The Many Ways Governments Create Monopolies

Politicians tend to favor authoritarianism over capitalism and monopoly over competition. They have directly created monopolies (and oligopolies) in all major industrial sectors by imposing policies favoring preferred corporations and preferred special interests.

In 2017, University economists Jan De Loecker and Jan Eeckhout found monopolies behind nearly every economic problem. They have slowed economic growth and caused recessions, financial crises and depressions. These monopolies restrict the supply of goods and services so they can inflate prices and profits while also reducing quality. In addition, monopolies have decreased wages for non-monopolists by decreasing the competition for workers. This has led to wealth disparity, underemployment, unemployment and poverty.

Monopolies have also led to many societal problems. Unlike truly competitive firms, institutions that enjoy monopoly power have more freedom to discriminate against outsiders, especially women and minorities. They block innovation, the key to long-term prosperity. Monopolies have led to imperialism and wars.

Today, the eight major industrial sectors, controlling about 92 percent of the economy (GDP), are dominated by special interests receiving preferential political policies. These include:

Banking (8%) is monopolized through the Federal Reserve central bank that regulates the banks and favors big over small banks, especially when controlling interest rates through the buying and selling of bonds from and to the big banks, respectively.
Housing (15%) is monopolized through the Fannie/Freddie home mortgage duopoly and Federal Housing Administration that finance and promote larger homes and urban sprawl; while local politicians favor real estate developer cronies.
Health care (18%) is monopolized through state licensure laws restricting the supply of doctors and other health professionals (according to Nobel Prize winning economist Milton Friedman), certificate-of-need laws limiting the supply of hospitals, government and government-encouraged corporate buyer monopolies, and federal drug patent and other intellectual property laws.
Agriculture (8%) is monopolized through subsidies favoring traditional crops and the monopolies selling inputs for and outputs from those crops, including seeds (e.g., GMO), corporate mono-culture farms and junk food processors. The subsidies discourage the development of alternative crops, diversified family farms and healthier foods. Subsidized crop exports traded by international conglomerates have been rendering agriculture uncompetitive in the developing world.
Energy (12%) is monopolized through the U.S. government-encouraged OPEC oil cartel while U.S. electricity and natural gas markets are controlled by territorial utility monopolies. The utility monopolies conduct rigged bidding of power supplies favoring cronies. The U.S. also creates energy monopolies by picking winners and losers among fuel types. Big Oil & Gas receives preferential exemptions from environmental regulations for fracking. The natural gas by-product of oil fracking is favored over otherwise lower-cost coal in base-load electricity markets and for backing up favored wind and solar energy. Wind and solar energy, and also ethanol vehicle fuel made from corn and cellulose, receive tailored mandates and subsidies that block the development of other potentially lower-cost energies including renewables .
Transportation (10%) is monopolized through government regulations, including bailouts, favoring the Big Three automakers and airport favoritism for the four major airlines.
Technology (8%) is monopolized through patent and copyright laws while regulated territorial franchises are awarded to local telephone, internet and cable monopolies .
Government (13%) has created public monopolies through dominant federal, state and local funding, especially education.

These monopolies affect both consumer and government spending. Consumer spending, which is about 70 percent of the economy, is dominated by housing (36%), food (14%), transportation (14%), energy (9%), health care (8%) and education (3%). The U.S. government spends mostly on health care (30-35%), defense (20%), food (4%), education (3%), transportation (2%) and housing (2%). State spending is about 30 percent for education.

Education, health care and energy monopolies receive extreme favoritism, control nearly 40 percent of the economy and are responsible for most of today’s economic problems. Since the Great Inflation of the 1970s, monopolies in the education, medical and energy sectors have restricted supply, while demand has been growing, causing consumer prices to inflate (see figure) more than wages have risen. Energy is nearly a third of transportation costs and a tenth of housing and agriculture.

Meanwhile, public education controls 92 percent of K-12 and 78 percent of higher education. Colleges achieved monopoly power through preferential government funding that has covered the majority of revenues. Since 1980, college enrollment rose almost 150% while the number of four-year colleges rose only about 50%, thus increasing their market power. Market entry has been discouraged by the disadvantages of not receiving past, and even present, subsidies. Increasing demand and the suppressed supply of competitors has inflated total prices for college.

The U.S. “health care cost crisis” started in 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded at twice the rate of inflation. These inflated costs have also increased the cost of clinical trials needed by the drug industry. Since 1984, the drug industry has increased their profit margins to among the highest of all industries by successfully lobbying for overly-generous intellectual property rights (on top of patents).

Politicians likely support these policies in part because they make financial donations and other contributions to their election campaigns. They make excuses for their interventions favoring monopolies by alleging market imperfections or failures that may or may not exist. However, they often declare market failures without much evidence or even analysis.

As science historian James Burke said: “You can only know where you’re going if you know where you’ve been.” Capitalism has always been unfairly blamed for market failures, monopolies and economic problems. For more than three centuries, most of America has aimlessly suffered through disguised, evolving and perverse forms of authoritarian economies created with government policies favoring monopolies and ineffective regulation: mercantilism before 1900, then socialism until the 1970s, and corporatism since.

This article is adapted from a draft report published by Americans Against Monopolies.

Mike Holly received a Master of Business Administration from the University of Minnesota in 1980. This paper is an updated and condensed version of his thesis. He did his internship at the Minnesota Department of Health where he invented an ambulance allocation model. Since that time, he received a Master of Chemical Engineering from the University of Minnesota in 1983, worked as an Alternative Energy Engineer and Business Analyst with the Minnesota Department of Energy and Economic Development from 1984-5, and founded Sorgo Fuels and Chemicals, Inc. in 1985 where he now works. This article was sourced from Mises.org.

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