(Originally posted on Mises.org)
Austrian school economists have long demonstrated that monopolies only tend to form as a result of government intervention, and “natural monopolies” have virtually never actually existed. Nonetheless, we are continually told by political and academic “experts” that unregulated economies inevitably give rise to monopolies, business trusts, and cartels, all of which they assure us have disastrous consequences for ordinary people. Therefore, we are told, governments are justified in taking forceful action to prevent monopolies from developing or to break them apart.
In this debate, the interventionists frame themselves as opposing the anticompetitive forces of large corporations having too much control over the lives of ordinary people. It is noteworthy, then, that these same interventionists support similar kinds of anticompetitive practices, and the increased control over people’s lives they entail, when they are employed by governments instead.
To that end, the leaders of the G-7 nations have recently gathered to propose a global minimum corporate tax that would allow national governments to exert a form of monopoly power of their own over the taxation of business within their borders. A major element of the proposal, if brought to fruition, is the requirement that every nation impose a minimum corporate tax rate of at least 15 percent. The clear purpose of this part of the proposal is to eliminate the so-called race to the bottom in corporate taxes, which is a euphemism for high-tax nations’ hopes of shielding themselves from competition from nations with low tax rates seeking to attract businesses away from them.
For this proposal to have its intended effect, several nations outside of the G-7 would need to voluntarily raise their corporate tax rates. Ireland, for example, sets corporate taxes at 12.5 percent, and a substantial part of its tax base is located there specifically because it is a comparative tax haven. Other parts of the proposal therefore appear to be intended to induce low-tax nations like Ireland, who are not likely keen on raising their tax rates and losing the main attraction they have for multinational companies headquartering there, to participate. For example, the proposal would also redirect the payment of corporate taxes to ensure that the world’s largest companies pay some taxes to the nations where they do business, rather than where they are physically located. These provisions appear designed to compensate low-tax nations for the loss in tax base they will surely suffer if they adopt the G-7 proposal.
In short, wealthy nations know they can only tax businesses so much before those businesses find it profitable to move to competing jurisdictions with lower tax rates, and the G-7 leaders are now openly seeking to collude with other nations to put a stop to that competition. There is little meaningful distinction between this and the alleged anticompetitive practices of private businesses—complete with “kickbacks” promised to cooperating participants—that the same governments continually vilify.
Governments Still Oppose Private Monopolies
Despite this apparent embrace of monopolistic practices, the federal government still seeks to purge what it sees as private monopolies at every turn. In the latest salvo, the US House of Representatives Judiciary Committee recently passed a series of antitrust bills which implement several recommendations put forward by the Judiciary antitrust subcommittee in a report entitled Investigation of Competition in Digital Markets, released in October 2020 after a year-long investigation. Unsurprisingly, the subcommittee recommended more government intervention in the business practices of digital platforms, including the enactment of measures prohibiting “certain dominant platforms” from operating in adjacent lines of business and prohibiting future mergers and acquisitions by those platforms unless they can prove to regulators that the merger or acquisition would not be anticompetitive.
We may not be sympathetic to Big Tech firms in their clashes with the state; it is now well documented that those firms gained their dominance largely through collusion with the state in the first place. However, the subcommittee’s report on this subject provides direct insight into what governments find so objectionable about these kinds of practices when they are employed by businesses like Google, Apple, Amazon, and Facebook.
For example, the subcommittee found that the “dominance of some online platforms has contributed to the decline of trustworthy sources of news,” citing news publishers’ concerns about the “significant and growing asymmetry of power” between dominant platforms and themselves. They also report concerns over the dominance of large digital platforms weakening innovation and entrepreneurship, citing the existence of an innovation “kill zone” because some venture capitalists say they are reluctant to invest in start-ups that would compete with the dominant platforms. The subcommittee also found that the ability of dominant platforms to intrude upon or violate the privacy of their customers is an “indicator of market power online.”
While there is much to criticize about how the subcommittee characterizes each of these concerns, it reveals what the state claims is so troubling about monopolistic practices, at least as regards digital platforms: according to them, large companies limit people’s access to information, impede innovation, and threaten privacy.
State Monopolies Are No Better Than Private Monopolies
But if the US government genuinely believes that the near dominance of these tech firms is a danger to its citizens, how can it also believe that its own total dominance within its own jurisdiction does not go far enough?
The difference between the anticompetitive G-7 proposal and the alleged anticompetitive behavior of the large digital platforms is only surface-deep. In both cases, the ultimate goal is to create conditions in which the “suppliers” are able to exact a higher “price” for their “products and services” than would be possible in an open market. The G-7 proposal would prohibit any nation from charging a lower “price” (i.e., tax rate) for its “products” (i.e., permission to do business in its jurisdiction).
Ludwig von Mises wrote in his 1944 work, Omnipotent Government, that:
Almost all the monopolies that are assailed by public opinion and against which governments pretend to fight are government made. They are national monopolies created under the shelter of import duties. They would collapse with a regime of free trade.
The common treatment of the monopoly question is thoroughly mendacious and dishonest. No milder expression can be used to characterize it. It is the aim of the government to raise the domestic price of the commodities concerned above the world market level, in order to safeguard in the short run the operation of its prolabor policies. The highly developed manufactures of Great Britain, the United States, and Germany would not need any protection against foreign competition were it not for the policies of their own governments in raising costs of domestic production. (p. 71)
The same forces that prevent natural monopolies from forming in the business world also apply to government attempts to exercise unlimited taxing power in the international arena. Governments of wealthy nations wish to raise the price of their commodity—the tax rate they can charge for the “privilege” of doing business within their borders—above the “world market level,” but it is no secret that high taxes tend to cause the wealthy and businesses to avoid those taxes by fleeing to lower-tax jurisdictions. In the same way that protected industries sought the shelter of government-imposed import tariffs, wealthy nations are trying to seek the shelter of international agreements to do virtually the same thing.
The interventionists would probably respond that they should exercise this monopoly power precisely because they, and they alone, can prevent the ills of commercial monopolies. But all the concerns expressed in the subcommittee’s report about private businesses are just as applicable, if not more so, to the actions of governments.
That the state is the enemy of innovation needs little elaboration to any regular mises.org reader. The very corporate tax they seek to globalize represents a barrier to innovators who lack the resources to arrange their corporate holdings in the tax-advantaged ways that firms like Amazon infamously have done.
Regarding the suppression of ideas and speech, what can a business, even a digital media giant, do that governments cannot do? Examples of state suppression of speech are easy to come by, but for the present purposes, it is worth asking whether subjecting these platforms to more domineering state controls might induce them to become more compliant with government demands to suppress opinions it considers antiscience, antidemocratic, or threatening to its purposes.
And we should ask the same question regarding privacy. In 2019, Facebook reported that it had received 50,741 demands for user data from the US government alone, 88 percent of which Facebook says it complied with. It seems overly optimistic to expect privacy protections to grow stronger when companies like these find themselves increasingly subject to state control.
The G-7 proposal is noteworthy for the fact that the leaders of the world’s most powerful nations, while accusing commercial businesses of abusing monopolistic power, are now seeking to expand their own use of monopolistic power against those same businesses internationally. More concerning, however, is the prospect of this trend expanding beyond corporate taxation and directly into the lives of individuals. If world governments can successfully monopolize corporate taxation, what other individual liberties might they be willing to exercise similar control over?Author:
Robert Zumwalt is an attorney with undergraduate degrees in economics and political science.