“The Myth of Capitalism”

In 2018, Jonathan Tepper and Denise Hearn wrote a book entitled “The Myth of Capitalism: Monopolies and the Death of Competition”. This is one of the better books of 2018 – although some will dispute that! It contains a number of liberal and conservative critiques of the U.S. economic system.

The authors explain extensively that the U.S. economy has been stagnant since Reaganomics of the 1980s. Stagnant in terms of R&D, company longevity, competitive consumer product prices and number of start-ups. The euphoria of Wall Street gains is purely due to stock buyback, oligopolistic mergers, deregulation and tax reduction/exemptions. Until Reagan, potential monopolies were cracked down. This prevented laissez-faire capitalism that helped to create market crashes of 1907 and 1929.

The most common measure to calculate market concentration is the Herfindahl-Hirshman Index (“HHI”). This index is calculated by adding the square root of the percentage market share of each individual firm in the industry.

The book lists all the industries that have effectively became oligopolies or even monopolies: search engines, beer, beverages, glasses, weapons, banks, telecommunications, social media, cell phone manufacturing, agriculture, airlines, pharmaceuticals, credit rating, tobacco, railroads and others. Concentration has throttled entry of new start-ups. For example, Facebook has been mimicking all of Snapchat’s features to ensure Snapchat is in a downward financial spiral!

The number of new firm entries fell below number of firm exits in 2013. Merger is good for Wall Street but bad for workers and consumers. Less choice for work and higher prices for products – although lobbyists would advance the idea of synergy and economies of scale. “In 2017,  the drug makers paid 882 lobbyists and spent more than USD171.5 million in an effort to oppose lower prescription drug prices”.

What about Malaysia? Concentration is growing in the banking sector, oil-palm industry, airlines, property, oil and gas sector and many others. The Malaysian Competitive Commission (MyCC) was established on 1 April 2011 with the purpose of enforcing the Competition Act 2010. This is for the benefit of consumer welfare, efficiency of enterprises and development of the economy. Though there have been some progress in certain sectors of the economy, others are really taboo for MyCC. Hopefully, the “New” Malaysia will permit new P2P platforms for investment/credit, more licenses and approvals in other sectors for us to have new start-ups and innovation. And also MyCC plays a more rigorous role to ensure a more equitable playing field.