Antitrust law may curb growth<\/p>\n
By Christopher Lingle<\/p>\n
UBUD, Bali (JP): New antitrust legislation passed in Indonesia
\nis likely to place an unintentional burden on the economy. In
\nparticular, proposals to exempt state enterprises from
\nantimonopoly actions while targeting any and all private
\ncompanies is the exact opposite of what solid economic theory
\nwould prescribe. Companies enjoying monopoly privileges should
\nlose them unconditionally, while markets should be allowed to
\noperate to undo private sector monopolies.<\/p>\n
The argument is that immunity from antimonopoly legislation
\nmight be granted to state companies that supposedly provide
\n\"vital\" goods or services to the public. This may seem plausible
\non its face. However, this condition is highly subjective and
\nprone to politicization. Given the endemic corruption in Jakarta,
\nsuch open-ended exemptions should set off alarm bells.<\/p>\n
In all events, most of Indonesia's monopolies are cartels
\ncreated by government policies in the first place. Government-
\ngranted monopolies, whether to state-owned or private companies,
\nwill encourage and prolong inefficiencies that eventually are
\neliminated under competitive market conditions. Economic logic
\nsuggests that it is only government-sanctioned monopolies that
\ncan survive in the long run.<\/p>\n
This can be seen by considering what lies behind the implied
\ndangers of market power. In terms of monopolies, they are all-
\npowerful since they are literally the sole seller in a market.
\nHowever, this situation is quite rare and most have short lives.
\nThat is, unless government intervention restricts the entry of
\ncompetitors. Most economists understand that monopolies exist and
\nsurvive in the long run due to government interventions in the
\nfirst place. If not, monopolies eventually become what Ludwig von
\nMises referred to as a \"trivial\" economic problem because self-
\nadjusting market mechanisms eliminate them in the long run.<\/p>\n
The eventual market destruction of monopolies is so certain
\nthat I offer my students an \"A\" grade, without taking any
\nexaminations, if they identify a counter example. All they must
\ndo is point out a monopoly producer whose actions: (1) injure the
\ncommunity (overprice and underproduce) so that consumers pay
\nhigher prices and have less choice and (2) survive without
\ngovernment restrictions on the entry of competitors. I made this
\noffer for over 20 years as an economics professor without having
\nonce to deliver on the deal.<\/p>\n
Under competitive conditions and without government
\ninterference to protect them, monopolists simply cannot survive.
\nMonopoly positions are undone by the dynamics of time that allow
\nfor consumers and other producers to react to the higher prices
\nand profits arising from restrictions on output. In effect,
\neventually everything that is relevant to the market will change.<\/p>\n
Changing relative prices induce consumers to seek substitutes
\nor for other producers making them. Changing tastes and
\npreferences result from new information about other goods.
\nChanging technology reduces the value and community impact of a
\nmonopoly. Industries undergoing rapid technological changes will
\ndispose of monopolists the most promptly. Presumably, even
\nMicrosoft will be forced to re-engineer itself or it will be
\nrendered ineffective and become a non-viable competitor.<\/p>\n
If monopolies are so rare, might it seem strange that so many
\nvaliant defenders of public interest seek to undertake antitrust
\nactions with such self-righteous conviction? A partial answer may
\nreside in political rather than economic impulses. On the one
\nhand, attacks on large corporations have considerable populist
\nappeal. Generally, citizens and consumers tend to be more in awe
\nof private corporations than they are of the power of their
\ngovernments. (And this despite the fact that there are many more
\nmechanisms to punish private sector actors than there are for the
\nremoval of public employees.) On the other hand, competitors will
\nbe delighted by threats of legal action on their behalf by
\nbureaucrats who may be prone to financial inducements (bribery)
\nto do so.<\/p>\n
Ironically, antitrust actions might do more harm than good.
\nBut it should come as no surprise that often there is a wide gulf
\nbetween intentions of public officials and outcomes of public
\npolicy. Consider the impacts of a recession or inflation. Perhaps
\ngovernment officials did not wish to inflict pain upon their
\ncitizens of these circumstances. Yet, ill-timed or ill-conceived
\ngovernment policy actions are the basis of every economic
\ndownturn or price upsurge in history.<\/p>\n
In a global economy, nimbleness and rapid response will become
\nincreasingly necessary. Therefore, large firm size may be its own
\npunishment in certain markets. If Microsoft is \"too large\" and
\ndoes not respond to world competitive pressures, the market will
\ninflict far greater punishment than legal bureaucrats might wish
\nto do.<\/p>\n
However, if large size is an advantage in the global setting,
\nit would be imprudent to impose a legally imposed downsizing of
\nMicrosoft or any other industrial behemoth. Since \"downsizing\"
\nbased upon corporate logic has led to its share of mistakes, it
\ncan be expected that political logic will be even more short-
\nsighted.<\/p>\n
In sum, ill-advised antitrust legislation can be expected to
\nresult in unnecessary interference with corporate growth or
\nblocking of mergers that might have resulted in efficiency gains.
\nSuch results will impose costs on the community that include
\nlower quality products, fewer choices, less R&D and higher
\nprices. The best antitrust protection is to ensure that domestic
\nand international markets are open and aggressively competitive.<\/p>\n
The writer is an independent corporate consultant and adjunct
\nscholar of the Center for Independent Studies in Sydney who
\nauthored The Rise and Decline of the Asian Century (Hong Kong:
\nAsia 2000, 1998).<\/p>",
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