Monopoly, Economic

Category: Fields of research

Monopoly refers to a situation in a specific market where there is only one or a few companies that control all or most of that market. Monopolistic companies can be divided into public (owned by the state) and private. A monopolistic company controls the supply of specific goods, services, or commodities. Monopsony is the reverse case, in which there is only one buyer of the specific good or service. i.e., in many countries government is the only buyer of military weapons that are produced in the country by state-owned or privately owned companies. In economics, natural monopoly is the concept that refers to a case where structural reasons necessitate that only one company supplies the whole country with a specific good or service. Companies that supply electrical power or water are the best examples of natural monopolies.

Most commonly purported negative effects of monopolies are: higher prices, as consumers have no alternatives; lack of innovation and lower quality and efficiency due to low pressure to improve products or services; reduced consumer choice; high barriers for new companies to enter in the market; job losses caused by frequent lay-offs after mergers and acquisitions, significant political power used to legaly (via lobbing and donations) or illigaly (through bribes) influence the the most important laws and policies. The most famous anti-monopoly law is the Sherman Antitrust Act of 1890.

Theoretical Approaches to Monopolies

Adam Smith, in his An Inquiry into the Nature and Causes of the Wealth of Nations (1776), posits that people naturally tend to seek self-interest and improve their material conditions. He also believed that people have a natural tendency to buy and sell goods. For him, the best economic system is the one that promotes selfishness, entrepreneurship, competition, a laissez-faire market, and international free trade. Smith was decidedly against practices like mercantilism, guild restraints on participation and apprenticeship rules, protectionism, and monopolies. He argued that monopolies bring several negative consequences – higher prices, bad management, pressure on the government to protect their monopolistic interests, and misallocation of resources.

Vladimir Ilich Lenin, in the book Imperialism, the Highest Stage of Capitalism (1916), analyzes the relationship between monopoly capitalism and imperialism. The imperialist expansion of the world's largest powers, at the end of the nineteenth century, resulted from the development of monopoly capitalism, in which the economies of rich countries were increasingly concentrated in a relatively small number of large firms, while at the same time the merger of industrial capital with large banks, as well as the growing integration of interests between private companies and the state, took place. Such development of capitalism leads to a competition of capital to conquer new markets. "The more capitalism develops, the more there is a shortage of raw materials, and a fiercer competition and race for raw materials around the world leads to an increasingly desperate struggle to conquer new colonies." (Lenin, 1916). The newly formed financial capital increases the already existing rivalries between the capitalists of different countries, and therefore also between the countries themselves. The rivalries and wars between the great powers were the product of the very dynamic of capitalist development, especially the new stage in the development of capitalism dominated by financial capital and the monopolization of the economy. This is precisely why Lenin defined imperialism as the highest stage of capitalism. This kind of imperialism is characterized by six main features: 1) concentration and centralization of capital into large monopoly cartels; 2) the increasingly pronounced merging of banking and industrial capital into parasitic oligarchic "financial capital"; 3) the export of capital itself begins to become more important than the export of goods; 4) the emergence of international capitalist monopolies that divide the entire world between them; 5) completion of the territorial division of the planet between the capitalist powers; 6) since capitalism develops with different dynamics in different capitalist countries, those countries that have rapid economic development, but have a lack of colonial territories, tend to implement a new territorial division of the world. It was precisely this development of the situation that led to the outbreak of the First World War. The most important engine of the race to conquer new colonies is the need to export capital because there is a surplus of capital that cannot be profitably invested in one's own country.

In American Capitalism (1952), John Kenneth Galbraith argues that a decentralized private economy has led to a huge increase in productivity and innovation. Since the tendency to concentrate and enlarge capital is inevitable, it is necessary to establish a counterweight to that process. Instead of anti-monopoly laws, it is much more effective, as a counterweight, to increase the power of consumers, unions, and government in order to control monopolists.

In the book Monopoly Capital (1966), co-authored by Paul Baran and Paul Sweezy, monopoly capitalism is presented as a system dominated by large corporations that control markets, prices, and production. Companies no mere compete over prices, but compete in sales. The basic feature of such a system is progressive rationalization. Under monopoly capitalism, this surplus grows rapidly but lacks sufficient outlets for reinvestment or consumption. Because corporations generate more surplus than they can reinvest profitably, the system tends toward stagnation unless counteracted by external forces. Advertising, planned obsolescence, and product differentiation are used to stimulate demand artificially, absorbing surplus but contributing little to real value. The government and military become essential tools for absorbing surplus. Another important feature of monopoly capitalism is that large corporations have broad shareholder ownership and are controlled by managers rather than stockholders. Control shifts from individual owners to professional managers, creating a bureaucratic structure focused on long-term profit maximization. Monopoly capitalism ultimately leads to racial and social inequality, underutilization of resources, alienation and cultural decay, and imperialism and militarism as systemic features.

In his book Manufacturing of Consent: Changes in the Labor Process Under Monopoly Capitalism (1979), Michael Burawoy examines how directors and managers obtain consent from their workers, that is, how they manage to persuade them to cooperate with management. Management in companies gives up strict control over workers and the work process, so workers have the impression that they have greater rights, and their dissatisfaction is reduced. The consent of workers to exploitation, despite oppression and low wages, is also created by manipulating and inciting conflict between the workers themselves.

In his book Civilization and Capitalism, 3 vol. (1967-1979), Fernand Braudel analyzes the relationship between capitalism and the market. He argues that capitalism functions as an anti-market because it monopolizes economic life in order to maximize profits and distorts the market to suit capitalism. In this way, capitalism dominates and threatens the market and everyday life. Capitalist aspirations to control the market and market resistance to such tendencies have shaped the history in the modern period.

Samir Amin, in the books Obsolescent Capitalism (2003) and Beyond US Hegemony (2006), argues that the American imperialist project is based on the monopolies that the United States has in the fields of technology, finance, natural resources, media, and weapons production.

References:

Amin. Obsolescent Capitalism (2003);

- Modern Imperialism, Monopoly Finance Capital, and Marx's Law of Value (2018);

Anderson P. Lineages of the Absolutist State (1974);

Arrighi. Geometry of Imperialism (1978);

Baran. Monopoly Capital: An Essay on the American Economic and Social Order (1966);

Braudel. Civilization and Capitalism, 3 vol. (1992, in French 1967-1979);

Braverman. Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century (1974);

Burawoy. Manufacturing Consent: Changes in the Labor Process Under Monopoly Capitalism (1979);

Crozier. The Bureaucratic Phenomenon (2017, in French 1963);

Galbraith. American Capitalism: The Concept of Countervailing Power (1952);

Habermas. The Structural Transformation of the Public Sphere (1989, in German 1962);