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<title>C.6 Can market dominance by Big Business change?</title>
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<h1>C.6 Can market dominance by Big Business change?</h1>
<p>
Capital concentration, of course, does not mean that in a given market,
dominance will continue forever by the same firms, no matter what. However,
the fact that the companies that dominate a market can change over time
is no great cause for joy (no matter what supporters of free market capitalism
claim). This is because when market dominance changes between companies
all it means is that <b>old</b> Big Business is replaced by <b>new</b> Big Business:
</p><p><blockquote><i>
"Once oligopoly emerges in an industry, one should not assume that
sustained competitive advantage will be maintained forever. . . once
achieved in any given product market, oligopoly creates barriers to entry
that can be overcome only by the development of even more powerful forms
of business organisation that can plan and co-ordinate even more complex
specialised divisions of labour."</i> [William Lazonick, <b>Business Organisation
and the Myth of the Market Economy</b>, p. 173]
</blockquote></p><p>
The assumption that the "degree of monopoly" will rise over time is an
obvious one to make and, in general, the history of capitalism has tended
to support doing so. While periods of rising concentration will be
interspersed with periods of constant or falling levels, the general
trend will be upwards (we would expect the degree of monopoly to remain
the same or fall during booms and rise to new levels in slumps). Yet
even if the "degree of monopoly" falls or new competitors replace old
ones, it is hardly a great improvement as changing the company hardly
changes the impact of capital concentration or Big Business on the
economy. While the faces may change, the system itself remains the
same. As such, it makes little real difference if, for a time, a market
is dominated by 6 large firms rather than, say, 4. While the <b>relative</b>
level of barriers may fall, the <b>absolute</b> level may increase and so
restrict competition to established big business (either national or
foreign) and it is the absolute level which maintains the class
monopoly of capital over labour.
</p><p>
Nor should we expect the "degree of monopoly" to constantly increase,
there will be cycles of expansion and contraction in line with the age
of the market and the business cycle. It is obvious that at the start
of a specific market, there will be a relative high "degree of monopoly"
as a few pioneering create a new industry. Then the level of concentration
will fall as competitors entry the market. Over time, the numbers of firms
will drop due to failure and mergers. This process is accelerated during
booms and slumps. In the boom, more companies feel able to try setting up
or expanding in a specific market, so driving the "degree of monopoly"
down. However, in the slump the level of concentration will rise as more
and more firms go to the wall or try and merge to survive (for example,
there were 100 car producers in the USA in 1929, ten years later there
were only three). So our basic point is <b>not</b> dependent on any specific
tendency of the degree of monopoly. It can fall somewhat as, say, five
large firms come to dominate a market rather than, say, three over a
period of a few years. The fact remains that barriers to competition
remain strong and deny any claims that any real economy reflects the
"perfect competition" of the textbooks.
</p><p>
So even in a in a well-developed market, one with a high degree of monopoly
(i.e. high market concentration and capital costs that create barriers to
entry into it), there can be decreases as well as increases in the level of
concentration. However, how this happens is significant. New companies can
usually only enter under four conditions:
</p><p><ol>
1) They have enough capital available to them to pay for set-up costs and
any initial losses. This can come from two main sources, from other parts
of their company (e.g. Virgin going into the cola business) or large
firms from other areas/nations enter the market. The former is part of
the diversification process associated with Big Business and the second
is the globalisation of markets resulting from pressures on national
oligopolies (see <a href="secC4.html">section C.4</a>). Both of which increases competition
within a given market for a period as the number of firms in its
oligopolistic sector has increased. Over time, however, market forces
will result in mergers and growth, increasing the degree of monopoly
again.
</p><p>
2) They get state aid to protect them against foreign competition until
such time as they can compete with established firms and, critically,
expand into foreign markets: <i>"Historically,"</i> notes Lazonick, <i>"political
strategies to develop national economies have provided critical protection
and support to overcome . . . barriers to entry."</i> [<b>Op. Cit.</b>, p. 87] An
obvious example of this process is, say, the 19th century US economy or,
more recently the South East Asian "Tiger" economies (these having <i>"an
intense and almost unequivical commitment on the part of government to
build up the international competitiveness of domestic industry"</i> by
creating <i>"policies and organisations for governing the market."</i> [Robert
Wade, <b>Governing the Market</b>, p. 7]).
</p><p>
3) Demand exceeds supply, resulting in a profit level which tempts other
big companies into the market or gives smaller firms already there excess
profits, allowing them to expand. Demand still plays a limiting role
in even the most oligopolistic market (but this process hardly decreases
barriers to entry/mobility or oligopolistic tendencies in the long run).
</p><p>
4) The dominant companies raise their prices too high or become complacent
and make mistakes, so allowing other big firms to undermine their position
in a market (and, sometimes, allow smaller companies to expand and do the
same). For example, many large US oligopolies in the 1970s came under
pressure from Japanese oligopolies because of this. However, as noted
in <a href="secC4.html#secc42">section C.4.2</a>, these declining oligopolies can see their market control
last for decades and the resulting market will still be dominated by
oligopolies (as big firms are generally replaced by similar sized, or
bigger, ones).
</ol></p><p>
Usually some or all of these processes are at work at once and some can
have contradictory results. Take, for example, the rise of "globalisation"
and its impact on the "degree of monopoly" in a given national market. On
the national level, "degree of monopoly" may fall as foreign companies
invade a given market, particularly one where the national producers are
in decline (which has happened to a small degree in UK manufacturing in
the 1990s, for example). However, on the international level the degree
of concentration may well have risen as only a few companies can actually
compete on a global level. Similarly, while the "degree of monopoly"
within a specific national market may fall, the balance of (economic)
power within the economy may shift towards capital and so place labour
in a weaker position to advance its claims (this has, undoubtedly, been
the case with "globalisation" -- see <a href="seD5.html#secd53">section D.5.3</a>).
</p><p>
Let us consider the US steel industry as an example. The 1980s saw
the rise of the so-called "mini-mills" with lower capital costs. The
mini-mills, a new industry segment, developed only after the US steel
industry had gone into decline due to Japanese competition. The creation
of Nippon Steel, matching the size of US steel companies, was a key factor
in the rise of the Japanese steel industry, which invested heavily in
modern technology to increase steel output by 2,216% in 30 years (5.3
million tons in 1950 to 122.8 million by 1980). By the mid 1980s, the
mini-mills and imports each had a quarter of the US market, with many
previously steel-based companies diversifying into new markets.
</p><p>
Only by investing $9 billion to increase technological competitiveness,
cutting workers wages to increase labour productivity, getting relief
from stringent pollution control laws and (very importantly) the US
government restricting imports to a quarter of the total home market
could the US steel industry survive. The fall in the value of the dollar
also helped by making imports more expensive. In addition, US steel
firms became increasingly linked with their Japanese "rivals," resulting
in increased centralisation (and so concentration) of capital.
</p><p>
Therefore, only because competition from foreign capital created space in
a previously dominated market, driving established capital out, combined
with state intervention to protect and aid home producers, was a new segment
of the industry able to get a foothold in the local market. With many
established companies closing down and moving to other markets, and once
the value of the dollar fell which forced import prices up and state
intervention reduced foreign competition, the mini-mills were in an
excellent position to increase US market share. It should also be noted
that this period in the US steel industry was marked by increased
"co-operation" between US and Japanese companies, with larger companies
the outcome. This meant, in the case of the mini-mills, that the cycle
of capital formation and concentration would start again, with bigger
companies driving out the smaller ones through competition.
</p><p>
Nor should we assume that an oligopolistic markets mean the end of all
small businesses. Far from it. Not only do small firms continue to
exist, big business itself may generate same scale industry around it
(in the form of suppliers or as providers of services to its workers).
We are not arguing that small businesses do not exist, but rather than
their impact is limited compared to the giants of the business world.
In fact, within an oligopolistic market, existing small firms always
present a problem as some might try to grow beyond their established
niches. However, the dominant firms will often simply purchase the
smaller one firm, use its established relationships with customers
or suppliers to limit its activities or stand temporary losses and
so cut its prices below the cost of production until it runs competitors
out of business or establishes its price leadership, before raising
prices again.
</p><p>
As such, our basic point is <b>not</b> dependent on any specific tendency
of the degree of monopoly. It can fall somewhat as, say, six large firms
come to dominate a market rather than, say, four. The fact remains that
barriers to competition remain strong and deny any claims that any real
economy reflects the "perfect competition" of the textbooks. So, while
the actual companies involved may change over time, the economy as a
whole will always be marked by Big Business due to the nature of
capitalism. That's the way capitalism works -- profits for the few
at the expense of the many.
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