Hi, Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on… Today I’m going to offer a few thoughts about why we lack medical supplies, based off an excellent story in the New York Times on a merger of two ventilator producers.
excellent analysis of a 30 year pandemic that has crept into all crevices of society: unrestrained consolidation blowing by any and all considerations of risk distribution and containment.
I agree with so much of this article, especially on the GPOs, that I hate to take issue with a small point but here goes...
First and third lessons seem right. First, if a merger is illegal, of course don't allow it.. I totally agree on the importance of the third lesson: if you're paying for development and guaranteeing a market, you must have recourse in the event the small contractor is bought (or far more likely, and not discussed) fails entirely. There's a huge risk in trying to develop a ventilator at one-third the cost of prevailing devices and still meet all the government requirements. But Matt points out that the contract is by law, limited.
I felt that the NY Times authors were too eager to blame Covidien and private enterprise vs poor gov't contracting that could have prevented this and might have served as a poison pill for Covidien (you can buy Newport Medical, but you must produce the ventilators). Also, the government may well have set the price to the point were too few companies would have taken the job knowing all the constraints. Remember, we're assuming Newport Medical would ultimately have succeeded in delivering all those inexpensive ventilators, flawlessly, at the government's price.
The second lesson on stopping consolidation seems to me too difficult to mandate. Small companies innovating in the hyper-regulated world of government commerce, whether medical or anything else, often need the help of large companies to take products past a launch and into production. Medical instruments are a prime example since FDA regulations and multi-center clinical trials are so expensive. Shut off consolidation and you pull most of the carrot for entrepreneurs. Without the possibility of a buyout, the likelihood of success becomes significantly lower and may fail to gain financing. Risky ideas, like low-cost ventilators, will strangle.
To oversimplify, a lot of these failures stem from the shift of businesses from businesses providing whatever for profit to what are essentially financial instruments. Profits are less important than, say, the sugar high of a stock boost because the numbers are bigger (not necessarily better) because of an acquisition. This is further exacerbated by decades of the upward transfer of wealth which, since it tends not to be used productively, ends up in speculation markets and, well, corrupting the political system. We have a system where enriching an elite regardless of the cost to society is the only thing that’s important. (As a state policy, started with Reagan.)
Everything described in this post flows from unpoliced capitalism and an abrogation by the state to serve capitalist interests and nothing else.
The term you're looking for where it's a single buyer rather than a single seller substantially controlling the market is _monopsony_.
At any rate, what you've described in your article goes back to a basic problem that "free-market" fans in the U.S. don't seem to understand: markets are _always_ designed social constructs (there is no "natural" free market) that encode goals (whether explicit or implicit) in their designs, and a market design can just as easily destroy competition as create it.
A classic example of this is consumer broadband Internet access in the U.S. There's clearly a natural oligopoly on local loop (the "last mile") connections, since there's a limit on how many different companies can string cable across given geographic area, on poles or in the ground.
But what happened in the U.S. is that the system let that get linked to the providers of connectivity from the point of presence (PIP) that's the source of these local loops to the Internet itself. There's room there for a _lot_ more providers, but when you buy broadband in the U.S., you're stuck with the same vendor that provides the local loop, and they take advantage of this by charging more and setting ridiculously low data caps. (I hear that some people over there have a 30-40 GB/month data cap: that's about _half_ of a modern triple-A PC video game.)
By contrast, here in Japan, I pay NTT for my fibre local loop connectivity (only 100 Mbps because I installed this service 15 years ago and never bothered to upgrade) but have a choice of more than twenty Internet providers to whom I can connect through that link. In fact, I currently use two: a cheap (<$10/month) one providing "home service" and a second $60/month "business-level" service that gives me my own IP address and no restrictions on outgoing bandwidth or running my own servers. (The fiber local loop itself is about $50/month.)
Now Japan's a pretty "socialist" country by U.S. standards (which is something I like about it), so this goes to show that competition (which is generally a good thing) is not just something the "right-wing" folks can provide, and often becomes something they _can't_ provide.
When it comes to smart speakers, it would seem to make sense to do something similar: do not allow anybody providing certain parts of the service they use (such as voice assistants) to build or even own any interest in a company that builds speakers that use that service. That still gives Google and Amazon plenty of chance to try to take over the world with Google Assistant or Alexa, but means that they can't take over the speaker market as a side effect of that.
excellent analysis. my comment is to wonder why you didn't end your book Goliath, which i've read and liked, with the kind of hard-hitting recommendations in this article. Instead you talked of something about grass roots efforts by citizens. I wish the book had ended with the kind of solid policy recommendations and demands given here.
Perhaps a naive question, and maybe a little off the point: why did Newport sell its shop, when it had in the bag what appears to be the contract of a lifetime?
We are a semi-planned economy, but our ideology decries planning and our government is unskilled at it.
China is a goal-oriented economy (Five Year Plans are steps towards two national goals, one to be attained by 2021, and the other a century or so later), but it is semi-planned, too.
The goals were set by Mao, everyone is on board with them, and progress is monitored and encouraged by senior administrators and Party members whose average IQ is 150. The only 'plan' is to reach those consensual goals. Not so hard when you think about it.
Hey Matt. Ask Will Menaker if he and the other Chapos had a fabulous time hacking my phone and checking out my porn then making some Teasers about it. Tell them Buffalo Bill is asking.
excellent analysis of a 30 year pandemic that has crept into all crevices of society: unrestrained consolidation blowing by any and all considerations of risk distribution and containment.
I agree with so much of this article, especially on the GPOs, that I hate to take issue with a small point but here goes...
First and third lessons seem right. First, if a merger is illegal, of course don't allow it.. I totally agree on the importance of the third lesson: if you're paying for development and guaranteeing a market, you must have recourse in the event the small contractor is bought (or far more likely, and not discussed) fails entirely. There's a huge risk in trying to develop a ventilator at one-third the cost of prevailing devices and still meet all the government requirements. But Matt points out that the contract is by law, limited.
I felt that the NY Times authors were too eager to blame Covidien and private enterprise vs poor gov't contracting that could have prevented this and might have served as a poison pill for Covidien (you can buy Newport Medical, but you must produce the ventilators). Also, the government may well have set the price to the point were too few companies would have taken the job knowing all the constraints. Remember, we're assuming Newport Medical would ultimately have succeeded in delivering all those inexpensive ventilators, flawlessly, at the government's price.
The second lesson on stopping consolidation seems to me too difficult to mandate. Small companies innovating in the hyper-regulated world of government commerce, whether medical or anything else, often need the help of large companies to take products past a launch and into production. Medical instruments are a prime example since FDA regulations and multi-center clinical trials are so expensive. Shut off consolidation and you pull most of the carrot for entrepreneurs. Without the possibility of a buyout, the likelihood of success becomes significantly lower and may fail to gain financing. Risky ideas, like low-cost ventilators, will strangle.
To oversimplify, a lot of these failures stem from the shift of businesses from businesses providing whatever for profit to what are essentially financial instruments. Profits are less important than, say, the sugar high of a stock boost because the numbers are bigger (not necessarily better) because of an acquisition. This is further exacerbated by decades of the upward transfer of wealth which, since it tends not to be used productively, ends up in speculation markets and, well, corrupting the political system. We have a system where enriching an elite regardless of the cost to society is the only thing that’s important. (As a state policy, started with Reagan.)
Everything described in this post flows from unpoliced capitalism and an abrogation by the state to serve capitalist interests and nothing else.
The term you're looking for where it's a single buyer rather than a single seller substantially controlling the market is _monopsony_.
At any rate, what you've described in your article goes back to a basic problem that "free-market" fans in the U.S. don't seem to understand: markets are _always_ designed social constructs (there is no "natural" free market) that encode goals (whether explicit or implicit) in their designs, and a market design can just as easily destroy competition as create it.
A classic example of this is consumer broadband Internet access in the U.S. There's clearly a natural oligopoly on local loop (the "last mile") connections, since there's a limit on how many different companies can string cable across given geographic area, on poles or in the ground.
But what happened in the U.S. is that the system let that get linked to the providers of connectivity from the point of presence (PIP) that's the source of these local loops to the Internet itself. There's room there for a _lot_ more providers, but when you buy broadband in the U.S., you're stuck with the same vendor that provides the local loop, and they take advantage of this by charging more and setting ridiculously low data caps. (I hear that some people over there have a 30-40 GB/month data cap: that's about _half_ of a modern triple-A PC video game.)
By contrast, here in Japan, I pay NTT for my fibre local loop connectivity (only 100 Mbps because I installed this service 15 years ago and never bothered to upgrade) but have a choice of more than twenty Internet providers to whom I can connect through that link. In fact, I currently use two: a cheap (<$10/month) one providing "home service" and a second $60/month "business-level" service that gives me my own IP address and no restrictions on outgoing bandwidth or running my own servers. (The fiber local loop itself is about $50/month.)
Now Japan's a pretty "socialist" country by U.S. standards (which is something I like about it), so this goes to show that competition (which is generally a good thing) is not just something the "right-wing" folks can provide, and often becomes something they _can't_ provide.
When it comes to smart speakers, it would seem to make sense to do something similar: do not allow anybody providing certain parts of the service they use (such as voice assistants) to build or even own any interest in a company that builds speakers that use that service. That still gives Google and Amazon plenty of chance to try to take over the world with Google Assistant or Alexa, but means that they can't take over the speaker market as a side effect of that.
ron thompson
excellent analysis. my comment is to wonder why you didn't end your book Goliath, which i've read and liked, with the kind of hard-hitting recommendations in this article. Instead you talked of something about grass roots efforts by citizens. I wish the book had ended with the kind of solid policy recommendations and demands given here.
Perhaps a naive question, and maybe a little off the point: why did Newport sell its shop, when it had in the bag what appears to be the contract of a lifetime?
Thanks. Tweeted so others could read it and think and act appropriately. https://twitter.com/cmoneyspinner/status/1247206082528915456
Ou bank is offering to refinance our car loans at 2.99% for up to 72 months no payments for 6 months. It's a credit Union.
We are a semi-planned economy, but our ideology decries planning and our government is unskilled at it.
China is a goal-oriented economy (Five Year Plans are steps towards two national goals, one to be attained by 2021, and the other a century or so later), but it is semi-planned, too.
The goals were set by Mao, everyone is on board with them, and progress is monitored and encouraged by senior administrators and Party members whose average IQ is 150. The only 'plan' is to reach those consensual goals. Not so hard when you think about it.
Hey Matt. Ask Will Menaker if he and the other Chapos had a fabulous time hacking my phone and checking out my porn then making some Teasers about it. Tell them Buffalo Bill is asking.
Mother and father both applying for SBA loans ASAP.
Excellent! You should have a weekly spot on the msm somewhere! https://www.propublica.org/article/taxpayers-paid-millions-to-design-a-low-cost-ventilator-for-a-pandemic-instead-the-company-is-selling-versions-of-it-overseas-
excellent piece