Masters of Control

Monopoly Chic in Silicon Valley

monopoly new-DISTORTED
Tech giants play monopoly in Silicon Valley.
  • Why it matters

    Why it matters

    Self-styled supermen of the Internet age pose serious threats to society through their belief that competition is bad.

  • Facts

    Facts

    • Silicon Valley tycoons argue that competition means “profits for no one.”
    • The basic facts of monopolies are that they make companies inflexible and drive up prices.
    • The European Union must establish a domestic market that allows bigger player to give American hegemons a run for their money.
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    Audio

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Up until now, economic theory held that competition was good and monopolies bad. Market economics says: Compete for ideas and products that will attract customers. That is the system’s mantra. That’s how we learned it in schools and universities.

This formula brought prosperity to the West and helped capitalism win over communism. In recent speeches about the fall of the Berlin Wall 25 years ago, the legacies of Walter Eucken, Alfred Müller-Armack, Wilhelm Röpke and Ludwig Erhard were celebrated like banners promising happiness on earth.

But of all places it’s in the model country of a competition economy, the United States – where apparently any gifted or hard-working person can make it to the top – that another theory propagated of late suggests the opposite. According to the theory, only monopolies are productive enough to accomplish future missions, and competition is an “annoyance” and nothing more than an “ideology” that pervades the whole society.

The answer to the alleged ideology of competition is probably the worst ideology ever, as it ignores the democracy of competition.

Such economic blasphemies can only come out of a valley where the protagonists see themselves as creators of modern worlds they stir up with inventions, IPOs and science fiction. It is in Silicon Valley, with its digital oligopolists, where monopoly is now considered chic. Perhaps it is also because these winners’ success in the Internet economy needs a theoretical underpinning so nothing can change and politicians don’t come up with the idea of adopting laws that limit the power of the apparatus. The answer to the alleged ideology of competition is probably the worst ideology ever, as it ignores the democracy of competition.

Peter Thiel, the influential U.S. investor who made his fortune with PayPal, functions as the mouthpiece of the new monopoly-is-chic movement. Creative monopolies would mean “new products for all and sustainable profits for the creative.” In contrast, competition would mean “profits for no one,” he said.

Heroes in this worldview are people such as Google co-founder Larry Page, whose search engine dominates in many countries and might attract a combined 30 percent of global online advertising.  Self-driving cars, intelligent robots and nano-particles that monitor health from inside the human body are created at the Googleplex lab.

Building Monopolies-01
American giants dominate global markets.

 

It’s about “moonshots” and great innovations that benefit mankind, Mr. Page explained, and only a few companies could do that. It is exactly such promises of happiness that should make the monopoly lovable for the market economists among us.

But does this whole philosophy from the valley of miracles make sense at all? Or is it about the justification of hubris?

Actually, it remains valid that a monopoly makes its owners more inflexible and bureaucratic. Google itself is the best example: When Mr. Page took over as chief executive, he wanted to re-create the start-up atmosphere that was at one time widespread in the company because crazy inventions – “disruptive ideas” – are not created in a conference room, but rather in small units. It doesn’t always have to be the garage.

The European Union must create a domestic market where larger players can stand up to the hegemonic claims from the American West Coast.

Furthermore, because no competition exists to lure away customers, monopolies still tend to charge prices that are too high. The monopoly’s high return is claimed to be the bonus for its own innovative spirit.

All those publishers who defended themselves against Amazon’s request for bigger discounts – and therefore higher monopolistic returns – have experienced what it means to have the online retailer assert itself as the global market leader. The books of the “rebellious” publishers would just be dispatched later to customers than other books.

The monopoly strategy will be as dangerous for society as it will be serious. Because no European group can keep up with the superpowers of Silicon Valley, competition regulations in Europe must be written anew. The European Union must create a domestic market where larger players can stand up to the hegemonic claims from the American West Coast. A group such as Deutsche Telekom, for example, must be able to strengthen itself with acquisitions and standardizations of networks to be a counterweight. That much economic might must be allowed.

But it cannot mean monopoly for the long term. Competition remains the foundation of the economy – regardless of what they say in Silicon Valley.

Hans-Jürgen Jakobs is Handelsblatt’s editor in chief. To contact the author: jakobs@handelsblatt.com.

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