Monopolies: Professional and Otherwise

by | November 12, 2011

Democracy is about the right of the electorate to control its country and this means its right to ensure fairness in all aspects of life. This posting is about the right of a democracy to limit the powers of monopolies. This is not really an economic discussion; it is a discussion about fairness and applies equally well whether your viewpoint is that of a socialist or a capitalist.

Monopolies threaten democracy because of their size and scope. In a free market, most companies face constant competition or at least the threat of competition from others. In a regulated market monopolies may be more prevalent since regulation often limits competition. But regardless of the economic system in place, a monopoly holds too much power relative to the electorate. Because of its size it can stifle competition by wiping out competitors before they become a threat, they can coerce and bully suppliers, and they can gouge customers.

Democratic governments therefore have a duty to monitor, regulate and, if necessary, break up monopolies. History provides examples such as Standard Oil and Microsoft. But there is an ever more insidious type of monopoly that has been given unfair advantage in our society: the professional monopoly. Consider lawyers, accountants, doctors, dentists and others who have been given a trade franchise which can not be competed against. It is true that these professions require licensed persons who have the requisite skills and knowledge. But, as a democracy, we have allowed these professions to regulate themselves and, in so doing, have given them economic control over a part of our society. Remember that although a monopoly is conferred on a profession, the franchise itself is owned and controlled by society.

Lawyers are a perfect example to consider as a case in point. And the US is the perfect venue in which to discuss the problem. Almost everyone would agree that the US legal system is wholly dysfunctional. And yet the US legal profession stifles simplification of the system because that would not be in its economic interest. The more complex the system, the more fees generated by the lawyers. Legal fees are in many cases exorbitant and it clear in the US (and many other countries) that money and connections can buy some degree of protection from the law. This is wholly unjust and should not be so in a true democracy. The system must provide equal protection to all, rich and poor alike.

The simply fact is that lawyers hold a monopoly because a lawyer is required in court. There is no way to go outside the profession in order to represent oneself there. Legal aid, provided by the state, is by all accounts a joke in terms of fair representation. And lawyers, because of their monopoly on their services, gouge clients as much as possible. It is only human nature for this to happen. A typical company which is successful in an open market charges market prices under competitive circumstances so at least it is possible to argue in this case that pricing is “fair”. But how can the fair price of a service controlled by a single group ever be determined?

The cost of a legal education is a barrier to many otherwise eligible candidates to the legal profession. How do we balance supply and demand by injecting more lawyers into the system?

And because of the stream of cash generated by the legal profession, it can easily protect its status. Political lobbying on behalf of privileged lawyers is a business in itself. Politicians, many of them lawyers themselves, are loath to restrict a profession which contributes to their campaigns or of which they themselves are members. These are also important issues.

The purpose of this posting is not to propose a cure, but to first expose the problem. We have briefly discussed lawyers but the issue with accountants, doctors, dentists and others is similar. The proper action is not to vilify these professions, but simply to ensure that the monopoly is opened up and/or that it is regulated in a fair way.

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