Defending Laissez-faire

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Robert Reich (Speaking Out, October 1982) suggests that small business should be arguing with the Reagan Administration for strong enforcement of the country's antitrust laws. Those laws, Reich contends, protect small companies from the predations of unfair competitors and protect the United States from greedy monopolists. Reich is just plain wrong.

There are two kinds of monopolies. Competitive monopolies arise in a free economy when a company sells a unique product or service that others don't care to produce or cannot produce at the same price. That is the kind of monopoly IBM achieved for a time in the computer industry and the kind of monopoly McDonald's achieved when it introduced the fast-food hamburger.

The second kind of monopoly is the coercive monopoly, and only government has the power to coerce. The U.S. Postal Service is a coercive monopoly, created when the government made illegal the delivery of first-class mail by anyone but the Post Office.

The important difference between these two is that the coercive monopoly can exist indefinitely, no matter how inadequate or overpriced the product or service. Federal Express could probably put the Post Office out of business tomorrow if the government weren't protecting the Post Office by law.

The competitive monopoly, on the other hand, lasts only until someone creates a better, or a cheaper, product. Neither IBM nor McDonald's can control its own market.

Reich cites as damning evidence the Standard Oil Trust created by John D. Rockefeller. But he fails to point out that Rockefeller created his trust in the preautomotive days of the late nineteenth century when petroleum consumption amounted to less than 1% of the gross national product. No one probably not even Reich, can argue seriously that the Standard Oil Trust could still exist today even if Congress hadn't passed the Sherman Antitrust Act.

As for Reich's contention that big business has too much influence over lawmakers and utilizes that influence to its own advantage, of course it cloes. However the way to solve that problem isn't to create another set of laws. If government didn't interfere with business, then business wouldn't be trying to influence government. The only way to solve the problem is to get the government out of business.