The Real Danger of Monopoly Power

The memory industry made a gamble, and it lost. It gambled on Microsoft’s ability to dictate to the consuming public what it wants. While Vista was a giant “Fsck You!” to just about every one of Microsoft’s customers (to say nothing of its hardware parners and ISVs), rather than leaving, they’re staying in droves… they’re sticking with XP, even if it costs them more.

When everybody was riding high on the hog, it was hard to convince consumers and governments that a gigantic monopoly (or near-monopoly) was a bad thing.

Now, we see that consolidation is bad. Well… Not all of us see it. Clearly, the Federal Government of the US seems to think that one way to fix the banking crisis is to let “Teetering On Collapse Bank” buy “Abysmal Failure Bank”, allowing TOCB to become even more dangerously huge.

The problem is evident in the US, with its auto industry. Over the course of the last century, literally dozens of car companies have started, prospered, gotten into trouble, failed, and then got acquired by one of, what, by the end of World War II was known as, The Big Three US Auto Makers (Ford, GM and Chrysler). Now that the US Auto Industry’s “Great Attractors” are on the brink of failure, there’s no one left to buy them out.

Here’s the solution, from where I sit:
If a business concern is so important to the economy that it can’t be allowed to fail, such that the tax-payers have to come to the rescue, then the government should act, but the action should be contingent on painful and disruptive reform of the industry, viz:

  1. The CXOs and Boards of Directors should be fired (not retired with golden parachutes… fired) and replaced with properly credentialed business-savvy government appointees, each earning no more than a freshman Congressman. No bonuses, no perks, no deferred compensation. Just a salary, health benefits and a 401k.
  2. The companies must be broken up. For instance, General Motors has 8 different brands in the US automobile market, to say nothing of non-automotive divisions like GMAC and Hughes Research Laboratory. Split each brand and/or division off into its own company. Thus, Chevrolet becomes its own car company, top to bottom, as do Buick, Pontiac and the rest.
  3. The break-up would also entail a 50-year no-acquire, no-conspire clause, whereby none of the individual new companies could acquire another, nor could it be acquired, nor could the companies cooperate as if they had never been broken up. Each would have to stand or fall on its own. This has the benefit of enhancing competition, forcing innovation, and giving real choice back to the consumer.
  4. All employment contracts are made null and void, from the highest executives to the lowest line worker. Wages and salaries are rebooted, such that the highest-paid executive makes no more than five times the lowest starting wage in the company. Production wages are set to track a weighted average of non-restructured car companies with manufacturing facilities in the US.
  5. All US auto companies would be required to sell off their stakes in other car companies. For example, Ford would have to divest itself of Mazda.
  6. Finally the Government Bailout would be a Final Solution of sorts… The resulting smaller companies could never seek Government assistance again, nor could any successor, survivor or stakeholder, in perpetuity. If you hold a share of Pontiac stock, you’re on your own. If the former GM, Ford and Chrysler divisions can’t survive in the market, at least they will fail piecemeal, rather than as a monolithic block.

Is this a “nice” thing to do? Not really, but it distributes the risk of failure among a much larger group of genuinely independent entities. In the US, we would shift from 3 car companies to 14 or more with real distinctions between them. The diversity of companies would bring back the need for redundancy (because, for example, Chevy, Pontiac, Saturn and Cadillac will all have to design an manufacture their own engines and suspension parts and so on), creating new jobs. Do we need 14 US car companies? No, probably not, but the dead wood would be shaken out naturally by market forces, and in a much less disruptive way.

Another benefit of this plan would be that the leadership of near-monopoly corporations would be more prone to try and work things out on their own than to ask the government for help.

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