Ways & Means: A Case for Monopolies

Our columnist argues for the positive powers of monopoly.

Can monopolies help cities? Photo credit: Harshlight on Flickr

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Ways & Means is a weekly column by Mark Alan Hughes on economics, politics and sustainability in Philadelphia.

Last week, the New York Times reported the latest twist in the Federal Trust Commission’s ongoing antitrust investigation into Google’s business practices — a dive into the tech giant’s ownership of various communication and data-handling patents essential for the basic operation of smartphones and tablets. Known as standard-essential patents, these patents are regarded as “the modern, high-tech equivalent of certain vital railway lines in the 19th century,” the Times reported.

The paper of record continues:

Essential patents, like rail bridges, can become anticompetitive bottlenecks if the corporate owner withholds access to the technology or demands unreasonably high payment. In Senate testimony in July, Edith Ramirez, an F.T.C. commissioner, speaking of the potential abuse of standard-essential patents, said, “Holdup and the threat of holdup can deter innovation by increasing costs and uncertainty for other industry participants, including other patent holders.”

“Bottleneck” and “holdup” are decent synonyms for “city.” The great cities of the world were built on one or another form of monopoly. Cities started 7,000 years ago when they first combined the related natural monopolies of surplus food storage and God. You can’t get priests until someone gets a free pass on working in the fields. And who can forget the monopolization of violence, the idea that only city magistrates have the legitimacy to detain and punish — an idea that practically defines civilization in most of the modern world outside of right-to-carry America.

But where monopoly and cities really fell in love was 500 years ago, with the emergence of capitalism. From the humble beginnings of tollgates that forced a stop — a holdup — in order to buy and sell in city markets to the complex ownership that allowed most U.S. transportation and utility systems (and fortunes) to get built, monopoly always needs place.

Business historian Alfred Chandler credited the development of American railroads with invention of American business management: The problems of getting from A to B generated the solutions of hierarchies that integrated the advantages of centralized coordination and decentralized discretion. As the new tycoon series The Men Who Built America on the History Channel shows entertainingly, the railroads were also the playground for some of our greatest monopolists.

Philadelphia’s own history, of course, is intimately tied to our railroads. The Philadelphia and Reading was chartered by the Commonwealth in 1833 and became the largest private corporation in the world by the 1870s, building on a “home market” of carrying anthracite to Philadelphia. The Pennsylvania Railroad was chartered in 1846 and it in turn became the largest private corporation in the world by the 1890s, building on a “home market” of crossing the Alleghenies to connect Philadelphia and the East to Pittsburgh and the west.

The eventual wreck of the Penn Central certainly sours the memory of these achievements and the legacy isn’t always sweet, see the absentee Reading Company’s languishing asset known as the Reading Viaduct.

But we certainly had a fine run with these monopolists and never would have earned our status in 1900 as the “Workshop of the World” without the possibilities they created here by virtue of their bottlenecks and holdups.

In today’s economy, Comcast and the Railroads are an instructive pairing. Both exploited “home market” advantages and sympathetic local regulators to build and maintain wealth and power. (Monopoly created one of my favorite witticisms: “Standard Oil could do anything to the Pennsylvania legislature, except refine it.”) Moving the Olympics at Comcast versus moving anthracite on the Reading seems like the very essence of the new versus old economies. But laying cable and laying rail, not to mention fixing the prices to use them, have a lot in common. And building regional and national systems out of these networks can accumulate benefits in the cities that shelter and protect the tycoons.

There are good reasons for crusading against monopolists: Teddy Roosevelt is a blast. But as the Supreme Court nicely articulated in a historic antitrust decision in 1912, every capitalist’s purpose is to seek the advantage called monopoly. The public interest is in the consequence of that purpose. And sometimes those consequences can be positive for the city the monopolist calls home. We just need to make sure they are.

Mark Alan Hughes teaches at PennDesign and is a faculty fellow of Penn’s Institute for Urban Research.

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Mark Alan Hughes is a Distinguished Senior Fellow at PennDesign and an Investigator at the US Department Of Energy’s Energy Efficient Buildings Hub at the Philadelphia Navy Yard. He is a Faculty Fellow of the Penn Institute for Urban Research, a Senior Fellow of the Wharton School’s Initiative for Global Environmental Leadership, and a Distinguished Scholar in Residence at Penn’s Fox Leadership Program. He has been a senior fellow at the Brookings Institution, the Urban Institute, and a senior adviser at the Ford Foundation. He was the Chief Policy Adviser to Mayor Michael Nutter and the founding Director of Sustainability for the City of Philadelphia, where he led the creation of the Greenworks plan. Hughes holds a B.A. from Swarthmore and a Ph.D. from Penn, joined the Princeton faculty in 1986 at the age of 25, has taught at Penn since 1999, and is widely published in the leading academic journals of several disciplines, including Economic Geography, Urban Economics, Policy Analysis and Management, and the Journal of the American Planning Association, for which he won the National Planning Award in 1992.

Tags: philadelphiaeconomic developmentsmall businessgoogle

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