Maintaining Competition

For Capitalism to continue working its magic, we must maintain robust competition through the age of automation. This won’t be easy given how prices will collapse and automation incentivizes centralization.

Here are some strategies to maintain competition through the age of automation.

Zealously Bust Monopolies

Monopolies are bad because they always (eventually) end up increasing prices and/or decreasing quality and screwing consumers. 

Monopolistic companies also tend to develop a core competency of preventing competition as a way to preserve their monopoly. It doesn’t matter how good a startup’s offering is; if they’re prevented from entering the market and competing with the monopoly, they’ll never get the chance to improve the world.

This is why almost everyone agrees that a responsibility of governments is to bust monopolies. They’re the only entity powerful enough to reliably bust a monopoly.

As the age of automation progresses there will be many companies that have temporary monopolies because they’re first to market with some amazing technology that is 10X better than what currently exists.

For a time that’s ok. A temporary monopoly is desirable because that’s how the existing incumbents get disrupted and a new (lower) normal for prices and (higher) normal for quality is established.

We must, however, be vigilant to bust these monopolies before they become anti-competitive. Otherwise these companies will not allow future advances to reduce prices and increase abundance.

Encourage entrepreneurship: lower barriers to entry

There are many industries that are difficult to compete in because it’s so expensive and difficult to get started (e.g. healthcare, banking, defense, construction, etc). 

These industries are high-consequence. If things go wrong (medical disasters, financial ruin, military defeat, collapsing buildings, etc) they really go wrong, These industries do need more caution on the part of entrepreneurs than building lower stakes businesses.

Regulators can (and have in many cases) gone too far in preventing new companies from competing in these markets. The goal of regulators should be to maximize competition AND minimize the chances of negative outcomes from reckless actors. 

Right now the focus is on the latter and entrenches and enriches existing players. Thoughtfully discerning between necessary regulation and unnecessary regulation is the antidote.

Eliminate moral hazard

When the financial crash of 2008 happened, we bailed out the banks who caused the crisis. This action created a moral hazard. The banks were able to reap all the benefits of the risk they took on but didn’t have to face any of the consequences when that risk led to ruin.

If companies aren’t allowed to fail when they make mistakes then they’ll take on levels of risk that endanger people. 

Moral hazard arises when entities are “too big to fail.” In a moment of catastrophe that assessment may be correct, but should be prevented well ahead of time.

A consistent policy of bustin monopolies, lowering barriers to entry, and letting companies fail will prevent companies from ever growing to be too big to fail.

Choosing Decentralization

“Natural Monopolies”

The electrical grid as it has been for the last 100 years is naturally monopolistic. There’s no advantage in running two or more sets of power lines to every building.  They’re naturally monopolistic.

Over time this market became one where many governments have decided to create an exception when it comes to their policy of busting monopolies. That’s led to stagnation in advances in electricity generation and prices have only gone up in recent memory.

This is the same story for all utilities, all for the same reason. We’ve learned over the last century that the system we have of managing natural monopolies hasn’t led to the same decrease in prices and increase in quality we’ve seen in more competitive sectors of the economy.

We’ll need to explore alternative ways to handle these naturally monopolistic markets. 

One option to explore is to embrace decentralized solutions.

The electrical grid vs solar panels

Solar panels are an amazing invention for many reasons, but in this context they’re amazing because they work at small scale and at large scale. One way to counteract the monopolies around the electrical grid is to make it easier for people to install local power generation (rooftop solar panels and batteries).

Data centers are even seeing the advantages of local generation. Many are now working to solar, nuclear, and natural gas power plants near the data center to overcome the slow pace that utility companies are installing new capacity. This is a healthy development because it proves that local generation is profitable, and it lights a fire under the ass of utility companies where they have to embrace the (non-monopolistic) future or get left behind. 

Decentralizing power generation seems to be the way out of the once-impossible challenge of busting that natural monopoly. Many utility companies see the threat  from these developments and have actively fought to add red tape for residential solar installs, or connecting new renewable power generation plants to the grid. This can be solved with policy that reaffirms the priority of letting entrepreneurship evolve the economy.

Allow everyone to own the means of production

The choice between decentralization and centralization can be seen everywhere. Massive centralized farming operations somewhere else vs smaller local food production. Big banks vs credit unions. Cloud computing vs on-device computing. Subscriptions to everything vs buying software or content once and owning it.

The debate will continue with future inventions as well.

Personal car ownership contributed to your choice of robo-taxi fleet vs robo-taxi fleets owned and operated by Uber/Tesla/Ford. Personal AIs that run on a device in your living room vs AIs rented to you by Microsoft from their data center. Big social media companies vs a decentralized social media protocols (e.g. Nostr).

There are cost advantages to centralization, especially in a world defined by scarcity. 

Centralized solutions also run higher risk of abuse of power and quality degradation. Decentralized solutions are harder to build, but create better outcomes. 

In a world with excess capacity, it may be worth encouraging the decentralized version to maintain a robust, competitive economy. The techno-abundance loop may depend on it as the decades and centuries pass.