A Liberal Replies To Mr. Pizzigati

Karl Muth responds to a recent opinion piece on modern monopolies.

Mr. Pizzigati, in his piece Taming Modern Monopolies, suggests that it is the growing (and, in my view, deserved) popularity of liberal policies that has created monopoly enclaves, supernormal rents, and abuses of market power. He could not be more mistaken.

It is not the presence of some liberal attitudes in policymaking that has created these ills, but a shortage of liberal attitudes; those embarking on liberalisation and privatisation have carelessly stopped at some arbitrary point along the way, leaving destruction, inefficiency, and inequality (though this last one of the three frankly bothers me the least) in their wake.

Ideally, these policies would not be brought merely within the ambit of a legislature’s consideration, but within the passionate embrace of its legislative action. Rather than liberal policies being the unweeded dandelions at the edge of Westminster’s curtilage, they should be roses in a vase central in Octagon Hall. Instead, they have been developed with the whole of the enthusiasm Jeremy Clarkson reserves for wooden cars from Malvern Link.

There is no segment of society, academia, or economics that has more staunchly or loudly opposed monopolies than those of us with liberal and neoliberal tendencies. Those residing at the cutting edge of the liberal scimitar – and by this I mean Becker, Murphy, Posner, and other scholars – agree that monopolies must be identified and dismantled. To say that most liberals favour monopolies in some fundamental sense is like saying that most vegans show a general euphoria for the concept of foie gras.

So, that aside, I presume that Mr. Pizzigati contends instead that private exploitation of monopoly positions is some sort of unintended side effect of liberalisation and privatisation. Here, too, he would be wrong. To judge liberal attitudes and policies by their haphazard and incompetent partial implementation in markets such as England is to say that all heart surgery is deadly, as can be observed from a sample of heart surgeries where the surgeon began the surgery and then elected to go take a nap after only a quarter of the surgery had been completed, the patient sliced open and then abandoned.

The problem is not privatisation, but incomplete privatisation. The problem is not liberal advice, but the failure to integrate that advice. The critic who looks at anything in modern Britain and blames liberalism or neoliberalism or deregulation or privatisation does not know what he is observing. Calling partial privatisation experiments with the Post or with rail “privatisation” is to term a woman without gloves nudity, or to call a chicken on a three-inch lead “free range.”

Even if the Government began with liberal, deregulated, market-driven, successful policy frameworks (which it hasn’t, ever), it would inevitably go on to add a little more welfare here, a little more intervention there, a little more oversight here, and you have a different species of the same compromised, overregulated, overmonitored mess with which you began; it is the proverbial giraffe. Pizzigati’s example of Carlos Slim’s purchase of Telmex is problematic for this reason: Slim was able to become vastly wealthy not because of underregulation, but because of overregulation – through a mixture of government incompetence, crony influence, and overregulation (which actually cemented Slim’s position and introduced barriers to entry, discouraging foreign firms like AT&T and Sprint which had earlier shown an interest in entering the Mexican marketplace), the Mexican government handed Slim billions. Carlos Slim is a product, and beneficiary, of an overregulated, overly-reactionary, overly-interventionist, overly-managed Mexican environment.

If Pizzigati wants to learn from a market that is permeated with good information, fierce competition, and no monopoly players, he should look to the American education market. I spend a few days each spring and autumn interviewing potential students for the University of Chicago’s business school, where I am a member of the Admissions Committee. Though it has been rated the top business school in the world four of the past five years by the Economist, it still must compete for the best minds, who may also have applications and ambitions at Stanford, Harvard, or Wharton. The education market is thriving in the U.S., with momentous competition between different business models (for-profit, non-profit, government-administrated universities all compete for the same students), degree alternatives (various online courses, non-degree certifications, industry- or firm-centric indicators of competence), and an increasingly-international population of candidates (top universities in America receive applications from all over the world).

The deregulation of the American educational system has proven one of its greatest strengths, and has lent it the flexibility to weather enormous changes in market conditions. Top institutions could increase their tuitions by 50% or 100%, but they would see a dramatic decrease in applications - even the top institutions must compete on a variety of vectors, including price. Competition has driven innovation in other areas as well, including creativity in partnerships between universities and firms in industry (from pharmaceutical companies to software startups) and adjustment of curriculum to meet student needs (the number of part-time study programmes for young professionals who plan to work whilst studying, including at the very top schools, has ballooned in the past three decades). Yes, tuition has outperformed inflation – but so, too, have incomes for the bankers, consultants, doctors, entrepreneurs, investors, and lawyers that top institutions produce.

In sum, the problems that trouble Mr. Pizzigati are not problems that come from liberalisation or privatisation. Instead, these problems derive and descend directly from industry and economy being polluted by the frolics of bureaucrats, the flourishes of legislators, and the meddlings of meddlers. The problem with both privatisation and liberalisation in the European context, whether British or Continental in its particular locus, is that no politician possesses the mandate or bravery to implement changes that would be anything more than occasional, ornamental meanderings toward more reasonable, less tethered market conditions.