I hear this complain a lot in my country: Romania.
“The state electrical/gas/etc company was sold to a private investor and we didn’t get any real benefits, there is no real competition.”
There’s also the accusation that laissez-faire capitalism will automatically lead to monopoly. Law of the jungle stuff.
How should I best address that?
The newly privatized industry is a de facto monopoly since it was based on a state run monopoly so you really can’t get around that.
The problem is that people look at these monopolies as the end result of laissez-faire capitalism when in fact they are the result of the former State system.
I wonder if there will be a long term lack of competition because these companies are protected by their country club buddies who pulled the strings to get them the former state run company or if they will open it up to where any company can provide services with the former monopoly allowed to charge a fee to maintain the infrastructure like is common in the States?
Is there a way to privatise a state-run monopoly so that it doesn’t automatically become a private monopoly? If so, what are the options?
Electricity or gas (methane gas, used in ovens, not gasoline) is a relevant field, but also a difficult one since there is only one set of gas pipes or only one set of wires that run through buildings (at least in my country).
Another worry in my country is that, even in fields where there is competition innitialy (such as cable providers or mobile phones), once they have stable profits, the companies will decide to make a cartel. Is this a realistic scenario? Are companies better off if they play safe and modify prices and services in unison than they would be if they had to put more effort in to compete (by charging lower fees and by providing better services)?
I hear that when the Brits privitized the railroads they sold all the different pieces to different companies. There are problems with this model too I’ve heard.
The main problem I have with the privatizing companies is the State doesn’t really have a valid claim to sell them since they consist of stolen goods. Giving it back to the original owners isn’t really an option since they are probably all dead now (thanks to Stalin) so how does a government go about liquidating their stolen assets? Haven’t really come across an answer to that one yet I’m afraid.
Yeah, that’s a problem especially if the producers and owners of the delivery network are the same entity. In the States you can (theoretically) purchase gas or electricity from any producer on the market and the company that owns the pipes or wires gets to charge a delivery fee to help pay for upkeep.
This is one of the questions I have with a pure an-cap society, how does one stop rent seeking when there is a natural monopoly as with gas and electricity delivery.
I think that all depends on how high the barrier to entry is. If they start rent seeking and some company in a neighboring country is barred from the market because of protectionist measures then all you can do is hope the State gets around to some old fashioned trust busting.
But if you get pan-European companies all competing in the mobile phone and cable markets then is shouldn’t be any worse that the rest of the semi-free societies.
I doubt that cartels like you mention would be stable without State backing because the companies who could out compete the others would have too much incentive to do so instead of being happy with their static slice of the market. Cartels always benefit the most inefficient members.
You have clearly identified the problem with most privatization schemes (especially the part about the state not having a right to sell stolen goods as if it were a legitimate owner). The answer was actually proposed in the late 60’s by Rothbard in “Confiscation and the Homestead principle”: homestead it.
There’s actually an article dealing with privatization in Romania here. On the neoclassical bogeymen of cartels, monopolies &c. (the result of poor armchair theorizing plus static theories of the market) there’s Dominick Armentano’s various works, and articles such as these and these.
-Jon
I just got slammed with this “the belief that privatisation of a monopoly will make it better is just a religion. There is no evidence that that is the case”
The same thing happened here in the 90s. State run monopolies were transfered to friends of the political mafia. I think that the real issue is not privatization but deregulation. What the powers that be want is monopoly - it doesn’t matter to them whether it is communistic i.e. nationalized industries - or fascist - that is, big-bussines shielded from competition by the state.
It may be argued that some utilities are ‘natural monopolies’(debatable), but telecommunications for instance are not. Still you see that telecoms are regulated, and that regulations are used to create cartels. So I think that a real free-market reform means to abolish all regulations so that new players can enter the market - it would be nice to see how well the state-run companies fare when they face real competition…
Any enterprise that rents labor risk-free is capitalist, whoever owns it, private, corporate, government or otherwise.
Any monopolist sets his supply where marginal returns reach zero. A private owner, being more efficient, has lower marginal costs and will thus produce a bigger supply at lower prices.
So the state can be considered part of laissez-faire? The state can be considered a legitimate and voluntary “private” entity? Huh? Why do you include the state in this? State ownership is “capitalist”? You have officially confused me.
Monopolies, whether ‘privately’ owned, or owned by the state, are socialistic. That’s libertarianism 101. I hope it is understood that monopoly means : a firm whose competitors had been outlawed by the state.
I think more people use the word to signify a state where there is only 1 supplier for a product/service, for any reason whatsoever.
That’s in fact different from what the word means (or at least once meant) in economics, where monopolies were state-granted privileges, i.e. legal barriers to entry.
-Jon
That’s interesting, didn’t know that.
I guess it goes hand in hand with the Newspeak of inflation then. Orwell is turning in his grave…
Such a monopolist will not evade the laws of profit maximization.
I did not mention anything concerning laissez-faire.
Of course not - just making a note on the linguistic history of the term.
-Jon
Except that the term ‘profit’ here means ‘stolen goods’. Monopoly is just a fancy name for a gang of robbers. So, I really don’t see your point. Are you saying that monopolies will try to steal as much as they can, thereby maximizing ‘profits’ ? Agreed.
Or are you trying to paint the ‘private’ monopolies who run utilities as somehow capitalistic ? (well, of course, they are not)
I see that Mises also recognised the fact that limited space is a factor that may lead to monopoly.