Economists nonetheless cling to the fantasy of good competitors — the concept that markets are stuffed with small, powerless corporations enjoying honest. However the actual world is dominated by oligopolies, monopolies and model empires. Massive firms do not compete: they work inside slender worth bands, extracting wealth and killing innovation. On this video, I expose the parable that underpins the declare that markets ship honest outcomes for us all and clarify why breaking apart concentrated energy is crucial to saving capitalism from itself.

That is the transcript:

Economists love the concept of good competitors. In case you are now knowledgeable economist, working in a college, and also you need to get an educational paper revealed, it’s important to principally assume that the world runs on the idea of what economists name good competitors.

That is  their assumption that the world is populated by many small companies, every of them so small that all of them find yourself with equal energy, and that honest play prevails in all places within the market as a result of none of those corporations are in a position to affect the market as a complete to acquire an unfair aggressive benefit over everyone else.

All people has the precise to enter into the market freely as a result of all of us have entry to capital. There’s nothing to cease us copying someone else’s product. In reality, we’re all meant to promote similar merchandise as a result of that’s the foundation on which honest competitors can, in response to these economists, happen.

And let’s be trustworthy, , and I do know that markets look nothing like this.

The reality is, there’s monopoly energy.

We additionally need completely different merchandise to decide on between. One jumper shouldn’t be the identical as one other jumper, and that is what we wish once we need to exit to purchase, or why would we hassle to go and select whichever product it’s that we predict is most suited to us?

This concept of good competitors that economists speak about  is a whole and utter financial delusion, which is why it suits very properly into this collection on that very topic of financial myths that underpin the economics of the world, as we’re informed they exist by economists, which truly don’t have any bearing to actuality in any respect.

What actually occurs on this planet?

We do not have good competitors.

We do not have heaps and many small companies and no huge ones.

We do not have everyone having the chance to enter into the market in the event that they so want.

There is not honest capital allocation inside society so that everyone who desires to arrange a enterprise can accomplish that at no matter scale they want in the event that they so need, as a result of by some means, or reasonably, there’s an limitless pot of cash accessible to them to do this. That is all full and utter garbage.

In actuality,  oligopolies dominate markets. Let’s simply title just a few. Let’s name them Tesco, and let’s name them Sainsbury’s, or Waitrose, or Lidl or ASDA,  or whoever else it’s that you simply purchase your meals from. The purpose is, these folks management vital market segments. Tesco has one thing like 25% of the meals market. Let’s not fake that that does not give them huge pricing energy, albeit that they take cautious be aware of what the others do, however all of them transfer collectively in a really slender band of pricing, and that is precisely what an oligopoly does.

Manufacturers do matter within the market. Even Tesco recognise that. They’ll give you Heinz baked beans and their very own primary model as properly. They know that market differentiation issues, and we all know that in style, after all. We all know that in each kind of product that we purchase, and this creates limitations to entry.

Names of manufacturers are patented. Merchandise are patented. You simply cannot go and replica someone else’s brand and say it is now your individual.

There’s a restricted provide of capital, and if you wish to arrange in a enterprise and also you go to a financial institution and ask to borrow, the well mannered reply might be no, until you’ve got bought your home to place up as safety. So let’s not fake there’s something like free entry into markets.

And there are enterprise networks which do reinforce anti-competitive practices, simply as  Adam Smith mentioned was the case in 1776 when he wrote The Wealth of Nations, and there  is regulation to be complied with and legal professionals and their threats to cope with.

The result’s that, in markets, energy concentrates on the prime. The concept there’s something like good competitors, which economists say is absolutely the precondition of markets doing what they declare they do, which is to allocate sources effectively for the good thing about all in humankind, to maximise well-being, is full and utter garbage, and this issues.

Monopolies extract wealth from us by overcharging for what they provide. And we are able to see that.

We will see what the water firms are doing.

We will see what the power firms are doing. And we are able to see this in a great deal of different areas, comparable to  banking, the place there’s successfully a monopoly between these banks who cooperate with one another to set costs for companies and new entrants are virtually unknown due to the limitations to entry being so excessive.

The consequence is inequality is rising and productiveness is stalling as a result of innovation is not essential to proceed to make extra earnings.

The reality is, we don’t now want financial fairy tales of the type that almost all economists are telling as if they really believed in them, which is essentially the most weird factor of all about what I’ve bought to say right here. They do genuinely appear to assume that the world operates on this manner, when it’s so clearly the case that every thing they are saying is fake.

What we do want are  antitrust legal guidelines. Legal guidelines that break up monopolies. Legal guidelines that be sure that the small firm will get a good probability. Legal guidelines that enable folks to enter into markets. Legal guidelines that encourage innovation, legal guidelines that break down the facility of the large firms on this world.

As a substitute, we get fairytales and a perception in markets that’s wholly unjustified. We have to change our financial beliefs, and in doing so, we have to eliminate the myths.

Earlier posts on this collection 

1. Financial myths: homo economicus

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