Oligopoly And The Death Of An Old Man

An old man was found dead in his house. The house was cold, and he had frozen to death.
On the counter in that house was found a bill for heating. Next to the paper stating that payment was overdue, a pile of dollars. The cash equaled the amount owed on the bill down to the dollar.

A company decides that receiving cash is inconvenient; it is easier for them to deal with checks. They make a policy, and an old man dies, because he didn’t have time to get to the bank before the cold got to him.

We are told that there is nothing to be done. Energy companies; PG&E and their ilk, must do what they do to make money. They are not charitable institutions, after all. Yet we do not ask them to be; we merely ask that they treat us with the dignity owed a member of the human race.

An airline took my luggage away. To be allowed the condescension of a communication with them, I had to wait an hour and a half on the phone. I was told that my luggage was gone completely, I was made to do without it for two weeks, and treated like a criminal by the company that took it from me. At last, it was found; it had been overlooked because the company failed to write down the description of it I gave them.

What does that have to do with power companies killing people? Everything.
Our government has decreed that there shall be greater or lesser areas of free competition in our economy. Those areas with the most competition; ventures on the internet or high tech sectors, service industries, building trades, and other areas, are known for the lengths to which a company will go to retain a customer. These businesses know that to treat a customer the way airlines and power utilities treat theirs, will not only shut them down, but probably saddle them with lawsuits as well.

The government is the most powerful force in the U.S. Economy. It can institute regulations and rules that define the ground under which private companies operate. The Government regulates how workers work; what constitutes a “safe” working environment, what constitutes a “clean” working environment with regard to the environment, what a company can and cannot do as regards to taxes, health care for workers, and a bevy of other activities. On top of all this, there are industries; chief among them utilities and communications, and airlines, that are subject to far more regulation than most.

We “know” that flying is dangerous; despite the fact that flying is statistically far safer than driving. If we could all commute to work via 747, we would suffer less than half as many fatalities while on our way somewhere. So, armed with the public willingness that a “dangerous” industry be kept “safe”, airlines are regulated ad infinitum by the government. This creates a maze of rules that have to be kept; things relating to how an aircraft is checked, who flies it; what qualifications a flight attendant must have, what construction a seat must have, what routes the carrier can use when, and other things. These add up to a byzantine array of laws, even not counting the complications added by our recent addition of new safety protocols after 9/11.

The larger the company, the easier it is to navigate a maze of red tape. This is because a larger firm can hire professional consultants and lawyers, hire lobbyists and former Federal inspectors, and successfully navigate the complexities of their operating environment despite the miles of red tape and thousands of pages of rules. A small firm has a far harder time in proportion; for they must go through just as much trouble just to fly one or two routes and the larger firm does to fly ten or fifty. Is it a surprise then, that while I was working on Capitol Hill I noticed that airline lobbyists tended to favor the status quo? They constantly talked as if it should be surprising to us that the airlines themselves favored more rules.

Well, why shouldn’t they? The greater the regulatory rigmarole in any given industry, the harder it is to start up a new company. We know that an industry has far freer competition if anybody with an idea for a better mouse trap can open a new business any time. The government protects the established players, and the established players lobby the government to keep it that way.

Utilities suffer from even more limitation. Many argue that utilities provide a “public good” that must be provided by a monopoly, and only a monopolistic industry is proper for generating electricity or piping in water, or even providing certain communication capabilities. States actively discourage competition, arguing, absurdly, that without the motive for “greed” brought in by competition, these industries can operate as altruistic endeavors, simply working for the public good. (And if you believe that is a good way to operate a company, look up the “Moskva” automobile of the former USSR; or, obviously, the USSR’s utility companies.)

While this idea that “greed” should not be a motive in a company that provides something that people’s lives depend on sounds good, it falls apart altogether under analysis. We rely utterly on the quality of manufacture of an automobile or elevator or even a building’s stairs every day; placing our very lives in the hands of the engineers who designed them. Why do firms build these things? Profit; or in the language prevalent in my home state of California; “greed”. You may say that we have all kinds of government intervention to ensure the safety of these things and I will point out that private, professional Engineering associations provide the majority of our quality assurance, very competently and reliably, and with minimal intervention by government. You can be sure of that building’s stairs holding up because a bunch of private professional Engineers certified the credentials of the person who designed them.

In the early days of telephony in the United States, we had thousands of telephone companies in our major urban areas. Hundreds of different telephone lines snaked their way over the heads of pedestrians in all our major cities, in some cases blotting out the sun. People complained, saying that there should be only one set of wires, the others being an eyesore. When the issue of companies not providing service to far-flung rural areas for profitability reasons came up, the government used the opportunity to step in and take over the entire industry, forming one, single, mega-company; which became known to America as “Ma Bell”.

Bell successfully stifled innovation for decades; keeping the telephone system from profiting from advances in computer technology far after these had revolutionized less monopolistic areas of life. The telephone remained almost identical for most of the 20th century, even as radios, televisions, and other appliances changed completely. The government had not waited for the phone industry to mature. Competiton would have driven most of the competing firms out of business, leaving a few dominant players in the cities. With the cities cornered by older firms, newer firms leveraging advances in technology would have found ways to provide coverage to rural areas, surviving on slimmer profit margins to do so. If we need an example of this, look at the way so much of the world, including semideveloped regions of Africa, have been included in cell phone coverage by private companies working for a profit motive. The government run telecoms said for years that coverage to many of these regions was impossible.

The government does not just intentionally create monopolies in the utility arena; it outlaws all competition. If we want a government mandated utility because a private company might leave somebody out for profit reasons, then why can’t we allow a private company alongside our government backed mega companies? The only way a private company might take customers away from the mega utility is if they wanted to cover them, thus eliminating the fear that they would not cover some people, and if people chose that company, it would not be because, as so many liberal politicians claim, it was “price gouging” them.

A monopoly is where one company totally controls an industry; an oligopoly is where very few companies control some economic sector. We see in consistent consumer rankings of satisfaction that the more oligopolistic a sector, the less satisfied people are with it. The more government interference, control, regulation, and red tape, the more oligopolistic it is. Oligopolies do not merely lose our luggage and treat us the way a Warsaw Pact government would have if we were trying to apply for a visa, at the extreme, they care so little for their customers that they literally kill them.

If I must use PG&E because it is the only electrical service in this area, and if they then require me to sign an absolutely obtuse contract in order to get service (so I do not freeze). If in that fine print is buried a clause that if I am late on my bill by a single day, the fee owe will literally double, then this is simple thievery. According to contract law, a contract is binding if neither party entered into that contract under duress. If I was under duress when entering into this agreement (in other words, I did not care to freeze to death); then how much right do they have to double my fee for a few hours tardiness? Is this fair? Could any company in an even marginally competitive sector treat people this way?

Not only do companies that pursue “greed” not allow old men to freeze to death because they don’t want to take cash; they go out of their way to save people who are not even reliant on them for the sake of the god PR it brings. Witness the McDonald’s branch that was opened next to the site of Ground Zero after 9/11 and served all the rescue crews and emergency personnel for free for weeks on end; the cost covered by the McDonald’s corporation. Witness what major hardware store franchises put together in aid packages with no government urging to send to people in Louisiana after Hurricane Katrina.

It is time to reassess the assumptions that have led to our worst-performing sectors and try to understand what we can do to fix them. While our White House seems to be happily nationalizing sector after sector, all it takes is a glance at what has already been done along this line to see what the result will be. Do you really want all the companies that have taken TARP money and are therefore controlled to some extent or other by the Federal Government to treat you the way the major airlines do?

I didn’t think so.


~ by Jubal Biggs on April 27, 2009.

3 Responses to “Oligopoly And The Death Of An Old Man”

  1. […] Original post by Jubal Biggs […]

  2. jubalbiggs.wordpress.com to GoogleReader!
    Have a nice day

  3. […] money. Altogether, they are about as likable as the power monopolies or airline oligopolies. (See; Oligopoly And The Death Of An Old Man). So of course, the credit card industry is an easy target. It is like that creepy saying from the […]

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