Bob Meade - Private enterprise versus government

  • Published in Columns

Isn't it odd that if a business gets "too big", and essentially has the potential to control its market and stifle competition, the government can declare it a monopoly and work towards getting a court ruling to have the business divested; broken into smaller, independent companies that would no longer be tied to the corporation deemed to be a monopoly. Breaking up of the monopoly is intended to promote competition and give the public more choice in a free enterprise system.

In some cases, mainly in the provision of utilities such as electricity, telephone, and natural gas, state or federal government "regulation" serves as a substitute for free market competition.

Utilities are often referred to as natural monopolies. In other cases, such as the provision of various types of insurance, states also provide some regulation to ensure the insurer's ability to meet the obligations of their insurance policies. Although they're regulated, these are not considered monopolies, as there are multiple insurance companies available to compete in the marketplace.

Generally, the government decides to breakup a monopoly based on its potential to control the market and make it difficult for competition to succeed in that market. Way back when, John D. Rockefeller built such a monopoly by owning over one hundred oil refineries which provided the gasoline to his gas stations around the country. Rockefeller would open a gas station and then price his gasoline under what other gas stations in the area were charging. The other stations couldn't afford to sell at a loss and a great many of them were forced to close. Rockefeller's strategy worked and he built the Standard Oil Company "Trust" (a conglomeration of all the companies he owned, refineries, oil companies, gas stations, etc.).

President Teddy Roosevelt became known as a "Trust Buster" when he successfully dissolved 44 monopolistic companies. However, President William Howard Taft, Roosevelt's successor, was the president when Standard Oil's Trust was dissolved into 33 separate companies. It must be noted that dissolution of a trust does not mean that the shareholders are financially punished. In most cases, when the trust is dissolved into smaller independent companies, the value of the parts is worth far more than the whole. The breakup of Standard Oil essentially made Rockefeller the wealthiest person in the world.

Some notable trusts that were dissolved include the original United Technologies, which owned airplane maker Boeing Aircraft, airplane engine maker Pratt and Whitney, and airline company, United Airlines. Those companies were divested into separate entities and continue to this day as highly successful and dominant leaders in their respective fields.

Another trust that was dissolved more recently was AT&T, a "natural monopoly" known as the Bell System. Twenty two regional telephone companies, Bell Telephone Labs, Western Electric, (the Bell Systems manufacturing arm), and At&T Communications (the company's long distance division) were all restructured into seven independent operating companies. Since that breakup in 1984, the seven companies went through a series of mergers and acquisitions and are now only three companies — Verizon, Century Link, and AT&T. (One of the divested regional companies, Southwestern Bell became SBC, and acquired two of the regional companies, and independent Southern New England Telephone Company, and then it bought AT&T. SBC then adopted the AT&T name.)

What these three examples show is that the government, in what they deem to be is their responsibility to promote free enterprise and stimulate competition, can break up a company simply because of its size. In the case of Standard Oil, it was because they did, in fact, stifle competition. In the case of United Technologies, it wasn't that they were stifling competition in a fledgling industry, it was because someone in government didn't think it was a good idea that one trust should be able to build the airframe and the engines, and sell the seats on the airplane. The Bell System, a natural monopoly, had built the finest telephone system in the world and had contributed many technological innovations into the public domain, the transistor, lasers, and cellular technology, to name a few. But the government deemed it was too big and decided that the now defunct MCI corporation should be able to use the distribution resources of the Bell System.

If we accept that the government has the right, the duty, to ensure that companies be allowed to compete in free and open markets, how then can we accept that the government, which is already a huge, bloated bureaucracy that many believe is already too big, should be allowed to take over the entire health care industry? Such an act not only stifles innovation and competition, it eliminates it, as it becomes the world's largest monopoly.

If you need to replace a few spark plugs in your automobile, you don't replace the entire engine.

(Bob Meade is a Laconia resident.)