Should We Tolerate a Government Monopoly?

What’s striking about opposition to private monopolies is that people rarely have the same opposition toward the government itself. Shouldn't they though?

Many people on the political left and the right have revitalized interest in monopolies across industries like pharmaceuticals, airlines, and tech—e.g., the percentage of web searches using Google is around ninety percent. Increasingly Democrats and Republicans worry there are too many monopolies, in too many industries. As Sen. Amy Klobuchar recently said:

American prosperity was of course built on a foundation of open markets and fair competition. But if you look at our markets today, we see cracks in that free market foundation. We see more and more consolidation — in so many areas markets aren’t as competitive as they once were.

And a few years ago, the Fox News commentator, Tucker Carlson, tweeted:

The big digital monopolies demand that we conform to their worldview and shut us down when we dissent. They have too much power. They are are [sic] threat to this country. Congress is doing nothing about it. It's time to complain, while we still can.

Sen. Klobuchar and Carlson are roughly worried about the same thing: monopolies can have too much power in a market, and thus weaken the incentive to maintain quality and lower the costs—and perhaps use that power to silence potential competition and critics.

However, before getting too far into the weeds, we need a definition of monopoly. Here’s one from Milton Friedman’s Capitalism and Freedom: monopolies occur when ‘a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.’ So roughly put: a monopoly is a company with more power to set the terms of exchange of goods and services than they could in a fair market—driving quality down, and prices up. This is at the heart of why many people, are not only suspicious of monopolies, but think the government should use anti-trust laws to break them up.

Not every monopoly is bad for consumers and the economy: sometimes we find monopolies in markets that are too small to support more than a single company, or a natural monopoly that controls the market because it actually offers the best prices and quality, and customers are satisfied. But when monopolies are problematic it is often because they have poor incentives to respond to the needs and wants of customers. Monopolies are often bad for consumers and the economy because they stifle competition, raise prices, and lower quality. The negative aspects of monopolies likely explain sizable support by American voters to use anti-trust laws against tech companies like Google and Facebook. 

What’s striking about opposition to private monopolies in the marketplace is that people rarely apply this same line of thinking to the government itself. There are many respects in which the government acts like a monopoly: only they are responsible for enforcing the law, providing emergency and essential services like law enforcement, roads, bridges, and so on. To the extent we think private monopolies shouldn’t be allowed, because they stifle competition, raise prices, and lower quality, we should wonder why the government is any different. Part of what makes an institution a government is that it has a monopoly on the use of violence: the government alone decides who can legally use violence, under what conditions, and so forth. The point that the government itself is a monopoly in many respects is recognized by the philosopher, Michael Huemer, in The Problem of Political Authority:

We need not present arguments to show that a government may develop into a monopoly, because a government, by definition, already is a monopoly. Whatever ills are to be feared from the monopolization of industries, why should we not fear precisely those ills from government? The fact that an organization is labeled a ‘government’ rather than a ‘business’ will hardly render its actions beneficent if the actual incentive structure it faces is the same as that of a monopolistic business […] Economic theory teaches that a monopoly will restrict output to socially suboptimal levels while raising prices to levels that maximize its own profits but lower the total utility of society. If, for example, a company held a monopoly on shoe production, there would be too few shoes, and they would be too expensive.

The problem with a government monopoly is, not only does it have poor incentives to respond to the needs and desires of the citizenry—it can tax us regardless—but it many of the services it offers are essential. We aren’t just talking about a monopoly on luxury goods like fine suits and cruises, but instead essential services like police and fire fighting, adjudicating contracts, and building and maintaining roads, and so forth. If a monopoly on shoes would be bad, then surely a monopoly on infrastructure and law enforcement is even worse—especially to the extent that we think a well-functioning government is essential for a free and prosperous society. And if we should break-up private monopolies that harm their customers, and act as a drag on economic growth in a society, then why should we let the government monopoly stand?

An example of a government monopoly is public education. As Corey DeAngelis, the National Director of Research at the American Federation for Children recently wrote:

The main problem is that public schools have a monopoly in the education market. Families are essentially powerless when it comes to K-12 education because they cannot take their children’s taxpayer-funded education dollars elsewhere when public schools fail to meet their needs. The COVID-19 pandemic has shined a spotlight on this power imbalance. Public schools aren’t even opening their doors in many places, yet they’re still getting to keep students’ education funding, even if that student chose to attend a different school that fall.

The last point here is especially striking. Even for a monopoly in the private sector, this would be beyond the pale. However, for some odd reason, when the government forcibly taxes citizens for services it doesn’t provide, citizens and voters often shrug. The philosopher, Chris Freiman, nicely illustrates the absurdity of this situation with a dialogue:

“Here’s your new Ford Focus!”

“What? I didn’t ask for this. Please return it.”

“No can do. Already paid for.”

“Well, that’s not my problem.”

“It sure is—the state taxed some of your income to pay for it.”

“But that’s ridiculous—why can’t I buy the car that I believe best suits my family’s needs? We’d do much better with a Kia that is more fuel efficient and has a higher safety rating.”

“Sorry, that’s not how the system works. You can customize a few features if you want, but the government has determined that every family in your residential area gets a Ford Focus.”

“But if the car is a lemon, I can at least turn it in for a new one, right?”

“Nope. You’re stuck with the car no matter how badly it works. You could complain to the management at Ford, but I’m not sure how seriously they’ll take your complaints. After all, your dissatisfaction won’t affect their bottom line—they’ll get your money whether you like their cars or not. Of course, you could always move to the neighborhood across town that gets assigned BMWs. Those cars are really nice, but I’ve got to warn you, the houses are expensive.”

“That’s a little unreasonable, don’t you think?”

“Well, another option would just be to buy a different car outright.”

“Ah, okay, and so I’ll be exempt from the car tax in that case?”

“No, you pay the car tax whether you use your government-assigned car or not.”

“I can’t afford that! You’re saying if someone’s government-assigned car is a lemon they either have to move or pay for two cars?”

“Yep.”

“So people of modest means are stuck with whatever car the government assigns them, no matter how unsuitable for them or how badly it performs? It seems like this system prevents people from getting higher-quality, more fitting cars for their family.”

“It is strange, I admit. But if we let you buy a Kia, you’d be siphoning money away from people who work for Ford.”

“So what? If Kia does a better job serving the public than Ford, then Ford losing money is a feature, not a bug.”

“Yeah but I work for Ford.”

This system of distributing cars is so obviously dysfunctional that I doubt anyone would seriously entertain it. So why would we think the system works any better for the distribution of schooling?

Not everyone, of course, will be convinced by these points. And so we should address a couple possible objections to equating the government to private monopolies.

The first objection is that since government offers essential services, and provides a foundation for society, it should be treated differently than private companies. This idea is echoed by the former President, Barack Obama, in a campaign speech from 2012:

Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business -- you didn’t build that.  Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

This objection isn’t very convincing though. If private monopolies are bad given the preserve incentives that operate—where monopolies lack incentives to respond to the needs and wants of customers—then perverse incentives would make the situation even more dire with respect to the government since it provides services essential for society’s operations (granted for arguments’ sake). It is thus especially troubling that the government would lack the incentive to respond to the needs of its citizens and voters. We thus should want the government to be more responsive to citizens’ needs, not less, which appears antithetical to its monopolistic nature.

A second objection is that since we can exercise the right to vote, democratic governments aren’t monopolies. If politicians are unresponsive, then we can just vote them out. The problem with this objection is it doesn’t really show the government isn’t a monopoly. It only shows it is a monopoly that the majority voted for—one that you’re subject to, even if you didn’t vote for it. Imagine if every American got to vote on the fast food chain that will be allowed to operate in the United States. On election night, the votes are tallied, and Arby’s is the winner. This is still a monopoly, but just a democratically chosen monopoly. And that doesn’t really make it better.  Suppose that you don’t like Arby’s—perhaps you prefer Wendy’s—so you wait until the next election, hoping this time your choice will democratically prevail. However, once again voters overwhelmingly pick Arby’s as America’s official and only fast food choice. Arby’s is a monopoly you have to put up with, though you had the chance to vote on the issue—a monopoly with a poor incentive to please you since, if you want fast food, Arby’s is your only choice.

Perhaps we should rethink the monopolistic nature of government. We need not be anarchists to see that monopolies can be bad, and that the government looks an awful lot like one.