Robert Appelbaum,  September 2, 2014

Monopolies and Kindly Octopi

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When is a monopoly a monopoly, and when is it rather a kindly octopus?

I know of one example of what economists call a “pure” monopoly first hand, on an all-too-regular basis. It is Systembolaget, the state-run liquor store in Sweden, where I live. There are over four hundred Systembolaget outlets in Sweden (population 9.5 million), along with about 500 special-order “agents” operating in sparsely-settled areas. If you want to buy a bottle of wine or spirits, beer over 3.5 percent alcohol or any other beverage above 2.2 percent, you have to buy it from one of the limited number of outlets or agents.

Other countries and some American states run similar monopolies on alcohol, and there are several other sorts of pure monopoly. Growing up in America in the 1950s and 60s I was familiar with many of them: regional utility companies, the national phone company, the national passenger railway company, regional mass transit services. Some of them were state-run, while others were private but state-sanctioned and regulated. Usually they were not only “pure,” with absolute control over distribution, but also what economists call “natural.”

Because of the kind of commodity they provided, and the vast amount of capital and infrastructure needed to be able to begin to provide it, they were sustainable only when allowed a monopoly of trade. Nevertheless, beginning with the Reagan-Thatcher era, politicians, business leaders, and judiciaries started taking it for granted that natural monopolies were not so natural, and could be broken up and privatized in the interest of efficiency, profit, fairness, and growth.      

Some results of this shift have been awful. In the United Kingdom, for example, which once had a single national system, there are now twenty-three train companies offering passenger service, operating on tracks and power lines owned and maintained by an independent state monopoly. Railway service in the UK is probably the most expensive, the least efficient and the least comfortable in Europe. Nor has it generated much private profit. Most passenger companies rely on subsidies from the national government and legally sanctioned price-gouging in order to maintain their margins.

So monopolies can be natural or unnatural, pure or impure, and they can be broken up and made to look like they are something else. Sweden’s Systembolaget is unnatural and pure: there is no “natural” reason for alcohol sales to be run by a monopoly, and yet the monopoly is complete. English railway carriers are natural and impure. On individual routes they are usually operated as a monopolies, since you cannot have several long-distance trains running on the same track at once; and yet they are organized as if they were in competition with one another.

And then there are the kindly octopi.

Sometimes textbooks call businesses like them “competitive monopolies.” Take the case of H.J. Heinz Company and its leading brand, Heinz Ketchup. Although Heinz Ketchup has to compete with other kinds of ketchup, for “unnatural” but perfectly legal reasons there is only one Heinz Ketchup, and Heinz can therefore control the price of its product to some extent; if it wants to keep the price unnaturally high it is free to do so.

What about such famous examples as Microsoft, Apple, Google and Amazon? Here legalities concerning restraint of trade and price control, not to mention patents and intellectual property, are extremely complicated. There is a kind of “natural” dimension to the dominance each of them exercises over its market–it is a social good that most of us use the same word processing program, MS Word–but there are many unnatural elements too. Economists usually classify them as competitive monopolies, just like Heinz. If you want to buy an Apple, you have to go to Apple. If you want a Kindle, you have to go to Amazon. But a narrow focus on the ability of a company to control the pricing of its products cannot show the whole story.

These corporations are octopi. They do not only place commodities in a market. They also take hold of consumers; they control consumers’ demands. Like other large corporate enterprises today–for example, supermarket chains–they provide goods and services that customers come to require as if of their own free will, but they also create the structures of everyday life that most customers inhabit. These octopi do not consume the captives their tentacles clutch; the octopi are kindly. They do not usually gouge or cannibalize their customers; they feed them, by lowering their prices and expanding the goods and services on offer. They are so kindly that a book can sometimes be bought for less than a sandwich; a recording can be delivered in less time than it takes to tie a shoe. Nor are digital companies the only examples. Super retailers like Walmart and Costco are similarly situated with respect to their customers.

Traditional thought about monopolies, including genuinely competitive monopolies, insists on the principles of market manipulation and restraint of trade. Trusts are busted because they block competition and overcharge consumers. But now we have competitive kindly octopi who lower prices and multiply the goods and services on offer. They become so central to the organization of everyday life, and so apparently kindly, that patronizing them becomes both inevitable and indispensable, even as it also seems voluntary.

Economic thought has been in turmoil since the crash of 2008, and rightly so. We need new intellectual tools to understand the unstable, unequal world that has been created for us, without our awareness but with our tacit consent and active consumption-led participation. Monopolies have been well understood for quite some time, it seems. But the character of many of them has changed. And so have we along with them. When we hear about abuses in the treatment of workers, tax-paying, foreign income reporting, and the like, we cry with indignation; but when we hear about new products, low prices, and fast delivery, we keep begging for more.

Robert Appelbaum is professor of English Literature at Uppsala University, Sweden. His most recent book is Working the Aisles: A Life in Consumption (Zero).

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