Tag Archives: monopolies

The Argument for State Monopolies

The nationalization of industry is viewed by many nations as a bad thing, favoring capitalism over socialism, especially in the United States. China, however, has been a long proponent of nationalized industries, emphasizing that is better for everyone involved, not just the people in power.

“China’s leadership is exploring ways to consolidate the country’s oil industry, creating new national champions able to take on the likes of Exxon MobilCorp. and operate more efficiently as prices slide” – Lingling Wei and Brian Spegele from the Wall Street Journal.

I think this is a good thing for China, and I am going to make the argument that many nations should do the same. The biggest downside to monopolies is their ability to have complete control of the market, which they can then use to reduce quantity of output in order to drive up prices, creating higher profits from themselves. However, when it is state/nationally controlled the government can regulate output in a way that is best for consumers, virtually getting the best of both worlds. Government-run monopolies do not have to worry about spending a large deal of money on advertising, another plus, as they are not competing with anyone, allowing them to kick back all potential profits to the government, and ultimately the people. Obviously if the government is corrupt those profits may never reach the general public, but that is besides the point that I am arguing. Any nation with a corrupt government faces a great deal of issues. I am focusing on the idea of state-owned and run industries in a nation free of corruption, at least as much as any nation can be free of corruption.

“Combining and then streamlining the operations of the major Chinese oil producers could help reduce waste caused by redundant staff and projects, the officials said” – Lingling Wei and Brian Spegele from the Wall Street Journal.

Another upside to consolidation of an industry is reduced waste and redundancy. Basically, pick and choose the best parts of each firm and then combine them into one firm.

A foreseeable potential downside is reduced efficiency. The idea behind the free market and competition is companies that are not constantly innovating will be forced out of the industry, leaving a more lean and efficient market. This is where, I believe, the role of the government is critical. If the monopoly is privately owned, it is safe to assume that one of their focuses will be establishing barriers to entry to secure them the market in the future. This would allow them to slack off on the innovation part of their business, with no threat of being forced out of the market. However, government involvement, such as routine check ups on the research and development sector of this company could reduce this problem, although it would most likely exist to a certain extent. With the right pressure and monitoring by the government overseeing the monopoly, the positives seem to outweigh the negatives.