By Gordon Hull
In rereading Philip Mirowski’s critique of Foucault on neoliberalism (as it’s presented in Never Let a Serious Crisis Go to Waste, his book on the 2008 financial crisis), I noticed a limit in Foucault’s analysis that I hadn’t really thought about before. Although Foucault correctly sees that a key (if not they key) feature in the transition from classical liberalism to neoliberalism is the realization that markets are something that the state can create and curate, he does not see that neoliberalism also puts a lot of weight on the neoclassical tolerance for monopolies. This is a significant reversal from classical liberalism. I work on intellectual property, which is a legal regime that attempts to create markets in intellectual goods by way of granting monopolies to their creators, which means it’s hard to ignore the tolerance of monopoly. But the point is worth expanding on more generally.
As Foucault points out (as will be apparent, all of my references will be to Birth of Biopolitics; I’m not aware the topic comes up elsewhere in his work), classical liberalism – the “liberal art of government” (BB 65) – requires anti-monopoly legislation for the “freedom of the internal market to exist” (BB 64). Competition, if left unchecked, will tend to lead to monopolies. By the New Deal, and the political opposition is engendered, liberalism faced a “crisis … due to the inflation of the compensatory mechanisms of freedom” (BB 69) such that anti-monopoly legislation could be perceived as part of a “’legislative strait-jacket” (BB 68). The ordo-liberals thus pick up on the “problem of competition and monopoly” but “do not depart in any way from the historical development of liberal thought” (BB 119). For early neoliberalism, the “problem will be to demonstrate that monopoly is not in fact part of the economic and historical logic of competition” (BB 134). Instead, they look at what non-economic policies are supposed to have led to monopolies, and argue that competition and markets do not, without these external distortions, lead to monopolies. They also reframe the problem with monopolies, which is that they will distort the operation of the price mechanism (BB 136, citing von Mises). The essential claim is thus that a monopolist will have to charge market prices, or competition will unseat him. So intervention is not necessary (BB 137).
As early as 1950, Aaron Director, one of the principal architects of the Chicago School, was arguing that the “corroding influence of competition” has the “effective tendency” to “destroy types of monopoly” (qt. in Van Horn, in Mirowski and Plehwe 2009, 217). As Foucault notes, for this line of thought, policy that engineered competition would tend to eliminate the need to be concerned with monopolies:
“You can see that there is no need to intervene directly in the economic process, since the economic process, as the bearer in itself of a regulatory structure in the form of competition, will never go wrong if it is allowed to function fully. What constitutes the specific property of competition is the formal rigor of its process. But what guarantees that this formal process will not go wrong is that in reality, if one lets it function, nothing will come from competition, from the economic process itself, that is of such a nature that it will change the course of this process. Consequently, non-intervention is necessary at this level. Non-intervention is necessary on condition, of course, that an institutional framework is established to prevent either individuals or public authorities intervening to create a monopoly. And thus you find an enormous anti-monopolistic institutional framework in German legislation, the function of which is not at all to intervene in the economic field to prevent the economy itself from producing the monopoly, but whose function is to prevent external processes from intervening and creating monopolistic phenomena” (BB 137).
He footnotes Röpke’s Social Crisis of our Time, which underlines that “we must remember that in the great majority of cases it was the State itself which through its legislative, administrative and judicial activities first created conditions favorable to the formation of monopolies” (BB 153 n22). A little later on, in closing his discussion of the German ordoliberals, he notes that their response to Schumpeter was to look not at markets, but at capitalist society as the proper field for intervention to prevent monopolies. Thus:
“The definition of a new institutional framework of the economy protected by a strictly formal legislation like that of the Rechtsstaat or the Rule of law, will make it possible to nullify and absorb the centralizing tendencies which are in fact immanent to capitalist society and not to the logic of capital. This is what will enable us to maintain the logic of capital in its purity and get the strictly competitive market to work without the risk of it ending up in the phenomena of monopoly, concentration, and centralization observable in modern society the ordo-liberals, for whom the emergence of monopoly is due primarily to distortions in the operations of markets.” (BB 178-9)
In other words, by identifying the problem of monopoly as one exogenous to capital, the ordo and neoliberals were able to present monopoly as a problem subject to regulation, but not economic regulation. Monopoly is still bad, and it can be corrected because the correct establishment of competitive markets will prevent the formation of monopolies, and intervention in social processes is the correct fix, anyway.
The only other reference to monopolies in Birth of Biopolitics occurs in the discussion of Becker’s analysis of the drug war, which he see sees as leading to a monopoly or oligopoly of “some big drug sellers, traffickers,” etc., which increases prices. This, on the neoliberal argument, when combined with the inelastic nature of the demand for addictive drugs, helps to explain the failure of drug war policies (BB 257).
This reading is fine as far as it goes, but it is also incomplete. Foucault can usefully be supplemented by William Davies, who underscores that, although neoliberalism generally proffers competition as an antidote to monopoly, it is also not averse to monopoly, when that seems to be efficient. As he notes, the Chicago Law and Economics theorists in particular engaged in a “wholesale reappraisal of monopoly, resulting in a model of applied neoliberal policy and law in which large concentrations of corporate power and high profitability were typically justified on efficiency grounds.” Thus, “while the Chicago School retained a dogmatic faith in price theory, as a methodological basis on which to judge individual behavior and institutional efficiency, this involved a declining commitment to the price mechanism as a feature of decentralized, competitive markets” (Limits of Neoliberalism, 78). Davies is unusual in emphasizing the importance of the Chicago school, and of Ronald Coase within it. More on Coase in a moment, but first, let’s look at the changing assessment of monopoly.
To take an example from my own work, consider the question of the appropriate length of copyright term, the argumentation for which clearly shows the difference between two varieties of biopolitics, an older version (which emphasizes public benefits) and more contemporary neoliberal versions (which try to get there by focusing on individuals). The basic idea behind limiting terms for intellectual property (as opposed to real property) is that the whole point of fostering IP is to benefit everyone. As the enabling Constitutional clause says, it’s to “promote the progress” of the arts and sciences (Art. I, Sec. 8). The theory is that by granting IP rights-holders the exclusive right to sell their work, they avoid being immediately put out of business by competitors who simply copy their work without investing in any of the effort to create it. Pharmaceuticals provide the most ready example of the theory: drug development costs a fortune; without patent rights, that money would be lost because blockbuster drugs would be immediately copied. Drug developers, who generally want to avoid guaranteed fiscal ruin, would know this, so useful medicines would never be developed. The flip side of this equation is that, to the extent that IP creators retain monopoly rights on their creations, they reduce the benefits that flow to the public at large. This is because of deadweight loss: there will always be those who value the good, but value it at a lower amount than the monopoly price (this is a particularly tricky problem here because the marginal cost to reproduce a good covered by IP is vanishingly small). They will never get the good, and so that deadweight loss represents a net loss in social welfare. Letting IP right expire after a certain amount of time enables the public to gain that benefit. Thus, IP involves a balancing act, and to the extent that monopoly rights involving pricing the good above a market price, there are economic reasons to limit the IP term to longer than it takes to generate the good in question. Term limits reduce deadweight loss. As Amy Kapczynski noted, the replacement of a concern about deadweight loss (articulated by Kenneth Arrow) with one about incentives (articulated by Demsetz) represents a key moment in the transition of IP theory into a neoliberal frame.
I'll expand on the IP discussion and return to contemporary theory in the next post.
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