumer focus has some perverse consequences here in New York: The taxi fleet schedules its shift change from 4 p.m. to 5 p.m., meaning that taxis all but vanish from the streets during the hours when they are most needed. The New York Times calls this an “apparent violation of the laws of supply and demand,” which, New York Times geniuses, is exactly what happens when you use regulation to take supply and demand effectively out of the equation. A platform that combined Uber’s on-demand service with Google-style driverless cars would probably put the traditional taxi out of business — assuming that the cartels are not able to use government to strangle innovation in its cradle.

Kevin D. Williamson, “Race On, for Driverless Cars: On the beauty of putting the consumer in the driver’s seat”, National Review, 2014-06-01.

January 3, 2015

Last year, “a Kentucky judge did something no federal judge has done since 1932″

It’s been a very long time since a federal judge in Kentucky anywhere in the United States has struck down a “certificate of necessity” (CON) regulation:

Mighty oaks from little acorns grow, so last year’s most encouraging development in governance might have occurred in February in a U.S. district court in Frankfort, Ky. There, a judge did something no federal judge has done since 1932. By striking down a “certificate of necessity” (CON) regulation, he struck a blow for liberty and against crony capitalism.

Although Raleigh Bruner’s Wildcat Moving company in Lexington is named in celebration of the local religion — University of Kentucky basketball — this did not immunize him from the opposition of companies with which he wished to compete. In 2012, he formed the company, hoping to operate statewide. Kentucky, however, like some other states, requires movers to obtain a CON. Kentucky’s statute says such certificates shall be issued if the applicant is “fit, willing and able properly to perform” moving services — and if he can demonstrate that existing moving services are “inadequate,” and that the proposed service “is or will be required by the present or future public convenience and necessity.”

Applicants must notify their prospective competitors, who can and often do file protests. This frequently requires applicants to hire lawyers for the hearings. There they bear the burden of proving current inadequacies and future necessities. And they usually lose. From 2007 to 2012, 39 Kentucky applications for CONs drew 114 protests — none from the general public, all from moving companies. Only three of the 39 persevered through the hearing gantlet; all three were denied CONs.

Bruner sued, arguing three things: that the CON process violates the Constitution’s equal protection clause because it is a “competitors’ veto” that favors existing companies over prospective rivals; that the statute’s requirements (“inadequate,” “convenience,” “necessity”) are unconstitutionally vague; and that the process violates the 14th Amendment’s protections of Americans’ “privileges or immunities,” including the right to earn a living.

November 26, 2014

Michael Geist – Uber’s privacy problem

Filed under: Business,Cancon — Tags: , , , — Nicholas @ 07:36

Michael Geist looks at one of the less obvious issues in the Uber dispute with Canadian regulators:

The mounting battle between Uber, the popular app-based car service, and the incumbent taxi industry has featured court dates in Toronto, undercover sting operations in Ottawa, and a marketing campaign designed to stoke fear among potential Uber customers. As Uber enters a growing number of Canadian cities, the ensuing regulatory fight is typically pitched as a contest between a popular, disruptive online service and a staid taxi industry intent on keeping new competitors out of the market.

My weekly technology law column (Toronto Star version, homepage version) notes that if the issue was only a question of choosing between a longstanding regulated industry and a disruptive technology, the outcome would not be in doubt. The popularity of a convenient, well-priced alternative, when contrasted with frustration over a regulated market that artificially limits competition to maintain pricing, is unsurprisingly going to generate enormous public support and will not be regulated out of existence.

While the Uber regulatory battles have focused on whether it constitutes a taxi service subject to local rules, last week a new concern attracted attention: privacy. Regardless of whether it is a taxi service or a technological intermediary, it is clear that Uber collects an enormous amount of sensitive, geo-locational information about its users. In addition to payment data, the company accumulates a record of where its customers travel, how long they stay at their destinations, and even where they are located in real-time when using the Uber service.

Reports indicate that the company has coined the term “God View” for its ability to track user movements. The God View enables it to simultaneously view all Uber cars and all customers waiting for a ride in an entire city. When those mesh – the Uber customer enters an Uber car – they company can track movements along city streets. Uber says that use of the information is strictly limited, yet it would appear that company executives have accessed the data to develop portfolios on some of its users.

November 24, 2014

Allow more competition in the broadband marketplace

Filed under: Bureaucracy,Government,Technology,USA — Tags: , , — Nicholas @ 00:03

At Techdirt, Karl Bode points out the existing problem with lack of competition in the US broadband industry is largely due to various levels of government meddling with the market:

While Title II is the best net neutrality option available in the face of a lumbering broadband duopoly, it still doesn’t fix the fact that the vast majority of customers only have the choice of one or two broadband options. It’s this lack of competition that not only results in net neutrality violations (as customers can’t vote down stupid ISP behavior with their wallet), but the higher prices and abysmal customer service so many of us have come to know and love. Stripping away protectionist state laws can help a little, as can the slow rise of services like Google Fiber. But even these efforts can only go so far in blowing up a broadband duopoly, pampered through regulatory capture and built up over a generation of campaign contributions.

One solution is the return to the country’s barely-tried implementation of unbundling and network open access, or requiring that the nation’s subsidy-slathered monopolists open their networks to allow other competitors to come in and compete. There are many variations of this concept, and it’s something Google Fiber promised in its markets before backing away from it (much like their vocal support of net neutrality). Obviously being forced to compete is an immensely unpopular concept for the nation’s incumbent ISPs. Given that those companies dictate and often literally write the nation’s telecom laws, these requirements were eliminated in a number of policies moves starting in 2001 and culminating in the FCC’s Triennial Review Remand Order of 2004 (pdf).

This was amazingly presented at the time as a way to improve competition and spur investment, but primarily resulted in a bloodbath as dozens of consumer-friendly, smaller independent ISPs and CLECs were killed off, perpetuating and further cementing the noncompetitive duopoly we have today.

[…]

Despite the fact this model clearly works, it’s never considered in policy discussions as a serious possibility. Why? Quite simply because the incumbent providers don’t want it. Through the use of their various PR folk, astroturfers, think tankers, fauxcademics and assorted hired mouthpieces, they’ve successfully managed to utterly vilify the concept, painting it as the very worst sort of government meddling in (not actually) free markets. Instead, we’ve chosen to head down the path of letting the nation’s duopolists dictate telecom policy, and the end result should at this point be painfully obvious to everyone. Well, except the industry lobbyists who still somehow insist we’re all living in a competitive broadband Utopia.

November 19, 2014

Net Neutrality is a good thing, right?

Net Neutrality is back in the news thanks to President Obama making a PR push to the regulators who may (or may not) be crafting regulations to bring the internet under government supervision:

Because this issue is still in the FCC’s hands, no one can know for sure what rules the agency will adopt. One important question, though, is: will neutrality apply to wireless services or only to cable-based ISPs, such as Comcast, Time Warner, and AT&T? In addition, will failure to preserve the status quo slow down the speed at which Internet connections and broadband capacity expand (because ISPs won’t be able to shift more of the expansion costs onto the “hogs”)? And what exactly is wrong with ISPs wanting to charge content providers higher prices for more bandwidth and faster, more reliable downloads?

More certain, however, is that regulations requiring “net neutrality” will end up benefiting the large, established ISPs. Incumbent firms have gained from “common carrier” regulation throughout U.S. history. As a matter of fact, the FCC predictably will be captured (if it has not already been) by the very companies President Obama wants to regulate “in the public interest.”

The president’s call to action sounds eerily similar to demands for federal railroad regulation that ultimately led to the creation of the Interstate Commerce Commission in 1887. Until it was put out of business in the early 1980s by President Jimmy Carter, the ICC allowed the railroads and, later, motor carriers and pipelines to charge prices exceeding competitive levels, thereby trying its best to protect the carriers’ profits at consumers’ expense.

William Shugart follows up on his original post:

The source of today’s online bottleneck can be traced back to local and regional government authorities, who quickly recognized the benefits (to them personally) of creating and granting exclusive franchises to one ISP that would, for the term of the contract, be a monopolist. (Government officials can extract more rents if they negotiate with only a handful of contestants.) Given that only one ISP would “win” the right to provide online content to local customers, the local monopolists also recognized a benefit of exclusive franchises: They would have the freedom to discriminate against some content suppliers by adding extra fees for privileged access.

So, a simple solution to the absence of net neutrality is readily available: Foster competition between ISPs.

Some people might raise the objection that, in this realm, robust competition for consumer dollars is unlikely because the suppliers of connections to the Internet are “natural monopolists”. In fact, ISPs are not “natural monopolists” as some commentators would have us believe. They are local government-granted monopolies. (Even Frederic Scherer, the author of the influential textbook Industrial Market Structure and Economic Performance, wrote that such claims of “natural monopoly” are “trumped up.”) Competition between ISPs nowadays is a contest for the favors of mayors and city councils who ultimately will determine who will win the exclusive franchise; it is not competition for the business of paying customers.

November 17, 2014

QotD: The Amazon-Hachette dispute

Filed under: Business,Media,Quotations — Tags: , , , — Nicholas @ 00:01

The first thing to remember about the Amazon/Hachette Book Group dispute is that this sort of thing happens all the time in business. When two big companies negotiate, it’s like Mothra and Godzilla: Each party can throw around a lot of weight, which means some collateral damage. It’s not exactly unheard of for a company that doesn’t like a supplier’s price to stop carrying the product, or to deny the supplier valuable end-cap space, or otherwise deprioritize the sales of the contested items.

The second thing to remember about the Amazon/Hachette dispute is that writers are categorically unable to see what they do as in any way akin to, say, selling potato chips. Writing is special and sacred! The sight of our product being treated like Chef Boyardee spaghetti is more than our tender souls can bear. And unlike grocery suppliers, writers have access to column space in which to pour out our anguish. That’s why so much ink has been spilled over this contretemps.

The third thing to remember is that publisher interests are not the same as author interests. Neither are Amazon’s. Amazon would like to sell books as cheaply as possible because this enhances the market value of their economies of scale. Publishers would like to keep prices high not just to enhance their profits, but also to keep multiple channels open for their books; it is not in their interest for Amazon to succeed in killing off the competition.

Megan McArdle, “Does Amazon’s Monopoly Really Matter?”, Bloomberg View, 2014-10-24.

November 9, 2014

Rent-seekers and crony capitalists love big government

Filed under: Bureaucracy,Government — Tags: , , , , — Nicholas @ 10:38

One of the reasons I’m a small-government fan is that the less the government tries to do, the less opportunity for rent-seekers and crony capitalists to batten on the inevitable opportunities that big government provides when it controls and regulates far beyond its competence:

A nice little point being made over in the New York Times, that for all of the public rhetoric about free markets and competition it’s not actually true that the Republicans are entirely pro-free market and pro-competition at all levels of governance. There’s an explanation for this too, an explanation that comes from the late economist Mancur Olsen. That explanation being about the level of the system that decides what will happen on a particular matter and thus where the special interests will try to capture governance.

    Republicans have hailed Uber, the smartphone-based car service, as a symbol of entrepreneurial innovation that could be strangled by misplaced government regulation. In August, the Republican National Committee urged supporters to sign a petition in support of the company, warning that “government officials are trying to block Uber from providing services simply because it’s cutting into the taxi unions’ profits.”

Josh Barro then goes on to point out that while the national Republican party might be saying such fine words when we get down to the people who actually regulate taxi rides then local Republicans can be just as pro-taxis and anti-Uber as any group of Democrats.

[…] More likely, to me at least, is that Mancur Olsen had it exactly right. His point being that over time democracy will end up being a competition between special interests for control of that democratic apparatus. The basic background insight is spread costs and concentrated benefits. One analogy is the pig and the chicken deciding what to have for breakfast. If they decide upon bacon and eggs then the chicken is interested but the pig is rather committed there. So it is with the regulation of producers and the competition that they might faced. US consumers of sugar might be paying $50 a year each to protect US sugar producers (that number’s not right but it’s not far off, it’s not $5 each nor $500) but rationally, when there’s so much else for us to think about, it’s sensible enough for us to not get very excited nor angry about this. But the sugar producers are making millions a year out of that same system of restrictions and subsidies. They’re very interested indeed in making sure that it continues.

We who take taxis or Uber are quite interested in Uber (and Lyft and all the others) being able to continue in business. But it’s not the end of our lifestyle if the regulatory apparatus is able to stifle them. But for the people who, for example, own taxi medallions in NYC then the replacement of the traditional taxi market by Uber will mean the potential loss of up to $1 million for each medallion. They’re very much more interested in crimping Uber’s style than we consumers are in expanding it.

Olsen went on to point out that the special interests are obviously more interested than we are in the details of regulation. And they’ll concentrate their efforts at whatever level of the regulatory and democratic system it is that affects their direct interests. Contributing to election campaigns, making their views known and so on, wheeling and dealing to promote their interests.

October 9, 2014

The lightbulb cartel of 1924 and the birth of “planned obsolescence”

Filed under: Business,Technology — Tags: , , , , , — Nicholas @ 00:03

Markus Krajewski writes about the formation of a multinational industrial cartel shortly after the First World War that helped create the very concept of “planned obsolescence” for (no) fun and (their) profit:

On 23 December 1924, a group of leading international businessmen gathered in Geneva for a meeting that would alter the world for decades to come. Present were top representatives from all the major lightbulb manufacturers, including Germany’s Osram, the Netherlands’ Philips, France’s Compagnie des Lampes, and the United States’ General Electric. As revelers hung Christmas lights elsewhere in the city, the group founded the Phoebus cartel, a supervisory body that would carve up the worldwide incandescent lightbulb market, with each national and regional zone assigned its own manufacturers and production quotas. It was the first cartel in history to enjoy a truly global reach.

The cartel’s grip on the lightbulb market lasted only into the 1930s. Its far more enduring legacy was to engineer a shorter life span for the incandescent lightbulb. By early 1925, this became codified at 1,000 hours for a pear-shaped household bulb, a marked reduction from the 1,500 to 2,000 hours that had previously been common. Cartel members rationalized this approach as a trade-off: Their lightbulbs were of a higher quality, more efficient, and brighter burning than other bulbs. They also cost a lot more. Indeed, all evidence points to the cartel’s being motivated by profits and increased sales, not by what was best for the consumer. In carefully crafting a lightbulb with a relatively short life span, the cartel thus hatched the industrial strategy now known as planned obsolescence.

[…]

How exactly did the cartel pull off this engineering feat? It wasn’t just a matter of making an inferior or sloppy product; anybody could have done that. But to create one that reliably failed after an agreed-upon 1,000 hours took some doing over a number of years. The household lightbulb in 1924 was already technologically sophisticated: The light yield was considerable; the burning time was easily 2,500 hours or more. By striving for something less, the cartel would systematically reverse decades of progress.

The details of this effort have been very slow to emerge. Some facts came to light in the 1940s, when the U.S. government investigated GE and a number of its business partners for anticompetitive practices. Others were uncovered more recently, when I and the German journalist Helmut Höge delved into the corporate archives of Osram in Berlin. Jointly founded in 1920 by three German companies, Osram remains one of the world’s leading makers of all kinds of lighting, including state-of-the-art LEDs. In the archives, we found meticulous correspondence between the cartel’s factories and laboratories, which were researching how to modify the filament and other measures to shorten the life span of their bulbs.

The cartel took its business of shortening the lifetime of bulbs every bit as seriously as earlier researchers had approached their job of lengthening it. Each factory bound by the cartel agreement—and there were hundreds, including GE’s numerous licensees throughout the world—had to regularly send samples of its bulbs to a central testing laboratory in Switzerland. There, the bulbs were thoroughly vetted against cartel standards. If any factory submitted bulbs lasting longer or shorter than the regulated life span for its type, the factory was obliged to pay a fine.

Companies were also fined for exceeding their sales quotas, which were constantly being adjusted. In 1927, for example, Tokyo Electric noted in a memo to the cartel that after shortening the lives of its vacuum and gas-filled lightbulbs, sales had jumped fivefold. “But if the increase in our business resulting from such endeavors directly mean[s] a heavy penalty, it must be a thing out of reason and shall quite discourage us,” the memo stated.

The great Adam Smith, of course, saw this coming in 1776: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Some things never change.

October 6, 2014

Winners and losers when Wal-Mart (and Amazon) came along

Filed under: Business,Economics — Tags: , , — Nicholas @ 18:33

William Shughart refutes the “dark side of Amazon” meme by pointing out what it was like before Amazon and Wal-Mart:

Before the advent of Wal-Mart, rural America was a retail desert. Small shops, limited product availability and, yes, “hometown service”. But the prices of most items were high because the only alternative to shopping locally was to drive to the nearest city or order through the Sears or JC Penney catalog and depend on timely delivery by the US mail in, it was to be hoped, an undamaged package. The downside of local retail shops (limited options and high prices) fell most heavily on low-income households, which may not have had an automobile or could not afford to take time off work to shop at larger urban retailers or even at local merchants, which typically closed at 5 p.m. Wal-Mart solved both problems in one fell swoop.

Sure, local retailers suffered losses of business and some were forced into bankruptcy, but consumers (the only group whose welfare matters in a free market economy) won big-time. Amazon has generated benefits for consumers many times larger than Sam Walton ever dreamt of.

But what about the jobs that disappeared in local retail outlets as Amazon and Wal-Mart drove costs (and prices) down by inventing markedly more efficient distribution networks and negotiating lower prices with manufacturers and other suppliers on behalf of millions of consumers with little bargaining power of their own? An economic system’s chief purpose is to create prosperity (wealth), not jobs. Creating jobs — at the point of a gun, as Josef Stalin proved, or as FDR did by drafting millions of men to shoulder arms against the Axis powers — is easy; creating wealth is not. Prosperity materializes only if existing resources (land, labor and capital) can be utilized more efficiently, squeezing out “waste” and redundancy so that resources can be released from current employments and redirected by alert entrepreneurs to the production of new products that consumers may not even know they want (an iPhone ten years ago, for example) until they become available.

Hightower bemoans the working conditions in Amazon’s warehouses, a few of which literally become sweatshops during hot summer months. I am willing to bet, however, that if the people employed in one of Amazon’s “dehumanizing hives” (his phrase) were asked whether they wanted to quit their jobs, not one hand would be raised, especially so in an economy with an unemployment rate still hovering around six percent and a rate of underemployment twice that figure.

September 17, 2014

SpaceX and Boeing get NASA funding for 2017 deadline

Filed under: Business,Space,Technology — Tags: , , , — Nicholas @ 08:11

In Ars Technica, John Timmer reports on the NASA decision to fund two of the three competitors for manned launches to the ISS:

Today, NASA administrator Charles Bolden announced that there were two winners in the campaign to become the first company to launch astronauts to low-Earth orbit: Boeing and SpaceX. The two will receive contracts that total $6.8 billion dollars to have hardware ready for a 2017 certification — a process that will include one crewed flight to the International Space Station (ISS).

In announcing the plan, Bolden quoted President Obama in saying, “The greatest nation on earth should not be dependent on any other nation to get to space.” And he promoted the commercial crew program as a clear way of ending a reliance on Russian launch vehicles to get to the ISS. But Bolden and others at the press conference were also looking beyond that; several speakers, including Kennedy Space Center Director Bob Cabana and astronaut Mike Fincke, mentioned that the ultimate goal is Mars.

To that end, Bolden emphasized that NASA is still doing its own vehicle and rocket development. The Orion crew capsule, intended to be suitable for missions deeper into the Solar System, recently underwent a splashdown test in the Pacific. Its first test flight aboard a Delta IV rocket is scheduled for this December. Work on the Space Launch System, a heavy lift vehicle that can transport the additional hardware needed for deep space missions, was also mentioned.

August 20, 2014

New report calls for Ontario to break up the LCBO

Filed under: Business,Cancon,Economics,Wine — Tags: , , , , , — Nicholas @ 13:33

In the Toronto Star, Richard Brennan reports on a new study by the C.D. Howe Institute calling for the province to join the modern era:

The “quasi-monopoly” LCBO and The Beer Store have hosed Ontario consumers long enough, a C.D. Howe Institute report says.

The right-wing think tank said the Ontario government should strip them both of their almost exclusive right to sell beer, wine and spirits, suggesting the report proves that opening up to alcohol sales to competition will mean lower prices.

“The lack of competition in Ontario’s system for alcoholic beverage retailing causes higher prices for consumers and foregone government revenue,” states the 30-page report, Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System, to be released publicly Wednesday.

The report includes tables comparing Ontario beer prices to other provinces with greater private sector involvement, particularly with Quebec, where a case of 24 domestic beers can be as much as $10 cheaper and even more for imported brands.

Since 1927, when the Liquor Control Act was passed, the Liquor Control Board of Ontario and the privately owned Brewers Warehousing Company Limited have had a stranglehold on alcohol sale in the province.

“The Beer Store’s quasi-monopoly of beer retailing is … an anachronism,” the report says, referring to the foreign-owned private retailer that is protected by provincial legislation.

June 2, 2014

Amazon, Barnes & Noble, Random Penguin and other publishing Monopoly players

Filed under: Business — Tags: , , , , — Nicholas @ 07:32

A quite contrarian take on the upheavals in the publishing world by Hugh Howey:

A similar game is being played in the book industry today, as it has been played in many other industries. Here at BEA, I’m hearing a lot about monopolies. (And monopsonies, for those who prefer to quibble semantically rather than understand what is meant and forge ahead in productive conversation.) Practically everyone here at the book expo believes that Amazon has gotten too big, that they wield a disproportionate amount of power, and that they must be reigned in or defeated.

I am told, without exaggeration and in all seriousness, that Amazon wants to “crush their competition.” I hear that they want to “put everyone else out of business.” Two things are true, both of which make these statements ridiculous: The first is that Amazon most certainly doesn’t want all of their competitors to go out of business, because then they’d be the only game in town and the government would have no choice but to break them up. The second is that of course they are acting as if they want to put their competitors out of business. That’s how you improve your business practices. You try to out-do your competition.

Unless … you don’t understand at all what it means to compete. Which I think explains the righteous indignation. But I’ll get to that in a minute.

[…]

Ironically, the biggest losers in this shift have been yesterday’s villains. The massive brick and mortar discounters — who once were blamed for literature’s downfall, who sold “loss leaders,” who roughed up publishers in negotiations — have become the bulwark behind which all legacy hopes now hunker. Little explored is the possibility that Amazon is helping independent bookstores by clearing out these former predators.

When it comes to discounting and selection, B&N can’t compete with Amazon. When it comes to book browsing, Amazon can’t compete with curated independent bookstores. If you line the three sales models up from small indie stores to big discounters to Amazon, you’ll see that neighbors compete with and harm one another. Concurrent with the shuttering of Borders and the shrinking of B&N, we are also seeing a rise of indie shops. Coincidence? Or are we heading toward a future where Amazon and indie bookstores coexist because they provide two very different shopping experiences and fulfill quite separate needs?

Best estimates give Amazon roughly half of the book market. With the shutter of Borders, B&N now has a more disproportionate control of brick and mortar shelfspace than Amazon does of online book sales. This is especially powerful as the rest of the smaller bookstores have less leverage for bargaining with publishers. Who is the monopoly?

June 1, 2014

In the Progressive Era, “big business led the struggle for the federal regulation of the economy”

Timothy Carney says we should know much more about socialist historian Gabriel Kolko and his careful debunking of the “Teddy Roosevelt as trust-buster” myth:

Every American knows the fable of the Progressive Era and that “trust buster” Teddy Roosevelt wielding the big stick of federal power to battle the greedy corporations. We would be better off if more people knew the work of the man who dismantled this myth: historian Gabriel Kolko, who died this month at age 81.

Kolko was a self-described socialist and a Harvard-educated historian, but he had little use for the liberal political establishment’s pious regard for the Progressive Era of 1900 to 1916. And he was never credulous enough to believe that government intervention in the economy was generally in the public interest.

For today’s politics, Kolko’s most important book was The Triumph of Conservatism, published in 1967. His thesis: “The dominant fact of American political life” in the Progressive Period “was that big business led the struggle for the federal regulation of the economy.”

The standard history of the Progressive Period — which painted Teddy and the Feds as the scourge of Big Business — relied too much on the public rhetoric of TR and his cohorts. Kolko dug deeper to show how Big Business truly felt about Big Government, and how the Progressives truly felt about Big Business.

Many corporate titans in the early 20th Century, buying into the pervasive hubris of the day, believed that a state-managed economy was the inevitable end of a rational society — the conclusion of what Standard Oil’s top lobbyist Samuel Dodd called the “march of civilization.” Competition, in their eyes, was destructive redundancy.

[…]

Liberal scholar William Galston at the Brookings Institution explains the economics at play. “Corporations have sizeable cash flows and access to credit markets, which gives them a cushion against adversity and added costs,” he wrote in 2013, explaining why the big guys often welcome regulation. “[S]mall businesses often operate much closer to the margin and are acutely sensitive to policies that threaten to drive up costs.” Also, “CEOs can hire experts to help them cope with added regulatory burdens and can spread the costs over a large workforce.”

Kolko’s research smashed the favorite tales of the Progressive myth. When Upton Sinclair wrote The Jungle, which included descriptions of rancid meat-packing plants, Roosevelt saw Sinclair as personally despicable, but a useful asset in his quest to impose federal meat inspection. Sinclair opposed Roosevelt’s regulation, and Kolko relates that “the big packers were warm friends of regulation, especially when it primarily affected their innumerable small competitors.”

By “conservatism,” Kolko meant “stability,” and preservation of the status quo. This is often the aim of corporate giants. It is consistently the consequence of federal action. And it is reliably the enemy of entrepreneurship, economic growth and free choice.

May 27, 2014

QotD: What capitalism should do now

Filed under: Business,Economics,Quotations — Tags: , , , , — Nicholas @ 07:13

Just as democracy can be corrupted by repressive populism, so can capitalism be perverted by “rent-seeking” — when people seek to gain more than the goods and services they produce are worth to others.

Sometimes they use political influence to sustain monopolies or to prevent new entrants and innovators from competing for custom. Sometimes they use governments to provide subsidies from taxpayers, or to prohibit cheaper imports.

Sometimes they do deals with governments that provide taxpayer funds to cushion losses derived from incompetence or recklessness. These forms of crony capitalism detract from capitalism’s real benefits and achievements.

What capitalism should now do is to free itself from these rent-seeking perversions and spread its benefits as widely as possible.

It should act against anti-competitive practices to give people instead the power of free choices between competing goods and services. It should spread ownership of capital and investment as widely as possible through such things as personal pensions and individual savings accounts.

It should lower the barriers to entry so that everyone can aspire to start up a business to bring goods and services to others. It should seek a tax system that rewards success rather than punishing it.

Capitalism should become inclusive, making it as easy and as attractive as possible for as many as possible to set aside some part of present consumption in order to invest some of their resources and their time in providing goods and services that others will want. It should become true capitalism.

Dr. Madsen Pirie, contributing to “Viewpoints: What should capitalism do?”, BBC News, 2014-05-26.

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