Western capitalism evidently has become rotten, repulsive and deplorable. The system we now have is not capitalism, at least not the healthy form of capitalism which exists at the beginning of the economic system’s cycle. What we now have is the decaying carcass of the system that once existed in the West. Today, the top 1% of the population owns more than 50% of the total global wealth. This evidently is beginning of the end of the economic system’s cycle and end of capitalism as we know it. Jonathan Tepper, the author of The Myth of Capitalism: Monopolies and the Death of Competition (Wiley, 2019) has rightly diagnosed the problem to be solely related to monopolies.
The author exposes with evidence all that is wrong with the current system. He believes that monopolies are killing the original concept of capitalism, arguing that in a healthy capitalist milieu, competition should be thriving. Monopolies were not the norm over a hundred years ago, back then, competition flourished and new start-ups with new ideas were encouraged by the government policies. However, over the last half-century, with the relaxation of rules, mergers were made easier and the big players began to gobble up their potential competitors. Mergers and acquisitions have killed competition.
Monopolies are parasitic says Jonathan Tepper, and like all parasites eventually they may not become an existential threat to the host, but they prevent healthy growth of the economy. Just to give you a glimpse of the status quo, here are three examples from the book:
- While America's economy grows every year, the number of listed companies is shrinking.
- Under Clinton, the defence companies went from over 100 down to 5 major defence contractors, many with no competitors in their respective weapons systems.
- Between Google, Amazon, Apple, Facebook, and Microsoft more than 500 companies have been bought out in the past decade.
The problem lies in the systemic corruption that is rife in most governments. This problem is twofold; the biggest being lobbying and secondly the regulations. All industries that have monopolies have regulatory bodies. What is shocking is that the regulatory bodies are there not to protect the rights of consumers but to prevent competition for the cartels, by making it difficult for new players to enter the market. Thus, we have four to six major players monopolising their respective industries. Big businesses have huge budgets and together with lobbying power and political connections, they influence government decisions. In many cases, they make the rules.
In Bed With The Monopolists
In theory, the job of the government should be to protect its citizens from any kind of harm. In practice, cartels are controlling the government. The consumers’ lack any safety. Big businesses know that “you really can hike prices and get higher profits when you have little competition.” Mergers have only led to more profits and never a reduction in prices for consumers. Alas, the bigger profits do not result in higher employment nor do giant corporations invest more in R&D. Huge sums of money (trillions) is stored in offshore accounts.
The timing of this book is impeccable. Jonathan Tepper has written one of the most insightful, encyclopaedic and controversial books on capitalism. The reason I say controversial is that not everyone will accept all his solutions offered, including myself. I do not doubt his prowess on the subject; in fact, I support all that he wrote. My criticism is not on what he said, but what he left out; i.e. lobbying. Unless lobbing the governments by big business is criminalised, and made unlawful, legislators will continue to serve the interest of cartels. We need to think outside the box. It would be naïve to expect the corrupt system to police itself, it will never police itself. The book is most certainly thought-provoking and the readers need to be clear-headed, lucid and open to new ideas.
In the end, you have to call a spade a spade. Marketplace without competition is a highly consolidated marketplace with a few major players in each space. To call this a ‘market economy’ is a false pretext. As Jonathan Tepper says these are oligarchs and cartels whose only goal is higher profits and accumulation of more wealth. But such profitability is incompatible with the welfare of the rest of society. For example, to increase their profits these giant corporations are squeezing both ends; the workers’ wages are suppressed and the suppliers are paid minimum rates for their products or services.
“In a monopoly, one company is the only seller and can hike prices as it likes. In a monopsony, one company is the only buyer and can pay whatever prices or wages it likes.”
To resist temptation is the true measure of a character. But most CEOs are trained to succumb to their temptation for higher profits. According to Jonathan Tepper, “for the past six decades, the disciples of Nobel Prize-winning economist Milton Friedman have been emphasizing that the only duty of a corporation is to generate profits and a return on investment.” This is the golden rule that is taught in MBA studies. This has alas helped to create the mind-set of a capitalist society’s leaders and no one dares to challenge the stupidity of the idea or remove it from business books. Another word for unprecedented profits is greed.
These giant corporations’ craving for more profits and more growth shows that there is no limit to their desires for more and more. Jonathan Tepper mentions about IG Farben, a German conglomerate that played a major role in Nazi Germany’s war efforts. I was left wondering if Jonathan Tepper was implicitly telling us how monopolies are always behind the wars; including those in the Middle East. If this is true, we can also assume these cartels must be behind the Brexit too and Great Britain is being sold down the toilet or in a more polite language privatised. NHS and agriculture industry’s future is being negotiated with American companies.
It is apparent that America’s big businesses are salivating over opportunities to grow outside of the USA. Jonathan Tepp predicts that if this trend continues, by 2070 we will only have one company per industry. In America, you can see both extremes of capitalism; on the glittery side the billionaires getting richer and on the ugly side you can see the workers in chicken meat processing factories told to wear diapers as no breaks are allowed. Sadly, such abuses are a result of monopoly power. Workers have no union protection and they lack choices. I guess, all is fair in the name of profits and wars!
Low Growth And Inequality
The collapse in the competition is happening across most of the economy, says Jonathan Tepper, and over the 15-year period from 1997 to 2012 two-thirds of American industries were concentrated in the hands of a few firms. He agrees that “what we see today is the result of the urge to monopolize, where big companies eat up the small, and government is captured to rig the rules of the game for the strong at the expense of the weak.” I agree with him that it doesn't matter how you look at it, competition is dying in the United States. The numbers speak for themselves. “In the boom years of the 1990s there were an average of 436 IPOs per year in the US. In 2016, we saw only 74 IPOs. The great American economic machine is slowly grinding to a halt.”
What we are witnessing is extreme corporate cannibalism. Maybe this is the true nature of capitalism and this is why it has become rotten, repulsive and deplorable. I can only agree with Jonathan Tepper that it is not low growth that is increasing inequality but the rise of market concentration and the death of competition. He does provide some excellent suggestions on how to fix the problem we are facing. The huge task to fix the problem should not be underestimated as cartels control the government.
Perhaps, instead of trying to fix the obsolescent system, we should seek readymade solutions elsewhere. As I said, we need to think outside the box. One possible solution is, in Islam, monopolies, cartels, lobbying, oligarchies, and monopsony are prohibited. Then there are mandatory 2½ taxes on total wealth in Islam as well. Is this the reason why cartels want wars in the Middle East?
As I have mentioned numerous times in RTM, human mind thrives on challenges and competition. Competition is one of the most powerful laws of nature. If we want to excel then we need competition. Similarly, capitalism with a healthy dose of the competition will always help the economy thrive. We need to outlaw monopolies and allow competition in all industries. Whether we like to admit it or not, we need a healthy competition for restoring the mind.