« Those Kids And Their Power | Main | Open Link Thread »

November 19, 2007

Breaking The invisible Hand

John Rogers lays it down:

There is no free market in Hollywood. In television for example, with the dissolution of "finsyn" rules in 1995 almost every independent producer has been either absorbed into one of the big media companies or dissolved. We've gone from 40 producers in television to the big Six.

Six. Six companies control almost all mass media in America. They control all, and I mean all, the standard distribution channels in America. They are also negotiating as a single entity, the AMPTP. If you've read your Adam Smith, you know that this is actually one of the situations he notes in Wealth of Nations which will indeed break the fingers of the invisible hand.

One of the real problems with the simplified neoclassical framework some of my libertarian pals use is that rational economic actors do not long abide the state of perfect competition. They merge. They buy each other out. They seek monopolies. They seek, in other words, power and advantage. As John Kenneth Galbraith said, capitalism's natural tendency is towards aggregation, towards bigness, because that gives capitalists an edge. Rational economic actors do not like perfect competition. They like to win.

In the perfect neoclassical model, what you'd have here would be six, or 40, or 200, media companies competing among each other and snapping up the best writers by offering the best deals, which would include online residuals. What you have, instead, is the whole industry acting essentially like a monopoly and laying down a blanket refusal to offer online residuals. So don't talk to me of your free markets. As is so often the case, this is superficially a question of economics, but it's actually a question of power.

November 19, 2007 | Permalink

Comments

What you have, instead, is the whole industry acting essentially like a monopoly and laying down a blanket refusal to offer online residuals.

How is this really any different than the union who also seeks a monopoly and and lays down their demands? Why is it only when it's the employers that you complain about a lack of free market, but not when the unions do the same thing?

Posted by: El viajero | Nov 19, 2007 2:58:44 PM

Do you really think that your libertarian friends, like Will and McMegan, really apply the perfect competition model as willy-nilly as you're suggesting? My experience with libertarian wonks is that they're typically much more careful than this. I also figure that most libertarian wonks would support some restrictions on copyright laws that would make these kinds of concentrations of economic power more difficult.

In fact, I'm a libertarian who is *quite* worried about concentrations of economic power but who, for empirical reasons, often sees legal privileges granted by the state as the source of these problems. That seems to be in part the reason that these companies retain their strength - they're powerfully insulated from competition by corporate and intellectual property law.

The Invisible Hand isn't breaking itself here, I don't think. It's not the whole story, anyway. The Visible Fist of the State is part of the explanation.

Posted by: Selfreferencing | Nov 19, 2007 3:14:20 PM

Selfreferencing, if what you're saying is true, then libertarians wouldn't be complaining about unions leveraging their own power both in the form of their economic and media leverage to get what they want. Instead, libertarians overwhelmingly sound like they are in principle against the idea of unions using their leverage to extract a better deal. Michael W in the last thread was most blatant about this when he said that the union's actions in search of higher wages bespoke a lack of "respect" for those who raised the capital to provide the jobs.

And, in general, yes, a typical libertarian response to any policy/regulatory issue is to say, "the solution violates the principles of econ 101, and thus it is wrong," regardless of the actual issue at hand. Many amateur economists are like journalists-- they believe their field gives them the ability to understand all issues without having to know the specifics of the particular market at hand.

Posted by: Tyro | Nov 19, 2007 3:24:42 PM

Traveller: Short answer. It isn't.

The sad thing is how you so consistently stop at the short answer, believing you've explained/proven everything. At the very least, it would behoove you to *know* your "enemy" by understanding *why* they pursue the policies they do (in this case: promoting unions).

Posted by: DHS | Nov 19, 2007 3:33:48 PM

(fanning away with my hand the libertarian flies buzzing the room)

Aggregation of economic power by corporations merging, and being 'bought out' has reached the level of absurdity that the corps control the government (in their sector of business) as well as their (often world-side) piece of the economy. It's libertarian/conservative nonsense to say that the government 'gave' them legal privileges. They bought it. The buy candidates, they buy 'trade' groups, they buy the media, they buy the pundits (who worry about not offending current or future employers, in the media, government or business).

A truly progressive economic program would return to the trust busting era, as well as vigorously enforcing rigid non-aggregation rules. The reasons companies buy up their competitors, companies in adjacent market segments, and even non-related businesses is to maintain the illusion of revenue growth for wall street growth and growth in earnings reasons - as well as to eliminate the competition idol that they prostate themselves before (in public) but they hate and want to destroy when they have an opportunity. And, they don't even have to pay real money to concentrate: they just borrow what they need or issue more stock.

We have the new communism: the state becoming the creature of the megagiant corporations with their own form of the five year plan. And that five year plan doesn't give a shit about the 'general welfare' (that is enshrined in the US Constition as a principal objective of our government), it cares about power, and the phantoms of capitalism and free competition are now not much different than in the 1890's, except they now have worldwide impact.

Irony: the same people on the economic right that complain about the UN and world government are those who are building world enterprise as government. Who has more real power - Canada or Goldman Sachs? Proctor and Gamble or Italy?

Tom Jefferson had it right and we've now got it wrong: "But, when a long train of abuses and usurpations, pursuing invariably the same object, evinces a design to reduce [the people] under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security."

And, "A first attempt to recover the right of self-government may fail, so may a second, a third, etc. But as a younger and more instructed race comes on, the sentiment becomes more and more intuitive, and a fourth, a fifth, or some subsequent one of the ever renewed attempts will ultimately succeed... To attain all this, however, rivers of blood must yet flow, and years of desolation pass over; yet the object is worth rivers of blood and years of desolation. For what inheritance so valuable can man leave to his posterity?" --Thomas Jefferson to John Adams, 1823.

Posted by: JimPortlandOR | Nov 19, 2007 3:50:26 PM

rational economic actors do not long abide the state of perfect competition

Sometimes the defenders of the so-called free market are wont to make comparisons with evolutionary thought, which trope dates back to the days of the early Social Darwinists.

The interesting thing is that they tend to ignore that your point is also made by comparison to biological systems, i.e. there exists something called the competative exclusion principle.

On my more paranoid days I wonder if the whole point of muddying the waters with respect to the teaching of evolution is so that way kids grow up not learning about such things as Gause's Law (I guess he was a Commie anyhow ;) ) and are more easily taken in by scientific sounding bull about how competition yields the best results, etc.

Posted by: DAS | Nov 19, 2007 3:50:35 PM

Actually, the word for a marketing in which one consumer dominates is a "monopsony." The AMPTP is a monopsony consumer of writing services.

Posted by: Matt | Nov 19, 2007 4:33:43 PM

How is this really any different than the union who also seeks a monopoly and and lays down their demands? Why is it only when it's the employers that you complain about a lack of free market, but not when the unions do the same thing?

jesus christ libertarians give me a headache.

Unions are a reaction to the concentration of corporate power. I, as an individual, have next to no negotiating power if I work on an assembly line at GM (or as a writer in Hollywood). I would be considered disposable. "You don't like working 12 hours a day, six days a week in dangerous conditions for chump change? You're always free to leave and get another job, bucko! I got 10 guys outside who will take your position!" Divide and conquer. There's your 'free market' for labor, El viajero.

Of course, corporate employers often informally agree amongst themselves to drive wages down as much as possible and to maintain a certain industry standard. Look at the hatred Costco engenders on Wall Street by bucking the trend and actually paying employees a decent wage with generous benefits. Costco is very profitable and successful - even standing strong against WalMart's attempt to muscle in on their business - yet Wall Street loathes Costco because they're not grinding their employees down enough.

Unions allow workers to counter corporate power and abuses of employees by banding together and countering concentrated corporate power. Let me flip your assertion on its head: if people can band together and form/join a corporation, part of whose purpose is to form an efficient business mechanism for hiring and paying employees, why can't employees band together in order to maintain and improve their pay and working conditions? Why is it evil for unions to exist in this manner, but it's not evil for corporations to?

Posted by: r€nato | Nov 19, 2007 4:36:55 PM

"So don't talk to me of your free markets."

Ezra, you're cute when you're mad!

Posted by: Bloix | Nov 19, 2007 4:41:00 PM

To Selfreferencing, there are libertarian wonks and then there are libertarian wonks. Indeed, "libertarian" is used so many ways that so far as I can tell the word is essentially meaningless. In any case, I do know at least one guy who really is this unnuanced. He claims that monopolies and monopolistic cartels don't actually exist in the real world, or if they do this is a fleeting state that need not concern us. Of course he also holds that if a single company controls 99.9% of a market, it isn't a monopoly and so again we need not be concerned.

I will grant you that there are libertarian wonks who are smarter than this.

Posted by: Richard Hershberger | Nov 19, 2007 4:49:22 PM

> Do you really think that your libertarian friends,
> like Will and McMegan, really apply the perfect
> competition model as willy-nilly as you're suggesting?
> My experience with libertarian wonks is that they're
> typically much more careful than this.

So they claim that a set of theories is universal, then they pick and choose those elements of their theories that lead to their desired ends. Yeah, that sounds like the glibertarians I know.

Cranky

Posted by: Cranky Observer | Nov 19, 2007 5:16:13 PM

jesus christ libertarians give me a headache.

I wouldn't worry about it too much, r€nato, because the guy you're arguing with isn't a libertarian, he's just a troll. He has a long history here under the name "Fred Jones," if you're curious.

Posted by: Cyrus | Nov 19, 2007 5:20:35 PM

Why is a Union monopoly acceptable where as a corporate monopoly is not? Shouldn’t a teacher have a choice of the NEA or some other union more inline with their personal beliefs?

Your argument sounds great when talking about GM but what about the tens of thousands of small mom and pop suppliers to GM who are Unionized? They can’t stand up to the Auto Workers for even a week, they get shut down they are out of business for good. They are forced to take what ever deal the Auto Workers demand then hope they can get GM to pay enough to support it. That is the main reason the Midwest had such a collapse in manufacturing jobs, when the big three where losing money and had to cut cost the suppliers got pinched between the two monopolies and went under. Who was at fault? GM for paying to little or the Union for demanding to much? We have an ex client in Ohio in BK now, the Union preferred to see them out of business rather then cut benefits. Now 600 people are out of work and a couple hundred retirees lost their insurance. What liberals won’t admit is the Union doesn’t care about those specific workers and retirees, the jobs will just be moved to another company who will also be forced to hire Auto Workers members. Just like a corporation the Union only cares about their bottom line.

Posted by: Nate O | Nov 19, 2007 5:32:22 PM

Hollywood changes structure every 20 years. A lot of functions that used to be the province of producers are performed by agencies today. A lot of things agencies used to do are done by managers today. A lot of things that studios used to do are done by venture capital today. Et cetera. There's a lot going on you're not picking up on, and it makes these historical comparisons a little naive.

Posted by: Senescent | Nov 19, 2007 5:38:13 PM

""You don't like working 6 hours a day, five days a week with 3 months off in the Summer in safe conditions for starting salaries in excess of 40K?"

There, I fixed that for you. You *were* talking about teachers, weren't you?

Posted by: El viajero | Nov 19, 2007 5:44:24 PM

There, I fixed that for you. You *were* talking about teachers, weren't you?

Well, if you had been talking about actual teachers, as opposed to the fantasy teachers that only exist in your head, it would have read something like "You don't like teaching six hours of class a day, then working another four hours a day preparing lesson plans, marking schoolwork and figuring out how the hell to get through to Kid X, who you're pretty sure is getting the shit beaten out of him at home but you can't do a damn thing without evidence which you can't get - then add another ten to twelve hours of this every weekend."

Posted by: mightygodking | Nov 19, 2007 6:13:22 PM

"The Invisible Hand isn't breaking itself here, I don't think"

Yes, actually it is. Conventional (neoneoclassical) economic theory correctly argues that very large organizations (including large corporations, but also large governmental, social, military organizations) have high expenses maintaining their hierarchies, as well as informational problems. So, smaller organizations, over time, should prove to be the dominant economic form.

Also, if the market is the most efficient environment for economic transactions, eventually most transactions should occur within the open market.

Neither prediction has come true, negating much of neoneoclassical theory. In fact, the reverse has happened. Almost all industries have become more concentrated over time (not less), and fewer transactions occur in the market (not more) - that is, increasingly more and more transactions occur within hierarchies (within both firms and governments) rather than in markets. There are now more transactions occurring outside the market than in a market.

"A lot of functions that used to be the province of producers are performed by agencies today. A lot of things agencies used to do are done by managers today. A lot of things that studios used to do are done by venture capital today."

There are actually even fewer agencies with real power than there are major studios. The managers are coalescing, too. The financing is more diverse, admittedly.

Posted by: burritoboy | Nov 19, 2007 7:03:43 PM

I really don't think the whole monopoly comparison makes sense here, primarily because the networks aren't competing against each other so much as competing against new and very scary (for them) forms of media. Take the follwing examples: men above the age of about 19 spending significant times playing vidoe games; youtube; reality tv; facebook; myspace; TiVo; blogs; commenting on blogs (surely the biggest waste of the above list).

None of these forms of media existed 10 years ago. All of them are sucking eyeballs and therefore money away from traditional shows and movies. Conglomeration has very little to do with it at all. Just wait for the bloodbath when advertisers finally figure out very few people are watching their dearly bought ads. Quite frankly, 40 studios couldn't survive in TV today because there isn't the money to go around from this rapidly shrinking market. I think Rob Long pointed out, most scripts don't get bought; of those that get bought, most aren't made; of those that are made, most don't survive. It's picking the 3% that do make money that is the trick. To the extent big studios can survive better in the inevitable lean times, that's not necessarily a bad thing.

I really don't give a rat's patoot one way or another who wins what in the strike. The Big Corporation v. The Poor Little Writers/Studios makes good press, but if you have 100 studios or 3, there is still the fact of rapidly shrinking viewers/money.

Now I'm off to watch Dancing with the Stars, which I believe has no writing talent whatsoever (or if it does, they're grossly overpaid)

Posted by: Scott | Nov 19, 2007 8:18:40 PM

The invisible hand wears a club ring.

Posted by: ferd | Nov 19, 2007 9:53:08 PM

You what excites me?

Fred is back!

Take a bow, Fred, if you're there. C'mon, you missed us.

Posted by: wcw | Nov 19, 2007 10:33:50 PM

If you wanted this post to appeal to libertarians, don't site John Kenneth Galbraith.

He has to be the most disparaged of all popular economist out there in the profession.

Posted by: thehova | Nov 20, 2007 12:42:04 AM

I would just like to point out that, at least in America, the term "libertarian" has been appropriated by propertarians. Before the 1970s, the term was exclusively used by anarchists and other socialists close to anarchism. People like Emma Goldman and Alexander Berkman and unions like the IWW.

We are well aware that workers have less power than bosses on the so-called free market and need to organise to defend themselves. We are also well aware that there is little or no liberty in the capitalist workplace -- the boss gives the orders and the worker can obey or be fired. That is why libertarians are anti-capitalists.

Because the right has appropriated the name "libertarian" for their defence of private power, genuine libertarians have spend some time refuting their claims and pointing out the contradictions in their ideology. Sadly, though, it appears in America that "libertarian" has been lost to the right and now means little more than ideological defence of the power and privileges of private property.

While I doubt that we anarchists will be able to counteract the influence of corporate backed think-tanks, it is still useful to point out that what is termed "libertarian" in America is no such thing. The term "propertarian" would be far more accurate -- but that would give the game away!

Posted by: Anarcho | Nov 20, 2007 4:38:27 AM

If you wanted this post to appeal to libertarians...

That's right, thehova... the post is all about you! And appealing to you! And how to best use language that you would find compelling!

You're not really doing much to counter the stereotype that libertarian is just codeword for self-absorbed teenager.

Conventional (neoneoclassical) economic theory correctly argues that very large organizations (including large corporations, but also large governmental, social, military organizations) have high expenses maintaining their hierarchies, as well as informational problems.

While this is true, I'd argue that another possibility is that the complexity of maintaining their hierarchical and informational problems can only be handled by a few people with the intelligence and skills to do so. Those people inevitably end up somewhere, and whichever organization manages to best put them to use is the one that manages to grow the largest. This is why instead of having many large organizations, you have 1 or 2, and then the next tier is an order of magnitude smaller, and the next tier an order of magnitude smaller than that, and so on. That's the "conventional" model and the way things play themselves out in many industries. The fact that the entertainment industry is an oligarchy of only a few huge conglomerates does point out that something is wrong.

Posted by: Tyro | Nov 20, 2007 8:44:59 AM

I second what mightygodking wrote about teachers' hours. My wife is a public school teacher. I only pull that "six hours a day" line with the expectation that she will hit me, or at least glare fiercely. I can add also that continuing education is, in many areas, a requirement. So often much of that leisurely summer vacation is spent in school: much like work, but you pay for the privilege.

Posted by: Richard Hershberger | Nov 20, 2007 10:23:50 AM

Ezra worries about concentration of power in free markets? About loss of biodiversity in free markets?

He somehow links it to assumptions about rational agents (actors?) and perfect competition? Then he mentions power over economics?? I'd love to hear more about it all...

BTW What is the guild and when was it established? What were its implications compared to the famous Computer Programmer's Union in Silicon Valley?

Posted by: Hugo Pottisch | Nov 20, 2007 11:48:07 AM

The comments to this entry are closed.