Progressive Libertarianism
Part 6: Inequality, Bigness, and Monopoly
The Democracy of the Market
The proponents of the market system often speak of the “democracy of the market” to suggest that every consumer casts votes with their dollars, influencing the market process by choosing what to buy and from whom. If you don’t like the quality of the products and services from one company, you can choose to “vote with your dollars” by taking your business elsewhere. This free-market principle is often praised for promoting efficiency and innovation, as businesses must compete for “votes” (dollars) by offering better products, services, and prices than their competitors. What is often overlooked, however, is that for the market to be truly democratic, there must be a relatively equal distribution of money or incomes. Yet, at the same time, the functioning of price signals requires some relative inequality of incomes as well.
In a political democracy, each person typically has one vote, giving all people equal influence regardless of their economic status. If the market is to mirror this democratic ideal, there must be a relatively equal number of “votes” (dollars) in the hands of each citizen. Stark disparities of income and wealth mean that the purchasing power (and thus, the market influence) of individuals varies widely. This disparity means that people with more money have disproportionately higher voting power in the marketplace, rendering the system undemocratic. When significant income and wealth inequalities exist, such as billionaires alongside individuals who are totally destitute, the market can become skewed. High-income individuals can influence market outcomes far more than those at the lower end of the economic spectrum. For example, luxury goods and services may receive disproportionate attention from producers, while basic necessities might be overlooked if they are less profitable, despite being more crucial for the larger population.
In a market heavily influenced by a small group of wealthy individuals, the demand reflected will not actually represent the needs and desires of the majority — the market would not actually be democratic. Businesses will cater more to the whims of the wealthy, investing in products that do not benefit broader society (e.g. luxury cars, yachts, and high-end real estate) rather than in things like affordable housing and affordable transportation. The skewed demand signals created by inequality can also lead to higher prices and fewer choices for consumers.
Nevertheless, we must also guard against the excesses of egalitarianism. One man’s spending is another man’s income. Your employer is spending when they pay your income. And voting in the democracy of the market only works because we can give excess dollars to certain businesses that we favor. If we were to attempt to create an extreme form of egalitarianism — such as that proposed by Josiah Warren, when he suggested that price ought always to be limited to the cost of production, so that no profit ever exists — we would thereby undermine the entire price system. The act of us voting with our dollars will create some relative inequality of incomes as more of those votes (as incomes) flow into the hands of businesses that we like.
The optimal functioning of the “democracy of the market,” therefore, requires both a relatively equal distribution of incomes and a relatively unequal distribution of incomes — or, in other words, the market can only be democratic if we steer a middle path between excesses of equality and inequality.
Free-Market Distributism
I have previously talked about distributism and property-owning democracy — the idea that productive property ought to be widely distributed rather than concentrated into the hands of the few. This idea has had advocates on the right (e.g. Noel Skelton, Wilhelm Röpke, Irving Kristol, and G. K. Chesterton) and on the left (e.g. James Meade, John Rawls, and Alan Thomas). The conservative and the libertarian, I believe, ought to desire a widespread distribution of ownership because such a situation would naturally emerge under free-market conditions. In a purely free market, we would see many small-scale enterprises and more small partnerships and co-operatives rather than the relatively few big hierarchical managerial firms that we see today. The reason we see so much bigness in the economy today is because the government systematically subsidizes centralization and bigness.
The libertarian theorist Kevin A. Carson writes:
“The main reason modern production is so centralized and both firms and market areas are so large, is that the state has subsidized transportation infrastructure at the expense of the general public, and made it artificially cheap to ship goods long distance. This makes large-scale, inefficient producers artificially competative against small-scale producers in the local markets they invade with the state’s help. That’s why we have giant retail chains driving local retailers out of business…” — Kevin A. Carson (Who Owns the Benefit? The Free Market as Full Communism)
In a purely free-market system, without the government subsidizing the transportation of goods and services through the interstate highway system, most production would naturally be done for distribution in the local area. The scale of production and the area of distribution would naturally be quite limited. A purely free-market system, without government subsidizing bigness, would naturally have a distributist economy.
Elsewhere, Carson writes:
“The effects of the state’s subsidies and regulations are 1) to encourage creation of production facilities on such a large scale that they are not viable in a free market, and cannot dispose of their full product domestically; 2) to promote monopoly prices above market clearing levels; and 3) to set up market entry barriers and put new or smaller firms at a competative disadvantage, so as to deny adequate domestic outlets for investment capital. The result is a crisis of overproduction and surplus capital, and a spiraling process of increasing statism as politically connected corporate interests act through the state to resolve the crisis.” — Kevin A. Carson (Studies in Mutualist Political Economy, Ch. 6)
The big, centralized and over-grown corporations that exist under actually existing capitalism would not exist under truly free-market conditions. A truly free market would result in a wider distribution of ownership of the means of production and, consequently, also a wider distribution of incomes. In an ideal free-market system, devoid of government intervention, wealth and incomes would be more evenly distributed across the population.
Monopoly and Oligopoly
In examining the landscape of modern capitalism, it becomes apparent that many industries dominated by monopolies and oligopolies are not purely the products of market forces. According to the arguments presented by Kevin A. Carson, the existing market system is significantly shaped by governmental intervention. Large-scale national industries and oligopolies do not arise under free-market conditions. In reality, government policies foster these concentrations of market power.
State interventions in the form of regulations, subsidies, and patents are crucial in creating monopolies and oligopolies. Markets left to their own devices tend toward competition and decentralization, yet actually existing capitalism entails a symbiotic relationship between corporations and the state that limits true competition. Historical evidence supports this, showing that many industries, such as railroads and telecommunications in the early 20th century, grew under the heavy hand of government protection. In the United States, the telecommunications industry provides a clear example of oligopoly largely due to regulatory frameworks that favor established players, extensive patent rights, and barriers to entry that are insurmountable for most would-be new competitors. The pharmaceutical industry, protected by patents and benefited by government-funded research, represents another stark example of an oligopolistic market. Patent protections inhibit competition by making it difficult for generic drug manufacturers to enter the market, even though most research and development in the industry is government-funded.
In 1969, the libertarian theorist Karl Hess, wrote in his essay The Death of Politics:
“Monopoly is a case in point. To suppose that anyone needs government protection from the creation of monopolies is to accept two suppositions: that monopoly is the natural direction of unregulated enterprise, and that technology is static. Neither, of course, is true. The great concentrations of economic power, which are called monopolies today, did not grow despite government’s antimonopolistic zeal. They grew, largely, because of government policies, such as those making it more profitable for small businesses to sell out to big companies rather than fight the tax code alone.”
In an ideal free-market system, competition is paramount. This would, theoretically, drive innovation and efficiency, lower prices, and improve quality, benefitting all consumers and disbursing the economic benefits quite broadly. A truly free-market system would have relatively few barriers to entry and, therefore, would be less likely to have monopolies and oligopolies develop. Without protective tariffs, subsidies, and regulations (like complicated tax codes) that disproportionately benefit large corporations, it would be harder for large firms to dominate the market to the exclusion of smaller competitors. This would prevent extreme accumulation of wealth.
There may still be some natural monopolies and oligopolies under free-market conditions but they would be relatively few in comparison to what we see under the status quo, where Walmart has a store in every town and where local grocers are virtually non-existent. Utilities, for instance, often become natural monopolies because the infrastructure costs to enter the market are prohibitively high. Some such instances of monopoly and oligopoly would still occur in a free market.
Looking Through A Dialectical Libertarian Lens
If we cannot immediately establish a purely libertarian system of free competition without government subsidies and interventions, the dialectical libertarian would recommend some policy reforms that lead to results that mimic what might be expected in a truly free market. Realizing that a truly free market would result in a wider distribution of incomes, the dialectical libertarian might support progressive taxation and redistribution to some extent. Progressive taxation could be used in order to balance the scales somewhat, creating more equal opportunities for participation in the market.
Seeing that excessively large corporations are the result of government policy moreso than of free-market competition, the dialectical libertarian might also support anti-trust measures. Effective regulation could help prevent the concentration of economic power that distorts price signals and undermines the democracy of the marketplace. Anti-trust, fair trade, and consumer protection laws could help to ensure that the market remains competitive and inclusive. The dialectical libertarian might also support policies that assist small businesses and help local economies. Offering more subsidies to small businesses might balance the scales by giving them more opportunity to compete on a level playing field against big corporations that are highly subsidized under the status quo.
A patent is an artificially created and government-granted monopoly. As such, it comes with the negative consequences that go along with monopoly in general. A Harberger tax — or Common-Ownership Self-Assessed Tax (COST)—on intellectual property may be desirable as a means of mitigating the negative effects of monopoly resulting from patents. This would help to balance the need for encouraging innovation with the broader public interest in accessing technological advancements and information. A Harberger Tax, named after economist Arnold Harberger, is a form of property tax where the owner self-assesses the value of their property and pays a tax based on this valuation. The catch is that the owner must be willing to sell the property at the assessed value. If someone makes an offer to buy at the assessed value, the owner must accept the offer and sell the property. This mechanism encourages owners to set a realistic price for their property, balancing the desire to minimize tax liability against the risk of losing the property at a low valuation. The self-assessed nature of the property valuation would ensure fairness, keeping the government from over-estimating the value in order to bring in more revenue, as it would be the owner rather than the government that makes the assessment. By applying a Harberger Tax to patents, patent holders would be encouraged to assess the value of their IP realistically. This discourages over-valuation, as over-estimating the value would result in a higher tax burden. On the other hand, the owner of the IP would not want to under-estimate the value in order to avoid the tax burden because doing so would result in someone else taking ownership of the IP. One of the significant issues with current patent systems is the creation of monopolies that can stifle competition and innovation. By imposing a Harberger Tax, there could be a reduction in the duration and strength of these monopolies. Patent holders might be less inclined to hold onto patents purely for defensive purposes if the cost of doing so becomes prohibitive.
