Posted by Jason | Posted in Economics, Government | Posted on 12-09-2010
Many areas will overlap, but let’s take natural monopolies first. First, defense is not a single commodity as Murray Rothbard said about police protection. It is made up of different services, ranging from car theft protection to protection from belligerent states (is belligerent state redundant?). It includes technology from pad locks to satellites and human capital from the local bouncer to the most brilliant military mind of a strategic think tank. It can be provided by one’s self or outsourced to a service provider. It can even be divided up so that some parts are self provided and some are outsourced with variations changing between each person in the free society.
Now in order for a natural monopoly to occur in the defense industry, a single provider would have to have a strategic advantage over every aspect of this highly diverse industry. It would have to be able to provide every service society demands in defense more efficiently than any other current or potential competitor including the customers themselves. This would be impossible. Even under our current system, we don’t have a single provider. We have local township police, mall cops, and military special forces. Government can monopolize much of the industry, because they can point their guns inward on the citizens, but they cannot even provide all defense. They cannot anticipate and provide all defense demanded and provided by the private market, such as casino or home security. If the government cannot monopolize the entire defense industry with all it’s guns and ability to openly slaughter at will, how would a private defense agency possibly pull it off?
Alright, maybe there wouldn’t be a natural monopoly, but could there not be a coercive monopoly?. One company would become so large that it would use its size and force of arms to dominate the market and drive other competitors out. Even if a monopoly by a single company did not emerge, couldn’t they form a cartel and have the effect of a virtual monopoly? Without government, PDAs would get together and collude against the public by establishing a cartel. Before arguing against either of these, let’s first point out the absurdity of those whose concern it is that without government, PDAs would become coercive monopolies or a cartel, and to avoid this they pre-emptively want to live under or establish a coercive monopoly by way of a state.
First of all, as we mentioned under the natural monopoly section, defense would probably be provided in various layers. For a company to become large enough to become a coercive monopoly, prior to becoming coercive, they’d have to monopolize many of these layers first. As we’ve already shown, this is impossible even for a coercive monopoly like the state.
In addition to monopolizing most of the layers of defense prior to becoming coercive, they would have to avoid detection from their biggest consumer, insurance companies. If you think about it, they’d have to monopolize the insurance industry as well. After all, who will it harm if they become coercive? It will harm the insurance companies. The insurance companies would have an incentive to prevent monopoly. One, their costs would be driven up, and two, their competitors could highlight to potential customers that insurance company A is using a PDA who is attempting to monopolize the market and is using the force of arms to do it. This is driving up their clients’ premiums. Insurance company B could even start their own PDA as a competitive advantage against insurance company A, who is beholden to this coercive monopoly PDA.
To take it one step further, companies that provide defense services would not be the same companies that produce arms or defense technology. A monopoly PDA would have to monopolize this area of defense as well. If not, the producers of arms and defense technology wold only have one shot at a sale. Either the monopoly buys their products or they go out of business. If they developed some new technology, they might even setup your own PDA, because their technology gives them an advantage against the monopoly PDA. Technology advances always poses a threat to an inefficient monopoly.
Lastly, the monopoly PDA would basically have to become the state where they were able to exclude themselves from the law. If not, they’d have no means to enforce their monopoly powers on the people. If they attempted to corner the market and harm the consumers, society would be able to always say to hell with this. I’m going to defend myself. I’m going to create a voluntary militia to defend my neighborhood. Soon, companies that develop arms would focus on those individuals who want to protect themselves. This would in effect break up the monopoly as well.
So, maybe you would not have a natural or a coercive monopoly company. That doesn’t mean you couldn’t have in effect a monopoly by the way of a cartel. As, Rodrick T. Long points out, “if we assume that they (those forming the cartel) formed the cartel out of their own economic self-interest, then this economic self-interest is precisely what leads to the undermining” the cartel. Murray Rothbard gives historical examples to this effect by way of the railroads in the late 19th century. As Rothbard states, “In every case, the attempt to increase profits – by cutting sales with a quota system – and thereby raise prices or rates, collapsed quickly from internal competition within the cartel and from external competition by new competitors eager to undercut the cartel.” Also, because defense would more than likely have many layers, specializations, include services as well as arms and heavily be intertwined with the insurance industry, you are talking about many players within this cartel. Obviously the more players, the more likely members of the cartel would cheat.
While monopolies are great to scare the masses into state submission, it’s quite obvious the chance of a monopoly, let alone a coercive monopoly, is about as likely as a peaceful and just state.