The purpose of this article is to discuss the prevailing view that the priorities accorded to the preservation of free and undistorted competition and sanctions against monopolies, even dismantling, and priority to low prices for consumers are innovation-friendly policies. It seems even that it endangers the durability and the existence of ecosystems fostering innovation. On the contrary, we regard a policy to allow monopolies operate freely and enjoy benefits that they have been able to conquer legitimately as advantageous for innovation and sustainability, and for consumers themselves as a last resort.
(1) There is a well established link between monopoly and innovation, and this link
has been universally recognized ; it is
the very principle of the patent. It would certainly be interesting to look at
the historical controversies, for example between James Watt, favourable to patent
system, and Rumford, who was against, but the mass is said, now universal: the
monopoly granted by a patent is considered to be the most effective and
legitimate way to reward and encourage innovation.
(2) Schumpeter considered that monopoly rent seeking is one of the most
powerful reasons to start a company ;
logics applying even in economy, it follows that one of the best ways to
discourage innovation is no doubt dismantling or sanction monopolies that were
built on research, daring and ventured funding of research and development, on
an innovative vision of our needs and the evolution of our societies.
(3) the most consistent economic liberals, such as the followers of Hayek
show themselves logically very suspicious towards any intervention of states
and even more of super-etatic structures to dismantle monopolies. From their
point of view, if a monopoly survives, there are reasons for this. When monopoly
position is based on a breaking invention which results of years of research
(scientific barrier), the mastery of a unique technology and the investment it
took to develop it (technological barrier), the futuristic vision of a leader
or leadership group, it is probably fair that those who participated in this
adventure derive significant benefits. Either a monopoly effectively meets some
needs, or it will disappear.
4) Schumpeter
has described two schemes for innovation ; we usually consider “creative
destruction” , but he had also theorized “creative
accumulation”. For Schumpeter, the "entrepreneurial" regime is
characterized by 'fluid' industries, with low barriers to entry; the process of
creative destruction here plays an important role; creative
accumulation is characterized by barriers to the entry of competitors and
the cumulative knowledge generated in a "routine" process within the
departments of R & D by large firms.
In a
presentation somewhat analogous and newer, the Economist and Nobel Prize winner
2014 Jean Tirole (cf theory of industrial organization, Economica, 1993)
opposed the effect of replacement to the effect of efficiency; in
this second case, when a firm invests, it still faces competition and profit
lower than those of a monopoly. Innovation is less profitable for the firm in a
strong competitive environment.
(5) The
monopoly is the only structure to allow sufficient profits to continue to be able
to finance fundamental research and innovations of rupture.
(6) Everywhere,
at all times and in all places, the opening up to competition has meant less
money for research; and when it exists, incremental innovations are favored
over brekthrouh innovations. There are now thousands of examples to suggest
that practically every time, the opening to competition means that money is taken from research budgets to go
to communications agencies and advertising.
7) Comparing what were Bell Labs with the
discovery of cosmological noise by future Nobel Penzias and Wilson, and also
the discovery of the transistor, of the UNIX language, of CCD cameras with their
successors. Bell Labs were sacrificed on the altar of the cult of free and
non-distorted competition, dismembered in several Baby Bells that have not
marked and likely will not mark the history of science and technology.
In IBM
laboratories have been notably invented the Fortran language, the RISC
architecture, relational databases... Gerd Binnig and Heinrich Rohrer in 1981,
invented the scanning tunnelling microscope, with huge applications from electronics to biology, for which they
received the Nobel Prize. In 1986, Johannes Bednorz and Karl Müller have
discovered a new type of superconductivity at a temperature of 35 K: two other
Nobel Prize for IBM. I do not have the impression that the anti-trust actions
against IBM and the intensification of competition will maintain this research level.
In the field of
the pharmaceutical industry, where basic research was widely supported by the
industry, increased competition, including by the introduction of generics,
supported by the states - and which is a kind of disregard for the patent
system - has led to a collapse of therapeutic innovation, to disengagement from
research that it more and more outsourced, and finally the end of the machine to
invent drugs that the Pharma have been for more than fifty years.
In fact, the
dismantling of monopolies has, in many cases, favored the emergence of firms
who, with respect to innovation, lived in a parasitic way at the expense of the
monopolies.
(8) The
monopoly does not have to worry too much about investors, it is less prone to short trem stock
market strategies, it is less subject to competition by price, therefor, the
monopoly can grant to its employees, in particular researchers, better wages
and working conditions – always better to work with happy people. More
specifically for research, it may conduct basic research programs, look for breaking
through innovations and attract the best researchers, giving them means and time
required.
(9) This is
quite understandable. The main concern has the leader of a monopoly, each
morning, arriving at his work is the following: What appeared yesterday in the vast world which
could threaten my monopoly? For this same reason, the monopoly doesn't neglect,
contrary to what is sometimes claimed, its customers, and will devote time to
understand and anticipate needs, developments, alternative strategies that
might threaten its monopoly. If it does not, there is little chance that it
will remain a monopoly.
An often heard
argument is that if monopoly has the motivation and the means to conduct an
intense technology watch and identify the breaking innovations that might
threaten it, it is not necessarily very motivated to put them into practice and
could delay innovations. By doing so, it would take a great risk ; and patent system include sanctions for
penalizing obstruction tactics, which can go to compulsory licenses. They could
be used more often; it is easy to remedy disadvantages of this type.
As a summary, the priority given, in particular by the European Union, to the the fight
against monopolies seems to endanger sustainability and the existence of
ecosystems fostering innovation. This policy is neither fair, nor efficient,
nor to ensure the sustainable progress that we need, as much as in the past.
One tragic example was the french aluminium industry collapse, when the
European Commission stopped the Pechiney/Alcan merge.
The school of Economics of
Toulouse : I had the opportunity to discuss twice this subject with prominent
members of the Toulouse School of economics. Once, I was told that creative
accumulation of Schumpeter was a period where he was going through a severe
depression...A second time, that of course, if innovation is represented
according to the intensity of competition, it got an inverted U-shaped
curve..., but that almost always, one was on the side where the competition had
a beneficial effect on innovation (?, without any indication on the parameters
characterizing the position of maximum ?); but more recently, Paul Seabright
(e.g.Le Monde 28/01/2013) noticed a
slowdown in innovation, particularly for the pharmaceutical industry. The
revelation in the cassoulet?
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