More on Anticompetitive practices

Last month I had some thoughts about the social utility of monopolies. A friend wrote in to remind me that market dominance and anti-competitive practices are not identical, and that US law prohibits anti-competitive practices. Just so.

I was reading some of the work of Walter Russell Mead, and I was struck by his description of the nostalgic/oppressive golden age of the 1950s.

In the old system, both blue collar and white collar workers hold stable jobs, a professional career civil service administers a growing state, with living standards for all social classes steadily rising while the gaps between the classes remain fairly stable, and with an increasing ‘social dividend’ being paid out in various forms: longer vacations, more and cheaper state-supported education, earlier retirement, shorter work weeks and so on.  Graduate from high school and you were pretty much guaranteed lifetime employment in a job that gave you a comfortable lower middle class lifestyle; graduate from college and you would be better paid and equally secure.

And just what guaranteed this?

The blue model rested on the post-Second World War industrial and economic system.  The ‘commanding heights’ of American business were controlled by a small number of monopolistic and oligopolistic firms.  AT&T, for example, was the only serious telephone company in the whole country, and both the services it offered and the prices it could charge were tightly regulated by the government.  The Big Three car-makers had a lock on the car market; in the halcyon days of the blue model there was no foreign competition.  A handful of airlines divided up the routes and the market; airlines could not compete by offering lower prices or by opening new routes without special government permission.  Banks, utilities, insurance companies, trucking companies had their rates and, essentially, their profit levels set by federal regulators.

The stable economic structure allowed a stable division of the pie.  Workers (much more heavily unionized then than now) got steady raises and stable jobs.  The government got a stable flow of tax revenues.  Shareholders got reasonably steady dividends.

There were a lot of problems with the old system.  For one thing, it rested in large part on systematic discrimination against women and minorities.  For another, consumers had very little leverage.  If you didn’t like the way the phone company treated you, you were perfectly free to do without phone service.  If you didn’t like badly made Detroit gas guzzlers that fell apart in a few years, you could get a horse.

The old system slowed innovation; AT&T had no interest in making huge investments in new and untested telecommunications technologies.  Rival companies and upstart firms were kept out of the controlled markets by explicit laws and regulations intended to stabilize the position of the leading companies in the system.

The costs and benefits of the public utlity model that allowed these firms to dominate their markets are clear, but the bit that really struck me was in the last paragraph, the claim that AT&T slowed innovation in this period. By way of example, AT&T suppressed an early answering machine invented in the 1930s because they feared a chilling effect caused a fear of recording previously unrecordable conversations, and also a loss of business. The article cites a few other technologies that were suppressed by Bell Labs, only to be invented somewhere else. Yet for all that, I think the transistor was probably a bigger deal than the answering machine, and AT&T wasn't concerned about that one. Overall, AT&T's behavior is broadly consistent with the public utility model posed by Mead and others. AT&T shared things that helped create general prosperity, and suppressed things that AT&T executives thought would threaten AT&T's market dominance. Overall, the result worked pretty well at the time. AT&T probably didn't slow innovation overall, except in certain specific technologies.