Disintegrating our oligopolies

Privatisation became the totem of the 1980s efforts to move our economies away from the disastrous, increasing socialism of the previous century and more.

I propose that the equivalent focus of policy that is needed today should be christened "disintegration".

Politicians persuaded that market disciplines were necessary but nevertheless seeking to drive outcomes in the way they (rather than the market) thought best, found large companies very useful. Politicians and civil servants could introduce supposedly "market measures" that placed obligations on or incentivized large companies to deliver the preferred outcomes. These cozy arrangements could be manipulated by the behemoths, who enjoyed preferential access and undue influence over policy, to create barriers to entry and privileged commercial positions. We found ourselves in many sectors of the economy with bloated businesses "too big to fail".

One of the few valid activities of government in the economic field is to ensure competitive markets so that products are delivered to customers as efficiently as possible. Size and economies of scale may deliver cost reductions, but if that is not accompanies by strong competition, that is more likely to result in increased profits for the privileged few than it is to produce lowest costs for consumers (the real objective of a free-market economy). It is competition, not economies of scale, that reduces prices. The combination of both may produce the best result, but in many cases, big means flabby, not efficient. If scale genuinely deliveres efficiencies, a competitive market will tend in that direction.

So we must embark on a programme of "disintegration" of our vertically- and horizontally-integrated companies. Retail banks must be separated from commercial and investment banks. And large nationalized banks should be broken into smaller, competitive pieces (small enough to fail) before being returned to the private sector.

We must disintegrate the bloated Vertically-Integrated Large Energy companies (VILE companies for short) whose combination of supply, distribution and generation prevents liquid markets from emerging, and provides anti-competitive advantage from the guaranteed profits from the regulated distribution businesses.

We must disintegrate the dominant supplier of computer operating systems from the supply of software and hardware (i.e. no tie-ins with manufacturers, where they are forced to charge for a copy of Windows with every machine that they sell, if they want a decent price for the OS, regardless of whether the machine will actually be loaded with Windows).

And there will be many more. I expect to return to this subject frequently. But for now, remember that word: disintegration. It may take the next decade to gain traction in the political world, but it will eventually come to be seen as essential as privatisation to a functioning market economy. This is the battleground of the future.


Check history, it will disintegrate itself as the fashion for companies with excess cash or a desire to grow by acquisition falls from favour, to be replaced by concentration on the core business and divestment of those previously acquired parts that "don't fit".

Even so, those companies consumed by bigger enterprises do leave a gap in the market, which can be better served by smaller, more nimble start-up firms.

It is part of the Capitalist free market cycle : the bubble grows; the bubble deflates or bursts.

What should be done is to break the oil cartel so oil and gas prices respond to the market demand and not to the speculators and need to keep sovereign funds bloated to say nothing of a ready supply of jewel encrusted Rolls Royces, marble palaces and private 747s... and all those wives.

It is very clear that what we have seen was the failure of government meddling with the markets but for some reason most of the press and the majority of the public keeps blaming 'the markets' for the current crisis. I hate to admit this but I am not hopeful that the voters will suddenly become knowledgeable and that politicians will start to believe in the rule of law and property rights. While the end result will be a collapse of the present system of governance things may move even further towards totalitarianism before sanity prevails.

Bishop Hill kindly linked to this page, and there has been a little discussion of the topic at his site.

Anonymous (18 Mar 16:24),

I haven't noticed natural disintegration so far in the history of the energy industry, or the financial services industry.

The jury is still out with regard to software, but I think it's safe to say that Microsoft's dominance would have been more complete without the limited anti-trust action that has been taken so far. It will be interesting to see how things develop with regard to MS and Google.

Burst bubbles don't necessarily drive disintegration. There are high expectations of mergers in various sectors at the moment, as companies look to spread their overheads thinner. What drives integration is a lack of anti-trust vigilance, and government intervention in the market that creates anomalies that larger companies can exploit.

The illusion of the efficiencies of integration is illustrated by a comparison of the claims of efficiency-savings to be made when acquisitions and mergers are being proposed, and the efficiencies that are actually delivered after they go through. The efficiencies are almost always massively overstated. And indeed, larger organisations require extra layers of management that may create inefficiencies, and these extra layers often result in senior-management ignorance with regard to what is actually happening on the ground. Sound familiar from recent events?

I agree with you about oil and gas cartels, although they are highly imperfect cartels with less dominance than the ones I mentioned above (the history of oil prices demonstrates that). Being mostly foreign, though, they can't be broken directly by us (short of military action, and I think we know how that works out). The answer is to ensure that we need to buy from them less than they need to sell to us, which means ensuring that we (the major importing nations) limit our demand to below the levels of production that require support from the marginal, high-cost producers. To some extent prices do that for us, but there are problems in the market with imperfect information.


Agree with you completely. We are likely to be facing 10 or more bad years. By historical analogy, we are only in 1930 or 1970. As you say, people are misinterpreting the past and taking the wrong lessons from the present, and are already looking for government to provide the solutions (and are likely increasingly to do so).

But eventually these illusions are shattered by experience. The next decade will be key for developing an alternative narrative to the Third-Way delusion that has grown increasingly dominant for the past 15 years or so and is likely to tend (as all interventionism does) towards outright socialism.

Just as breaking union-dominance and privatisation were at the heart of the alternative narrative developed by the IEA, Hayek, Sir Keith Joseph & co during the 60s and 70s, so breaking corporate-dominance and disintegration should be at the heart of the narrative and programme to be developed during the "teenies" and hopefully implemented in the twenties.