Our economy emphatically does not seem to be a monopoly capitalism in big red letters?
The existence of a monopoly leads to irreversible negative losses in the welfare of society. Harberger was one of the first to quantify the loss of wealth due to monopoly. Using the triangulation method to calculate the scale of distortions caused by monopolies in the US economy, corporate income tax, and various distortions, Harberger soon came to an estimate of the cost of capital tax relief in USA. In subsequent research, Harberger clarified various aspects of this method and eliminated some of its obvious disadvantages; explained the technology, feasibility, and practicalities of such computations. Taking a partial equilibrium model, he estimated that the welfare losses from monopoly in the United States in 1954 were relatively small (approximately 0,1 % of GNP: does not seem to be a monopoly capitalism in big red letters).
Many early papers on rent-seeking behavior was calculated by Harberger, and the efficiency loss due to monopoly were really small. Some researchers suspect that this estimate does not cover all the efficiency costs resulting from economic distortions caused by monopolies. But the degree of inefficiency caused by market distortions and rents includes not only the Harberg triangle, but also larger adjacent trapezoids, representing the rents available to monopolists, import license holders, and other economic rent sources partly estimated by Tullock (see figure below).
Under normal conditions, monopoly rent is many times greater than the irrecoverable loss caused by monopoly pricing. Harberger found that resource inefficiencies caused by monopolistic behavior in US industry are roughly equivalent to 0,1 % of US GNP; corporate income tax in the USA generates $ 1 billion annual revenue (0,5 % of GDP). Various types of wasteful use of resources have reduced the welfare in Chile by 15 %; the distortion of the choice of work and leisure caused by the personal income tax in the USA will lead to a decrease in welfare of $ 1 billion (0,4 % of GDP) annually; and all capital gains tax in the USA results in annual economic losses of $ 2 billion (0,8 % of GDP). But Harberger does not offer a broad discussion of those solutions to the problem of monopoly in private property ownership: when property is illiquid, which usually occurs when it is unique, then property is difficult to value, because it cannot be compared with analogues. That is obvious also, when assets have close substitutes, this limits the power of the monopoly.
No doubts, for example, that the Russian economy is distinguished by a high level of monopoly. Today, most of the enterprises with monopoly power are concentrated in such industries as energy, ferrous and non-ferrous metallurgy, oil and gas production, natural resource extraction and mechanical engineering. The development of the modern Russian economy requires business entities to use a significant amount of resources to implement own activities. Moreover, the rate of use of these resources has increased even more significantly than the growth of the economy. If the main problem is monopoly, then Harberger’s tax should be relatively high, but Russian monopoly economizes. So, this monopoly problem intensifies when the asset turnover rate increases. Moreover, the problem of modern monopolies is largely due to the fact that modern stocks of economic resources are constantly decreasing or very unevenly distributed.
Three main points are important:
1. The volume of monopoly production, which maximizes the profit of the Russian monopolist, is lower, and the price is higher in conditions of perfect competition. Some of the products produced by monopolists that are necessary for the Russian society are not produced enough.
2. Almost always, the Russian monopoly does not try to drastically reduce production costs, does not seek to conduct R&D and introduce expensive innovations. But innovation increases the social value of competition by increasing the cost of the monopoly’ deadweight.
3. The barriers to entry of new Russian firms into monopolized and corrupt sectors of the economy, as well as the enormous forces and material resources that Russian monopolists spend annually on maintaining and strengthening their own monopoly power, have a restraining effect on the growth of economic efficiency.
So, protection from the negative impact on the economy of monopolies is the task of the Government. The key factor, competition, is the most effective means in achieving prosperity. Competition enables all people to benefit from economic progress, especially in the role of consumers, and gives the result of increased productivity. Monopolies can sacrifice a part of current profits, free up some of the people, which will reduce the shortage of personnel in other spheres of the economy, eliminate inexplicable increasing coefficients to the cost of construction of various objects. Maintaining relatively low energy prices the Russian industry should become an element of Russia’s structural policy.
References:
1. Schmitz, J. A. (2020). Monopolies Inflict Great Harm on Low-and Middle-Income Americans (№601). Federal Reserve Bank of Minneapolis.
2. Schwartzman, D. (1960). The burden of monopoly. Journal of Political Economy, 68(6), 627–630.
3. Stigler, G. J. (1956). The statistics of monopoly and merger. Journal of Political Economy, 64(1), 33–40.
