                C.6 Can market dominance by Big Business change?

   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 old Big Business is replaced by
   new Big Business:

     "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."
     [William Lazonick, Business Organisation and the Myth of the Market
     Economy, p. 173]

   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 relative
   level of barriers may fall, the absolute 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.

   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 not 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.

   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:

   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 [1]section
       C.4). 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.
       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: "Historically," notes
       Lazonick, "political strategies to develop national economies have
       provided critical protection and support to overcome . . . barriers
       to entry." [Op. Cit., 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 "an intense and almost
       unequivical commitment on the part of government to build up the
       international competitiveness of domestic industry" by creating
       "policies and organisations for governing the market." [Robert
       Wade, Governing the Market, p. 7]).
       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).
       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 [2]section C.4.2,
       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).

   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 [3]section D.5.3).

   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.

   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.

   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.

   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.

   As such, our basic point is not 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.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC4.html
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC4.html#secc42
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/seD5.html#secd53
