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Monopoly equilibrium and all that

The up and coming generation has reason to feel flabbergasted. Bill Gates has been to them the next thing to god. Now an archaic piece of American legislation, the so-called anti-trust law, is being applied to cut up his Microsoft empire.

This is bizarre, for it sends across the message that free-market transactions are not the summum bonum of human civilisation; that limits exist to what a private industrial or commercial entity might aspire for, and that these limits are set and enforced by the government of the country. Which is another way of saying that restrictions operate on the supposedly free functioning of market forces. Even Bill Gates, his divine circumstances notwithstanding, has to come under the social discipline enforced by the government. The government acts as the agent of the State.

The up and coming generation is bound to be befuddled. This is outrageous, they will argue amongst themselves and keep shooting questions at the decision-makers in society. One cannot blame them too much. They have been reared in an environment where the untramelled functioning of the free market has been taken to be sacrosanct; no exceptions to the competitive roles have till now been communicated to them.

Information technology has had an uninterrupted run in the United States and the rest of the Western world for almost a quarter of a century. Discovery of fresh arenas of deployment of capital was taken for granted and the demand for investment funds in an industry by nature acutely capital-intensive now seemingly without end. The entire community was exposed to the spectre of monopolisation of the market by the market leader; Bill Gateses proliferated in activity after activity.

That was assumed to be quintessential capitalism. But now both the executive and judicial wings of government have stepped in, in the United States itself. The likes of Bill Gates, they have decided, are infringing on the grammar of free-market operations. Part of the problem has arisen because the standard literature describing the emergence of a monopolised market has long been thrown out of the window or allowed to go into disuse.

Monopoly equilibrium is a concept from another era. The world was then marked by lack of demand for goods and services, leading to large-scale unemployment in one capitalist country after another. Textbooks on market imperfection, such as the volumes written by Joan Robinson in England and Edwin Chamberlain in the United States, came into circulation. Terms like monopoly, duopoly and polypoly came into common use. Clever geometrical diagrams were drawn supplementing derivations from differential calculus to convey the harsh fact of life such that monopoly equilibrium was always to the left of competitive equilibrium. Which was another way of stating that other things remaining the same, monopoly output lags behind output under conditions of free competition. Unemployment, it followed, would be less in a monopoly situation compared to what perfect competition would yield.

This phase of economics the up and coming generation has not generally been acquainted with. Nurtured in a milieu of relative naivete, the market forces, they have summed up, are a magnificent phenomenon if only the wretched State could be stopped from interfering. Once such interference stopped, that would lay the foundation of all-round economic efficiency with optimum utilisation of the factors of production involved.

The economic depression of the late twenties and thirties gave the lie to assumptions of this nature. A grim chapter of history ensured. The free market was a non-starter. It was considered essential that the State intervene massively so that public works could come up here, there and everywhere in the economy, raising national output and the quantum of national employment. Textbooks got written to explain how the process of state intervention worked like magic, with supply creating its own demand.

Those textbooks are now by and large extinct. They have been withdrawn from the market since they contain arcane, often dangerous, thoughts. The hangover of that genre of economics had stretched for a long while, thank goodness, but once the Cold War ended in the manner it did, it was victory time for the free market.

The new economics that has accompanied globalisation is replete with commonplace, straightforward notions stressing the suzerainty of the market and knocking off the pedestal the role of the State as the saviour of the economic system.

Several developments have followed. The United States has been an active patron of the free-market philosophy. It has its clout as the world's only superpower. A pattern of a new international culture is in the pipeline. The vassal states, for dear life, have rushed to sing the praises of the free-market philosophy. Whatever his majesty the king might think, the subjects too must think in the same way and with alacrity.

The onrush of legislation choking the Indian parliament, slashing subsidies and closing down public undertakings of all descriptions, is illustrative of the sycophancy that is at work. Life is not worth living unless we do the bidding of the world's only superpower. Come hell or high water, we, the subalterns, will obey the wishes of the master. The blind adherence to the goal of maximising the takings of the boss's interests even if in the process our own interests suffer irreparable danger is one issue the country's formal leaders are most reluctant to discuss in public forums.

The Microsoft story is a bit of a setback for those who have strongly invested in the new horizon. For reasons of State, the likes of Bill Gates, it is being understood, will not be allowed to exploit the possibilities of the free market to the hilt. The United States administration, than whom there can be no greater admirer of the practice of globalisation, has inserted a spoke in its standing legislation; untramelled human endeavour in any particular direction, howsoever brilliant and innovative, is out. The freedom of one cannot impede the freedom of the multitude.

The NRIs, with universal admiration for all things American, will have reason to experience disappointment. They were, they thought, in the early, blooming stages of capitalism in India. Why frighten them with the Microsoft story?

And yet it is not that simple, accepting the reality of the United States itself agreeing to the imposition of restrictions on the functioning of the free-market mechanism. The mind wavers. Should not the concept of clamping restrictions on the activities of a monopoly power be extended in other spheres as well? Should there not be at least some informal legislation to prohibit the global superpower from monopolising the wealth and resources of the earth?

Once upon a time the United Nations was thought to be the ideal agency to keep in check superpower overbearingness. That organisation has, however, been comprehensively destroyed by the United States and its agents. They felt the need nonetheless for a keeper of morality in this world, often the victim of vulgar emotions taking precedence over decency and a humane order.

Much more than the superpower itself, its sycophants will be scandalised by propositions for imposition of restrictions on the exercise of power by the big boss. It is difficult to believe, on the evidence of current data, that this country had wrested its freedom from foreigners hardly half a century ago.

Ashok Mitra

Business