Oligopoly

Guest Post by The Zman

Way back at the dawn of the internet age, the people paid to promote the interests of the ruling elite came up with the phrase “new economy” to describe the rise of electronic commerce. The idea was that it was not just a different way of doing the same stuff, internet sites instead of catalogs, for example, but a new type of economics. The old idea of a business having a building, employees and profits, was being replaced by the virtual business that existed as idea on-line, without a defined physical presence.

This idea that we were about to step through the barrier between the world governed by classical economics into a new world controlled by new economics was very popular with the business press. Guys like James Glassman wrote books about stock valuations based on this new form of economics, where companies that had no assets and no profits, had stratospheric share prices. These predictions were hilariously wrong in the short term, but the whole new economy stuff has proven to be false in the long run too.

As Peter Thiel explains in his book, Zero to One: Notes on Startups, or How to Build the Future, the key to this “new” economy is an idea as old as civilization. That is, the successful enterprise first seeks a monopoly or control of some bottleneck in the economy, in order to extract rents from the market. By gaining monopoly control of a market or critical juncture in a market, the enterprise is then able to operate like a highwayman, demanding money from those conducting normal commerce.

This is why technology companies quickly moved from creating innovative technology to creating barriers between themselves and competitors. The abuse of the patent system, for example, is about raising barriers to entry. There is nothing all that clever about what PayPal does, but they operate as a monopoly because they own patents on just about anything required to build a competitive service. The last mile of walling themselves off from competition is active collusion with the banks to keep out competitors.

The result is the new economy looks a lot like a very old economy, the one we used to call feudalism. A small number of people control vast swaths of property, forcing everyone else to accept a vassal relationship. They can effectively control entire sectors of the economy, simply by maintaining control of key points or by maintaining near monopoly status in certain areas. Google and Apple control the mobile phone market, by controlling the mobile OS. That’s why an open source alternative has never appeared.

That’s the real value of market dominance. A useful example from the classical period is how Athens rose to dominance after the Persian wars. The Athenians did not have to control every polis in order to be the regional hegemon. They had the biggest navy, so they could control the seas, which forced the other city states to submit to the leadership of Athens. In other words, controlling the choke point, the sea lanes, gave Athens control of commerce, which forced everyone else to follow the lead of Athens.

Just as the Greco-Persian wars shattered the old relationships in Greece, allowing Athens to transcend the other city-states, the internet shattered the old economic relationships, allowing these new robber barons to rush in and make themselves market hegemons. Now they are taking this power and doing the same for the flow of information and control of political discourse. This story about what Apple is plotting is a great example. The New York Times used to be a gatekeeper, but now they will be a vassal to Apple.

There are two things worth noting about the true nature of the “new” economy. One is it is more proof that a core tenet of libertarianism is false. Markets do not naturally devolve into ad hoc competitions with low barriers to entry. In fact, there is no such thing as a natural market. Without some central authority, willing to use force, to maintain a market, eventually a handful of oligarchs rise up to control the market. Once they control the market, they turn everyone else in that market into a vassal.

The other thing, the more important thing, is that the real enemy of the West is not our increasingly bizarre political class. In fact, their bizarre rantings are probably a symptom tied to the growing oligarchical power of the tech and finance giants. Lacking real power, the politic class is then free to indulge in bizarre behavior. The new oligarchs are subverting the political class by providing them with a lifestyle they believe they deserve and protecting them from competition. It’s why 2016 was so horrifying to them.

It’s also why in the aftermath of 2016, the oligarchs invested heavily in stamping out dissent. They were sure their “soft” methods had worked to rig all elections as a choice between their two preferred choices. The results of 2016 refuted that, so they have gone to the use of “hard” power with naked censorship and de-platforming. Soon, the oligarchs will control enough to make sure the theater of democracy is exactly that, theater. This may be why Trump is so eagerly becoming a stooge for the people he once opposed.

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