In the Grip of the New Monopolists ( http://online.wsj.com/article/SB10001424052748704635704575604993311538482.html?mod=googlenews_wsj)

How hard would it be to go a week without Google? Or, to up the ante, without Facebook, Amazon, Skype, Twitter, Apple, eBay and Google? It wouldn't be impossible, but for even a moderate Internet user, it would be a real pain. Forgoing Google and Amazon is just inconvenient; forgoing Facebook or Twitter means giving up whole categories of activity. For most of us, avoiding the Internet's dominant firms would be a lot harder than bypassing Starbucks, Wal-Mart or other companies that dominate some corner of what was once called the real world.

The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google "owns" search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.

There are digital Kashmirs, disputed territories that remain anyone's game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft's Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). Still, no one expects Google Buzz to seriously encroach on Facebook's market, or, for that matter, Skype to take over from Twitter. Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.

The rise of the app (a dedicated program that runs on a mobile device or Facebook) may seem to challenge the neat sorting of functions among a handful of firms, but even this development is part of the larger trend. To stay alive, all apps must secure a place on a monopolist's platform, thus strengthening the monopolist's market dominance.

Today's Internet borders will probably change eventually, especially as new markets appear. But it's hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies? Could it even be that demand, of all things, is actually winnowing the online free market—that Americans, so diverse and individualistic, actually love these monopolies?

The history of American information firms suggests that the answer to both questions is "yes." Over the long haul, competition has been the exception, monopoly the rule. Apart from brief periods of openness created by new inventions or antitrust breakups, every medium, starting with the telegraph, has eventually proved to be a case study in monopoly. In fact, many of those firms are still around, if not quite as powerful as they once were, including AT&T, Paramount and NBC.

Internet industries develop pretty much like any other industry that depends on a network: A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises. Such networks have a natural tendency to grow, and that growth leads to dominance. That was the key to Western Union's telegraph monopoly in the 19th century and to the telephone monopoly of its successor, AT&T. The Bell lines simply reached more people than anyone else's, so ever more customers came to depend on them in a feedback loop of expanding market share. The more customers they reached, the more impervious the firm became to challengers.

Still, in a land where at least two mega-colas and two brands of diaper can duke it out indefinitely, why are there so many single-firm information markets? The explanation would seem to lie in the famous American preference for convenience. With networks, size brings convenience.

Consider that, in the late 1990s, there were many competing search engines, like Lycos, AltaVista and Bigfoot. In the 2000s, there were many social networking sites, including Friendster. It was we, collectively, who made Google and Facebook dominant. The biggest sites were faster, better and easier to use than their competitors, and the benefits only grew as more users signed on. But all of those individually rational decisions to sign on to the same sites yielded a result that no one desires in principle—a world with fewer options.
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We wouldn't fret over monopoly so much if it came with a term limit. If Facebook's rule over social networking were somehow restricted to, say, 10 years—or better, ended the moment the firm lost its technical superiority—the very idea of monopoly might seem almost wholesome. The problem is that dominant firms are like congressional incumbents and African dictators: They rarely give up even when they are clearly past their prime. Facing decline, they do everything possible to stay in power. And that's when the rest of us suffer.

AT&T's near-absolute dominion over the telephone lasted from about 1914 until the 1984 breakup, all the while delaying the advent of lower prices and innovative technologies that new entrants would eventually bring. The Hollywood studios took effective control of American film in the 1930s, and even now, weakened versions of them remain in charge. Information monopolies can have very long half-lives.

Declining information monopolists often find a lifeline of last resort in the form of Uncle Sam. The government has conferred its blessing on monopolies in information industries with unusual frequency. Sometimes this protection has yielded reciprocal benefits, with the owner of an information network offering the state something valuable in return, like warrantless wiretaps.

Essential to NBC, CBS and ABC's long domination of broadcasting was the government's protection of them first from FM radio (the networks were stuck on AM) and later from the cable TV industry, which it suppressed for decades. Today, Verizon and AT&T's dominance of wireless phone service can be credited in part to de facto assistance from the U.S., and consequently their niche is probably the safest in the entire industry. Monopolies may be a natural development, but the most enduring ones are usually state-sponsored. All the more so since no one has ever conceived a better way of scotching competitors than to make them comply with complex federal regulation.

Info-monopolies tend to be good-to-great in the short term and bad-to-terrible in the long term. For a time, firms deliver great conveniences, powerful efficiencies and dazzling innovations. That's why a young monopoly is often linked to a medium's golden age. Today, a single search engine has made virtually everyone's life simpler and easier, just as a single phone network did 100 years ago. Monopolies also generate enormous profits that can be reinvested into expansion, research and even public projects: AT&T wired America and invented the transistor; Google is scanning the world's libraries.


The downside shows up later, as the monopolist ages and the will to innovate is replaced by mere will to power. In the 1930s, AT&T took the strangely Luddite measure of suppressing its own invention of magnetic recording, for fear it would deter use of the telephone. The costs of the monopoly are mostly borne by entrepreneurs and innovators. Over the long run, the consequences afflict the public in more subtle ways, as what were once highly dynamic parts of the economy begin to stagnate.

These negative effects are why people like Theodore Roosevelt, Louis Brandeis and Thurman Arnold regarded monopoly as an evil to be destroyed by the federal courts. They took a rather literal reading of the Sherman Act, which states, "Every person who shall monopolize…shall be deemed guilty of a felony." But today we don't have the heart to euthanize a healthy firm like Facebook just because it's huge and happens to know more about us than the IRS.

The Internet is still relatively young, and we remain in the golden age of these monopolists. We can also take comfort from the fact that most of the Internet's giants profess an awareness of their awesome powers and some sense of attendant duty to the public. Perhaps if we're vigilant, we can prolong the benign phase of their rule. But let's not pretend that we live in anything but an age of monopolies.

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After that great WSJ article on monopolies, here are some notes on monopolies from Lenin - even if someone hasn't read his works or doesn't agree with his vision, his analysis of capitalism was spot-on.

So, here's Lenin on the subject, from his book "Imperialism, the highest stage of capitalism":

Half a century ago, when Marx was writing Capital, free competition appeared to the overwhelming majority of economists to be a “natural law”. Official science tried, by a conspiracy of silence, to kill the works of Marx, who by a theoretical and historical analysis of capitalism had proved that free competition gives rise to the concentration of production, which, in turn, at a certain stage of development, leads to monopoly. Today, monopoly has become a fact. Economists are writing mountains of books in which they describe the diverse manifestations of monopoly, and continue to declare in chorus that “Marxism is refuted”. But facts are stubborn things, as the English proverb says, and they have to be reckoned with, whether we like it or not. The facts show that differences between capitalist countries, e.g., in the matter of protection or free trade, only give rise to insignificant variations in the form of monopolies or in the moment of their appearance; and that the rise of monopolies, as the result of the concentration of production, is a general and fundamental law of the present stage of development of capitalism.

For Europe, the time when the new capitalism definitely superseded the old can be established with fair precision; it was the beginning of the twentieth century. In one of the latest compilations on the history of the “formation of monopolies”, we read:

“Isolated examples of capitalist monopoly could be cited from the period preceding 1860; in these could be discerned the embryo of the forms that are so common today; but all this undoubtedly represents the prehistory of the cartels. The real beginning of modern monopoly goes back, at the earliest, to the sixties. The first important period of development of monopoly commenced with the international industrial depression of the seventies and lasted until the beginning of the nineties.” “If we examine the question on a European scale, we will find that the development of free competition reached its apex in the sixties and seventies. It was then that Britain completed the construction of her old-style capitalist organisation. In Germany, this organisation had entered into a fierce struggle with handicraft and domestic industry, and had begun to create for itself its own forms of existence.”

“The great revolution commenced with the crash of 1873, or rather, the depression which followed it and which, with hardly discernible interruptions in the early eighties, and the unusually violent, but short-lived boom round about 1889, marks twenty-two years of European economic history ... .. During the short boom of 1889-90, the system of cartels was widely resorted to in order to take advantage of favourable business conditions. An ill-considered policy drove prices up still more rapidly and still higher than would have been the case if there had been no cartels. and nearly all these cartels perished ingloriously in the smash. Another five-year period of bad trade and low prices followed, but a new spirit reigned in industry; the depression was no longer regarded as something to be taken for granted: it was regarded as nothing more than a pause before another boom.

“The cartel movement entered its second epoch: instead of being a transitory phenomenon, the cartels have become one of the foundations of economic life. They are winning one field of industry after another, primarily, the raw materials industry. At the beginning of the nineties the cartel system had already acquired-in the organisation of the coke syndicate on the model of which the coal syndicate was later formed—a cartel technique which has hardly been improved on. For the first time the great boom at the close of the nineteenth century and the crisis of 1900-03 occurred entirely—in the mining and iron industries at least—under the aegis of the cartels. And while at that time it appeared to be something novel, now the general public takes it for granted that large spheres of economic life have been, as a general rule, removed from the realm of free competition.”

Thus, the principal stages in the history of monopolies are the following: (1) 1860-70, the highest stage, the apex of development of free competition; monopoly is in the barely discernible, embryonic stage. (2) After the crisis of 1873, a lengthy period of development of cartels; but they are still the exception. They are not yet durable. They are still a transitory phenomenon. (3) The boom at the end of the nineteenth century and the crisis of 1900-03. Cartels become one of the foundations of the whole of economic life. Capitalism has been transformed into imperialism.

Cartels come to an agreement on the terms of sale, dates of payment, etc. They divide the markets among themselves. They fix the quantity of goods to be produced. They fix prices. They divide the profits among the various enterprises, etc.

At times cartels and trusts concentrate in their hands seven- or eight-tenths of the total output of a given branch of industry. The Rhine-Westphalian Coal Syndicate, at its foundation in 1893, concentrated 86.7 per cent of the total coal output of the area, and in 1910 it already concentrated 95.4 per cent. The monopoly so created assures enormous profits, and leads to the formation of technical production units of formidable magnitude. The famous Standard Oil Company in the United States was founded in 1900: “It has an authorised capital of $150,000,000. It issued $100,000,000 common and $106,000,000 preferred stock. From 1900 to 1907 the following dividends were paid on the latter: 48, 48, 45, 44, 36, 40, 40, 40 per cent in the respective years, i.e., in all, $367,000,000. From 1882 to 1907, out of total net profits amounting to $889,000,000, $606,000,000 were distributed in dividends, and the rest went to reserve capital.
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In German large-scale industry, e.g., in the chemical industry, which has developed so enormously during these last few decades, the promotion of technical improvement is organised in the same way. By 1908 the process of concentration of production had already given rise to two main “groups” which, in their way, were also in the nature of monopolies. At first these groups constituted “dual alliances” of two pairs of big factories, each having a capital of from twenty to twenty-one million marks-on the one hand, the former Meister Factory in Hochst and the Casella Factory in Frankfurt am Main; and on the other hand, the aniline and soda factory at Ludwigshafen and the former Bayer Factory at Elberfeld. Then, in 1905, one of these groups, and in 1908 the other group, each concluded an agreement with yet another big factory. The result was the formation of two “triple alliances”, each with a capital of from forty to fifty million marks. And these “alliances” have already begun to “approach” each other, to reach “an understanding” about prices, etc.

Competition becomes transformed into monopoly. The result is immense progress in the socialisation of production. In particular, the process of technical invention and improvement becomes socialised.

This is something quite different from the old free competition between manufacturers, scattered and out of touch with one another, and producing for an unknown market. Concentration has reached the point at which it is possible to make an approximate estimate of all sources of raw materials (for example, the iron ore deposits) of a country and even, as we shall see, of several countries, or of the whole world. Not only are such estimates made, but these sources are captured by gigantic monopolist associations. An approximate estimate of the capacity of markets is also made, and the associations “divide” them up amongst themselves by agreement. Skilled labour is monopolised, the best engineers are engaged; the means of transport are captured—railways in America, shipping companies in Europe and America. Capitalism in its imperialist stage leads directly to the most comprehensive socialisation of production; it, so to speak, drags the capitalists, against their will and consciousness, into some sort of a new social order, a transitional one from complete free competition to complete socialisation.

Production becomes social, but appropriation remains private. The social means of production remain the private property of a few. The general framework of formally recognised free competition remains, and the yoke of a few monopolists on the rest of the population becomes a hundred times heavier, more burdensome and intolerable.

The German economist, Kestner, has written a book especially devoted to “the struggle between the cartels and outsiders”, i.e., the capitalists outside the cartels. He entitled his work Compulsory Organisation, although, in order to present capitalism in its true light, he should, of course, have written about compulsory submission to monopolist associations. It is instructive to glance at least at the list of the methods the monopolist associations resort to in the present-day, the latest, the civilised struggle for “organisation”: (1) stopping supplies of raw materials ... “one of the most important methods of compelling adherence to the cartel”); (2) stopping the supply of labour by means of “alliances” (i.e., of agreements between the capitalists and the trade unions by which the latter permit their members to work only in cartelised enterprises); (3) stopping deliveries; (4) closing trade outlets; (5) agreements with the buyers, by which the latter undertake to trade only with the cartels; (6) systematic price cutting (to ruin “outside” firms, i.e., those which refuse to submit to the monopolists. Millions are spent in order to sell goods for a certain time below their cost price; there were instances when the price of petrol was thus reduced from 40 to 22 marks, i.e., almost by half!); (7) stopping credits; (8) boycott.


Here we no longer have competition between small and large, between technically developed and backward enterprises. We see here the monopolists throttling those who do not submit to them, to their yoke, to their dictation. This is how this process is reflected in the mind of a bourgeois economist:

“Even in the purely economic sphere,” writes Kestner, “a certain change is taking place from commercial activity in the old sense of the word towards organisational-speculative activity. The greatest success no longer goes to the merchant whose technical and commercial experience enables him best of all to estimate the needs of the buyer, and who is able to discover and, so to speak, ‘awaken’ a latent demand; it goes to the speculative genius [?!] who knows how to estimate, or even only to sense in advance, the organisational development and the possibilities of certain connections between individual enterprises and the banks. . . .”

Translated into ordinary human language this means that the development of capitalism has arrived at a stage when, although commodity production still “reigns” and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of the profits go to the “geniuses” of financial manipulation. At the basis of these manipulations and swindles lies socialised production; but the immense progress of mankind, which achieved this socialisation, goes to benefit . . . the speculators. We shall see later how “on these grounds” reactionary, petty-bourgeois critics of capitalist imperialism dream of going back to “free”, “peaceful”, and “honest” competition.
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Domination, and the violence that is associated with it, such are the relationships that are typical of the “latest phase of capitalist development”; this is what inevitably had to result, and has resulted, from the formation of all-powerful economic monopolies.
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capitalism only became capitalist imperialism at a definite and very high stage of its development, when certain of its fundamental characteristics began to change into their opposites, when the features of the epoch of transition from capitalism to a higher social and economic system had taken shape and revealed themselves in all spheres. Economically, the main thing in this process is the displacement of capitalist free competition by capitalist monopoly. Free competition is the basic feature of capitalism, and of commodity production generally; monopoly is the exact opposite of free competition, but we have seen the latter being transformed into monopoly before our eyes, creating large-scale industry and forcing out small industry, replacing large-scale by still larger-scale industry, and carrying concentration of production and capital to the point where out of it has grown and is growing monopoly: cartels, syndicates and trusts, and merging with them, the capital of a dozen or so banks, which manipulate thousands of millions. At the same time the monopolies, which have grown out of free competition, do not eliminate the latter, but exist above it and alongside it, and thereby give rise to a number of very acute, intense antagonisms, frictions and conflicts. Monopoly is the transition from capitalism to a higher system.


If it were necessary to give the briefest possible definition of imperialism we should have to say that imperialism is the monopoly stage of capitalism. Such a definition would include what is most important, for, on the one hand, finance capital is the bank capital of a few very big monopolist banks, merged with the capital of the monopolist associations of industrialists; and, on the other hand, the division of the world is the transition from a colonial policy which has extended without hindrance to territories unseized by any capitalist power, to a colonial policy of monopolist possession of the territory of the world, which has been completely divided up.

But very brief definitions, although convenient, for they sum up the main points, are nevertheless inadequate, since we have to deduce from them some especially important features of the phenomenon that has to be defined. And so, without forgetting the conditional and relative value of all definitions in general, which can never embrace all the concatenations of a phenomenon in its full development, we must give a definition of imperialism that will include the following five of its basic features:


(1) the concentration of production and capital has developed to such a high stage that it has created monopolies which play a decisive role in economic life; (2) the merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital”, of a financial oligarchy; (3) the export of capital as distinguished from the export of commodities acquires exceptional importance; (4) the formation of international monopolist capitalist associations which share the world among themselves, and (5) the territorial division of the whole world among the biggest capitalist powers is completed. Imperialism is capitalism at that stage of development at which the dominance of monopolies and finance capital is established; in which the export of capital has acquired pronounced importance; in which the division of the world among the international trusts has begun, in which the division of all territories of the globe among the biggest capitalist powers has been completed.