Matt Welch on monopoly: Joseph Schumpeter, call your office!

Lynne Kiesling

Matt Welch channels his inner Joseph Schumpeter (and his inner Lynne, while we’re at it …) in his post this morning about the evanescence of monopoly. The grit in Matt’s oyster is yesterday’s NYT oped from former Microsoft vice president Dick Brass bemoaning Microsoft’s lack of an innovation-facilitating corporate culture. As someone who studies an allegedly monopoly industry in which the government-protected monopoly status has outlived the actual underlying economic justification for that status, this statement of Matt’s particularly resonated with me:

I’m more interested in a macro fact about monopolies: Namely, unless they’re either run or locked into place by government, they do not last. And even government-run monopolies produce mass consumer defections. … Companies that grow bloated on profits squeezed from a seemingly captive audience end up panicking when those consumers wriggle free to buy and even create competing products. Meanwhile, corporate cultures in (temporarily) uncompetitive industries are the very definition of non-innovative, even in technology companies.

This “macro fact” is one substantial reason why regulated electric utilities are fighting so hard to retain their retail market monopolies, because reducing the entry barriers to those captive customers would enable us to wriggle free. Removing that regulatory shield from Schumpeter’s “gale of creative destruction” would mean they would actually have to, you know, like, … come up with and market customer-focused value propositions so they could actually compete.


2 thoughts on “Matt Welch on monopoly: Joseph Schumpeter, call your office!

  1. Hear hear!

    Check out also The Atlantic’s article asking whether CEO’s matter (http://www.theatlantic.com/doc/200906/steve-jobs). Their conclusion is that CEOs only make a difference in industries where CEOs can be “unconstrained”. (Read: innovative, flexible, desperately afraid of bankruptcy and naively optimistic about their growth potential. In other words, competitive.) At the other extreme are industries where CEOs are nothing more than “titular figureheads”, in which case leadership changes have virtually know impact on company performance. Electric utilities are given as a prime example of the latter. As a utility colleague once told me (on deep background), “the core competence of an electric utility is not making electricity. It is managing their regulator.”

    Put another way, if you worked for a company with a titular figurehead who specialized in regulator management, would you feel especially innovative? : )

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