Showing posts with label cartels. Show all posts
Showing posts with label cartels. Show all posts

Sunday, July 13, 2014

The Cartel Puzzle

Here's a homework assignment to occupy your minds while I'm away.*  In the winter/spring of 1901, J. P. Morgan and his minions assembled what became if not the first, then certainly one of the greatest, of industrial cartels.  The venture  made millionaires out of countless plodding managers who had surely never dreamt of wealth on anything like so grand a scale.  During its first year of operation (per Wiki) it comprised something like 67 percent of the nation's steel production.

It would be fascinating to look inside the mind of Morgan as he orchestrated this great edifice.  Money of course; Morgan clearly loved money.  Yet even more than money, he seems to have loved power, and together with power, good order.  Morgan clearly found competition anarchic and, worse, wasteful A part of him very likely believed that by creating US Steel, he had built an enterprise that would make a better life for it workers and its customers as well as its owners.

Perhaps he did.  Yet it is clear that he also created a virtual showcase for the economic vices of the cartel: a company almost Ottoman in its sluggish complacency--a company which, in after the miracle of its creation, seems never to have done anything innovative or ground-breaking in industrial history ever again.  You could see all this, if not before, then in the post-World-War-II period when the great behemoth painfully lurched towards irrelevance.  As upstarts around the world began to devise new ways to do an old business, USS (and, yes, its unions) slowly choked on a virtual edema of excuses and evasions.

Now compare US Steel with ATT, "the telephone company," another and even more explicit monopoly/cartel, created just six years later.  It's easy to forget in the mist of time that ATT did not begin life as the "natural monopoly" as so many people may age were long habituated to regard it.  No: it took unction  and guile and a lot of hard work to clothe  the original telephone idea with the garment of universality that gaze the system its sanctity.

But here's the fascinating parallel.  As I say, USS (would anybody argue with this?) never innovated anything.  Meanwhile ATT in 1925, still just at the beginning of its ascent to dominance, spun off what may well be the most enduringly creative research institution in the history of the United States, maybe the world.

For valuable prizes, why did one company become USS and the other become ATT?

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*Oh, didn't I mention?   We're off to Europe for some summertime opera.  No, not Wagner, we don't do Wagner.

Monday, December 10, 2012

The Virtues of the Cartel

Did you happen to catch Adam Davidson's NYT piece a few years ago on the implications of monopoly in cable TV?   Shorter Adam: (1) it's greedy, predatory and generally evil; and (2) lucky us.

Oh I exaggerate, But not by a lot. Davidson's  point was that we are living in a golden age of high-quality TV which comes to pass because viewers demand good shows and because the greedy bastards down at the cable company have enough (of our) money to pay for them.

Look, is it just me?  Maybe, but anyway--seems like lately, every place I turn, I'm running across somebody who is saying good things about monopoly power.  Recall a while back I commented on Jon Gertner's The Idea Factory, exploring the argument that only a monopoly can afford to splash out on a huge research agenda?  This is akin to the point that Davidson is making here, yes?  A commentator in Davidson's thread makes essentially that same point.


And all that stuff about the 50s--how they were a golden age of strong unions, steady wages and CEOs not yet insulated from the rest of us.   There seems to be no consensus on how these good times came to pass, but one thing is clear: it was an age of cartels.  Tracking Michael Lind, I review the bidding: three car companies; three steel companies; three networks; two makers of jet engines; restricted-entry trucking and airlines; a regulated telephone monopoly, lots of regulated utilities, not to mention oil under the thumb of the Texas Railroad Commission?

We're glad to be rid of all that right?  Right?   Do I hear an echo?  Do I hear a bit of nostalgia for the old days?   I mean--okay, maybe we have more choice on the tube, but was it an improvement to trade Walter Cronkite for Rush Limbaugh?   Sure, plane ticket are cheaper but has service ever been more awful?  And trucking--well, if ever there was an industry that you'd think did not need cartelized regulation this is it, but could it be that if we had a bit less savage competition in trucking, we might have fewer driver pitching plastic bottles of pee out the window?

And the real clincher: every one of these cartelized industries had a union labor force.   I don't think this point should come as a surprise, but perhaps it does: in casual conversation I get the intuition that people aren't comfortable thinking of unions as just another part of the cartel.

I don't want to be read a making the strong case for cartels here.   The topic is rife with (at least) ambiguities and cross currents; the Davidson comment thread is an okay place to start.    And maybe I'm just dealing with a constant in human nature here: doesn't there always come a point in the new romance where you wonder for just a moment if maybe you'd been too quick to dump the old?

Thursday, September 01, 2011

Ambiguities of Competition: Mexico

Economist's special on Mexico makes a thorough and plausible (but somewhat predictable) onslaught against cartelization in, e.g., telecom, oil, pharma, air transport, etc. One industry that is not cartelized, per the E: the "other" pharma, the Mexican drug (as we call them) cartels. Lower murder rate in telecoms, though, I suspect.