Monday, December 16, 2019

Government Monopsony vs. Private ‘Monopsony’


One of the most devastating threats to free markets in particular, and freedom more broadly, is to evade the distinction between economic power and political power.

Economic power to derived from voluntary choices. It is a measure of the value consumers place on the goods of producers. It doesn’t matter whether the goods are produced by a giant corporation like Amazon or Merck, or by individuals like plumbers or secretaries. When a consumer buys something from Amazon, that consumer is awarding economic power to Amazon. When a consumer hires a plumber, that consumer is awarding economic power to that plumber. Importantly, that consumer can withdraw that power anytime she decides that a different retailer or plumber better suits her purposes. It’s all voluntary: Economic power is the power to create economic value for consumers willing to buy it.

Political power is the power of physical force; that is, the power to legally override the voluntary choices of consumers. You have a choice on whether to patronize Amazon or abide by its terms of sale, by virtue of the freedom to just not buy its product. You have no choice on whether to “patronize” Medicare or conform to a government law or regulation. You cannot simply walk away, lest you be fined or thrown in jail. 

It has been said that “power is power.” That’s not true. There is a black-and-white difference between the power to produce and persuade and the power to physically force. To fail to recognize this distinction is dangerous. One of the areas in which this distinction is evaded is in the issue of monopoly. A true monopoly is when the government protects a business by legally forbidding competition, leaving the consumer with no alternate choice. A good example of this is electric utilities or the United States Post office regarding first class mail. These have been labeled “coercive monopolies” because their “market” position is cemented by political power. That is a coercive monopoly. A market monopoly—a dominant market position earned without access to government protection—is not a true monopoly, because competitors are free to enter and compete.

The corollary of monopoly power is monopsony—the capture of a market through buying rather than product activity. And like with monopoly, there is a sharp distinction between a coercive monopsony and a market monopsony. Blurring the distinction between the two is the classic tactic of the statist.

Monopsony power is the latest tactic of the economic regulators. In Booker, Warren take aim at chains that use ‘non-poaching’ deals to keep workers stuck at one store, Washington Post reporter Jeff Stein reports:

Say you work at a Jiffy Lube 30 miles from your house. You're happy enough there, but when you see an opening at another Jiffy Lube that's around the corner from where you live, you can't resist applying. You think you've got a decent chance; after all, you're already trained for the job. After you apply, however, you don't hear anything back.

It's possible you just weren't the candidate they wanted. But it's also possible that you were never even considered because your local Jiffy Lube was barred from hiring you, thanks to a “non-poaching” agreement it signed with the corporate headquarters. The non-poaching pacts vary, but generally they eliminate or limit franchise owners' ability to hire workers from other locations within the franchise.

The agreements are common at fast-food giants like Burger King and chains like Jiffy Lube and H&R Block in other industries, and they’re gaining prominence: Non-poaching clauses are now included in up to 56 percent of large franchises, up about 20 percent from two decades ago, according to a report published Wednesday by two prominent economists.

Worker advocacy groups have long opposed such agreements, arguing they hurt employees' leverage in negotiating raises and stifle worker pay. And now the agreements are drawing renewed scrutiny from Democratic lawmakers — as well as from President Trump's Justice Department.

Democratic Sens. Cory Booker (N.J.) and Elizabeth Warren (Mass.) on Thursday introduced legislation that would make these arrangements illegal, calling them an “anti-competitive” practice and giving workers the ability to sue and the right to claim damages.

But this is market monopsony power. The “non-poaching” agreement Is just that--an agreement. It is non-coercive and limited to within the company. It is mutually agreed among all parties--the parent company, the franchisee, and the employee. The employee is free to seek employment outside the company, and the franchise owner is free to hire from outside the company. 

But “This is patently unfair and against the ideals of a so-called free market,” Booker said in an interview, forgetting that the “free” in free market means free from government coercion.

This attack on private voluntary contract is particularly outrageous since both Warren and Booker have endorsed the mother-of-all coercive monopsonies--Medicare for All. The existing Medicare program is already a monopsony over the over 65-year-old healthcare market. If Warren and Booker were truly against monopsony power, they would call for the phaseout of existing Medicare. Instead, they want to expand the Medicare monopsony to the entire healthcare market. The same goes for the public school monopsony.

How do Warren and Booker get away with so blatant a double standard--seeking to ban market monopsony power limited only to private parties who voluntarily agree while expanding coercive monopsony power enforced by law? By cashing in on ignorance of the difference between political and economic power, and then inverting the two so that coercion is seen as good and voluntarism as bad.

In fact, just as with monopoly, a market monopsony is not a monopsony at all, because coercion is absent and therefore competitive alternatives cannot be blocked. As with the issue of monopoly, a true monopsony can only grow out of the barrel of a governmental gun—that is, by law.

Warren and Booker have it exactly backwards. Private companies like Burger King, Jiffy Lube, and H&R Block have every right to make “non-poaching” agreements. Whether preventing an employee from moving to a job 30 miles closer to home and thus risk losing a valuable employee, the example cited in the beginning of the article, is good business is questionable. And the example may be a red herring. And if an employee is not made aware of the non-poaching aspect of his job when he is hired, critics may have a case based on transparency or anti-fraud issues. But it is the right of the company to allow such agreements among its franchisees. It is an abuse of power for the government to outlaw such private agreements, or to use its power of law to monopsonize any market for goods and services.

Political versus economic power: That is the issue that must be grasped. A good place to grasp and understand this distinction is Harry Binswanger’s essay The Dollar and the Gun, reprinted by permission from Why Businessmen Need Philosophy on his HBL newsletter.

Related Reading:



The rest of my articles published under the label “Economic vs. Political Power” that relate this dangerous equivocation to concrete issues.

The Dollar and the Gun
by Harry Binswanger

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