Monopolies, Free Market Capitalism, And
A Discussion With Dr. Nicholas J.
Mauro, Professor, Dowling College and Nobel
Laureate Economist Dr.
On, May 30, 2002, following nearly three years of correspondence, Nobel
Laureate, Dr. Milton Friedman, invited Dr. Nicholas J. Mauro, a Professor of
Dowling College’s School of Business, to visit with him at his home in San Francisco. Dr. Friedman is regarded as one of
the top economics thinkers in the world today, and many consider him to be the
number-one economist and the champion of free market capitalism. Currently,
Dr. Friedman is a resident fellow at the Hoover Institute in Palo Alto, California. At this introductory meeting a foundation was provided
that allowed both men the opportunity to discuss a variety of global economic
issues. For example, Dr. Friedman and Dr. Mauro spoke about such issues as
systems thinking, statistical process control and quality as these related to
competing globally. Also discussed was the work of Dr. Walter Shewhart,
considered to be the Father of Statistical Process Control, and Dr. W. Edwards
Deming, an understudy, close friend and practitioner of Shewhart’s work.
Deming is the person given most
credit for the Japanese industrial miracle and was a speaker at Dowling.
More recently, on November 11, 2003,
Dr. Friedman invited Dr. Mauro to return to his home on the west coast for a
second discussion on the above issues as these interacted with such issues as
monetary behavior and theory, inflation, unemployment, local and global
monopoly, and the steel industry along with a variety of other issues. One may
wish to note that in 1976, Dr. Friedman won a Nobel Prize for his research on
Monetary Theory and this work is recognized globally as the scholarly work on
What follows are combined excerpts
from both visits on the timely topic of monopolies in a globally competitive
world as seen through the eyes of these two scholars.
Dr. Nicholas Mauro: If I may, I would like to refresh
both our memories. In fact,
strangely enough one of the headlines
in USA Today, yesterday (11/11/03), on its front page was “Steel Tariff Ruling Tests Bush.”
Dr. Milton Friedman: Yes.
Nicholas Mauro: It seems as if the steel issue is
going to come to a head.
And, of course, it has everything to
do with free market capitalism and free trade. The last thing I mentioned to
you when last we spoke was what you thought of a “regional monopoly” which is
what seems to be developing globally in the steel industry?
Milton Friedman: Yes, I recall your concerns about
Nicholas Mauro: I was wondering about your thoughts
on a global/regional
monopoly? What I have in mind is a
people bonded together, nation-to-nation, by some cultural thread, and an
unwritten agreement but from these very cultural similarities people then form
or try to form a global monopoly – so to speak – in order to take control and
retain control of an industry? And in this instance governments might assist
them to achieve their objective to seize an industry. There doesn’t really
have to be anything in writing…because they are bound together by culture --
they know each other’s behavior, also how they think and they just go about
their plan to monopolize an industry?
MF: Perhaps you can elaborate.
NM: For example, I was thinking of the close bonding
or cultural bonds that some Asian nations have with each other and how these
nations seem to seize an industry, as a group, and then control that industry.
It is as if a global monopoly arises from such a relationship… kind of like a
regional monopoly, and there seems to be a plan, unwritten as it may
be. It is not an accident or just something that randomly occurs, it is more.
Then after these nations seize control of an industry – there seems to be a
move to drive all other global competitors (organizations) out of this business
around the world?
MF: I am certain you know that I am in
favor of competition. So any type
of monopoly, I would not be in favor
of…but I must admit I have not given this aspect any thought. Further, I do
not agree, for example, with protecting American steel because of their
political influence. In 1987/88 we were very critical of President Reagan for
not dealing with Japan better. Reagan placed import limits
on Japanese cars to protect the American auto industry – we disagreed with what
President Reagan did.
NM: But what of a global/regional monopoly that might
be formed to takeover an industry by a group of nations that then results in
the same condition that would occur if a global or local monopoly was formed?
MF: Yes, I am aware of what you are suggesting. Yes.
NM: Milton, if it is
okay with you I would like very much to discuss this issue in the
context of the Steel industry?
MF: Yes, that is fine with me.
NM: This is where I would like to begin because the
issue raises questions about monopoly and monopolies in free markets. And, I
seem to have read somewhere that you may have altered or changed your position
in regard to monopolies?
MF: I have been re-thinking my position on monopoly in
view of global monopolies and global competition. Please continue. I’d like
to hear more about your point.
NM: Okay. Well, it seems as if there may be a few far
eastern nations, in this case, (with one nation leading the way) that are
moving toward monopolizing the steel industry and, price is the driver.
MF: Shouldn’t people be able to buy products at the best
possible price in the marketplace? Isn’t that the substance of free trade?
NM: You know Milton, I understand your point completely,
but entering into this discussion is, of course …fair trade. And that brings
us to the “free trade” vs. “fair trade” debate that seems to be ongoing. And…
MF: Yes, now Nic, who is to say what is fair trade?
Isn’t that really through the eyes of who is looking at it in the eyes of the
NM: Milton, I get
your point, I really do and I understand it. But, there are those who would
argue that this is exactly what happened in the television industry or the photo
industry, and the electronics industry and that some nations use monopoly to
their advantage in this way.
MF: What is your point?
NM: Well, my point is that if their intentions are to
secure an industry – by monopolizing that industry using monopolistic behavior,
with no written agreements among themselves but rather simply because people
think alike – then perhaps the US should not be so quick to break-up our most
powerful companies – via the Anti-trust laws and the Justice Department and the
Federal Trade Commission. All of this seems to be unrealistic to me in a world
of global competition, driven by price and quality…and I would really like to
hear your position on these issues…
MF: Okay, I understand.
NM: Incidentally, excuse me Milton, but
this pro-monopoly thing – by the way is
actually a strong argument put
forward by Deming and Shewhart because of their history with AT&T…so they
were very supportive of a monopolistic environment, and of course, this
automatically leads us to Microsoft.
MF: You know Nic, if we were to go back let’s say to
1800 or when this country began, this entire country was farming. People, most
people, were engaged in farming. Now it is true it was a different time, but
there is a point to be made here. And, I think all the concern about losing an
industry or industries must be looked at from the point of view that this is
the way things happen. The entire nation was
– let’s say 98% of it. And then
things started to change and we see today the percentage of farming and
farmers, economically, is very small. Now it is true…
NM: Yes it is, by sector it is approximately 1.5 to 2%
in the United States…
MF: Yes, it is true that farming has gone to a very low
level from a sector/industry point of view. Today, farming is done everywhere
in the world – even we, still do farming – but we do it much more efficiently.
But more importantly, it is not structured as it was in the 1700’s or 1800’s.
And, for those people who were farm people, they had to move off the farms into
other industries. This is true, and it is also true that it was not easy. In
fact, I am sure that it was a hardship, very hard. Yet, the economy, the
nation, and the people have survived and benefited from this transition. Was
it easy? I think not, but it happened and it will continue to happen…
NM: Yes, I agree…
MF: Now let us get back to the instance at hand. Our
steel industry cannot compete in the global marketplace. We are not really
discussing why it cannot compete but we recognize it cannot compete. There are
other people, other countries, who are manufacturing steel better than we are,
more efficiently than we are. And, more importantly steel is being
manufactured at a better price for those who use steel to make and build
NM: But Milton…
MF: Now, wait just a second. Let’s go back. It seems to
me that like the farming example, the steel industry is going to change and
when it changes more of it will go overseas and it will be because other people
produce steel more efficiently and at a better price. So those people using
steel will be able to use it at a better price and that seems to me what we
have here. People working in the steel industry will have to move into some
other industries as this change takes place.
We will no longer be the dominant
producer of steel. This is how I view the steel industry and the change it is
NM: Milton, I
understand your position and from an economics’ point of view, I understand how
the marketplace works. However, it would appear that there is a plan
underway; it may not be the usual plan as to how monopolies are formed. This
may be a plan, with the Japanese leading, to own the steel industry or as much
of it as possible by certain countries…and it makes sense to do this. Here
there is no collusion, as we know it, what is done, is done because there are
certain people who think and act alike. So here we have a monopoly forming –
before our very eyes – and yet, here in the United States we do everything we can to breakup monopolies. To me, it
makes no sense?
MF: Yes, but look at the breakup of AT&T and what
came of it. All the other little and some larger communications companies…
NM: Yes Milton I understand, but I am not certain I agree with that breakup. But, look
here, now we have Microsoft …a very powerful company, leading the industry and
the United States Justice Department files an anti-trust suit against it and
this suit opens the door to a flood of lawsuits, including global lawsuits. To
me, this doesn’t make sense in a globally competitive world. None whatsoever
MF: Well, I am not certain that I agree with the
NM: Well, if Judge Pennyfield’s brief is accurate then
they were clearly predators and carnivorous in their actions against other
companies in their industry.
MF: What exactly do you mean by their behavior?
Pennyfield was the presiding judge?
NM: Pennyfield was the original judge who presided over
the case and he originally found them guilty. He wrote a 40-plus page brief in
which he used language that described Microsoft’s behavior as that of being unfair/monopolistic.
It seems to me that if what was said
in the brief is true then they very well may have behaved in an unfair manner.
The wording in the brief was very powerful…
MF: But Nic look, the market we are looking at has lots
of competitors and will continue to grow. Who is to say that this market has
been monopolized by Microsoft?
NM: The brief said that Microsoft deliberately tried to
do harm to other companies in the marketplace. I think I have an extra copy of
the brief and will mail it to you.
MF: Look Nic…let’s be realistic. In regard to steel,
the steel industry and steel imports. If users of steel can purchase quality
steel at a better price than can be produced in the United States, then it
seems to me that they should have a right to this steel at that better price. If,
of course, you are a proponent of free trade and free markets. Now, at some
point the government will have to step in and do something. No question…
NM: You think so?
MF: Yes absolutely. Somewhere, it will be decided, at
some point, … for national security reasons, national defense that we must
continue to produce steel at home. As we approach this point then the US government may be forced to subsidize steel. There
is no question about it. But otherwise, I see the loss of the steel industry
as a similar event, as the farming industry, as time passes. The economy will
adjust and the workers will adjust accordingly…and new industries will be
formed. It won’t be easy but this is what will happen.
note: While Dr.
Mauro and Dr. Friedman discussed several other issues, the above represents
their discussion on the steel industry, monopolies and global monopolies as
viewed through the eyes of these two colleagues.
All rights reserved April 2004