What do Al Capone, John D. Rockefeller, the Australian Wool Corporation, Australia Post, the Real Estate Institute, the ABC, the textile industry, the Milk Board, Queensland Rail, the State Universities and most trade unions have in common?
Every one has tried to eliminate competition and control their markets. They have all sought captive consumers for their products or members.
Capone used guns and thugs. Rockefeller used money, management, marketing and manipulation. The Australian Wool Corporation tried to buy permanent market prosperity using funds taxed from its members. Unions have at times used pickets, abuse, intimidation or even violence to eliminate what they call “scabbing” or “body snatching”.
However, none of these operators has been entirely successful because objections from customers, either through black markets or to the authorities, has provided some relief.
For most trades and businesses, utopia is to be able to sell your products in a closed-shop monopoly while retaining the freedom to buy your needs in open competitive markets.
Only two types of monopoly can exist for any significant time.
The first is a free enterprise monopoly which has no legislative protection but which dominates its market by supply goods of such type, quality or price that no one is able or prepared to offer competitive products. Almost no examples exist — Kodak, Alcoa, Xerox and IBM have exhibited some characteristics of free market monopolies, but none have been able to eliminate competition for any significant time. (Even OPEC, supported by its member governments, cannot eliminate cheating within its ranks or competition from outsiders or other products.)
The history of business shows that the only effective way to permanently protect your market is to buy or be granted a Crown Monopoly.
The origins of this practice go back several hundred years to the English kings who discovered that they could raise funds to pay the troops by selling Crown Monopolies to rich barons or merchants. In return for a lump sum or annual payment to the king, the holder of a Crown Monopoly had his market protected by the soldiers — a cunning way of raising taxes without the knowledge of the consumers being taxed.
Legislative protection remains the essential feature of all legal monopolies today and these have proved to be the only monopolies that have successfully eliminated competition in their markets.
Australia Post and Telecom are among the most infamous examples, but there are hundreds of them in Australia. However, unlike the Crown Monopolies of old, many of today’s legal monopolies use their market power to deliver most of their monopoly profits, not to the taxpayers who own them, but to their employees via above-market wages or feather-bedded conditions.
Others use predatory pricing as well as legal barriers to gather and monopolise their markets. Examples are numerous and include the ABC, the state universities and the state hospitals. Operating under the smoke-screen of “aid for the needy” or “the national interest”, these monopolies have used zero-pricing to weaken or destroy the competition and thus become arrogantly independent of their customers. Then using slogans such as “academic freedom”, “editorial independence”, or “no political interference” they have evaded control by the owners and thus become run by and largely for the benefit of employees.
There is another whole class of crown monopolies which use legal barriers to protect trades and professions from competition. This usually takes the form of occupational licensing or registration and has its origins in the medieval guilds.
The medical and legal professions manage to maintain the most effective closed shop. Most other trades or professions have also managed to convince gullible or venal politicians to grant them varying degrees of protection from competition.
The pressure for more job licensing always increases as the economy slows and, right on cue, some hard-pressed operators in fields such as real estate, motor dealers, mechanics and home repairers are right now pressing politicians for legislative protection.
Usually this bid to outlaw competitors is clothed in respectability by patriotic appeals to “protecting the consumers”. The threatened group usually resorts to emotive slander of the competition using words like “quacks, shonks, charlatans, shady operators, rip-off merchants, fly-by-nighters or back-yarders”. As most occupations have a share or such people, even politics, it is usually possible to find distraught and tearful pensioner who has been defrauded and who can be paraded on “Current Affairs” to bludgeon the Minister to introduce or tighten registration or licensing provisions. (The simply solution is to charge the criminal operator with fraud and publicise the safety of dealing with trade association members.)
The stated aims of job licensing are usually given as, to protect the consumer, to drive out charlatans, and to upgrade the standard of the profession.
However, government job licensing provides no benefits that could not be achieved better by voluntary associations.
The evils are numerous.
Firstly, they are wrong in principle because they destroy the right of consumers to choose that combination of quality, price and risk that suits them best. This harms the poorer consumers who are robbed of the right to take a risk on a cheaper, maybe unqualified operator. They are treated as children too stupid to make that choice for themselves.
Secondly, the licensing boards are costly and often lead to corruption and politically motivated decisions. All such boards quickly come to be dominated and then controlled by the groups they are supposed to be regulating. Moreover, they often involve disturbing invasions of the privacy of both operator and client.
Thirdly, they tend to protect the existing establishment and to ossify its current knowledge and practices. They slam the door on those who wish to enter the trade especially if they have new or unconventional ideas. This inhibits discovery and innovation in the licensed occupations.
It is time to call for an end to Crown Monopolies wherever they are found. They are always either unnecessary or injurious.
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