Monopoly is virtuous, efficient, good for innovation

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?

 

 

Monopole et Innovation : un lien nécessaire

Réponse à une économiste libérale

Madame,

J’ai bien apprécié votre conférence Amphis de l’AJEF , vivante et instructive. Vous nous avez présenté et commenté avec un certain lyrisme cette courbe classique des prix en fonction de la demande, et l’existence de ce fameux  triangle maléfique, triangle des Bermudes où disparaît l’argent des contribuables et/ou des consommateurs au profit des monopoles ou oligopoles qui bénéficient de bénéfices exorbitants en raison de leur contrôle du marché. Il semble que, comme nombre d’économistes, vous jugiez souhaitable de supprimer ou réduire a minima ce fameux triangle.

Cela m’a quelque peu inquiété, car, chercheur dans le secteur privé, j’avoue que je me demande si, par hasard, ce ne serait pas ce fameux triangle qui me permet de vivre intelligemment et à peu près décemment.

Vous avez mentionné fort justement qu’il existe un lien évident entre innovation et monopole – qui est le système du brevet. Un brevet assure un monopole temporaire en échange d’une innovation, sans monopole, pas d’innovation. (Il est d’ailleurs intéressant de se plonger dans les polémiques qui ont opposé chercheurs et industriels lorsque le système du brevet s’est imposé, notamment entre Benjamin Thompson, Comte Rumford, adversaire du brevet et fondateur de la Royal institution et James Watt).

Des exemples probants : Bell, IBM, CNET

Mais la problématique de l’innovation  va, je crois, bien au-delà de cela. Il fut un temps béni où existait par exemple, aux USA une firme comme Bell. Dans les laboratoires de Bell téléphone, en tentant de battre un record de sensibilité d’antenne, deux chercheurs, Penzias et Wilson, ont découvert qu’il existait un bruit résiduel qu’aucun réglage ne parvenait à éliminer, ils ont compris que ce bruit constituait ce que nous appelons maintenant le bruit de fond cosmologique,  la signature de l’organisation la plus primitive de l’univers. Ils ont obtenu pour cela le prix Nobel. C’est aussi dans les laboratoires Bell qu’ont été découverts le transistor, le langage UNIX, le laser à CO2, les caméras CCD, découvertes plus en rapport avec l’objet de leur activité et qui sont à l’origine d’innovations capitales et de secteurs industriels entiers.

Les laboratoires Bell ont été sacrifiés sur l’autel du culte de la concurrence libre et non-faussée, démembrés en plusieurs Baby Bells qui  n’ont pas marqué et vraisemblablement, ne marqueront pas, l’histoire des sciences et des techniques.

Dans les laboratoires d’IBM, au temps béni où cette firme possédait encore un quasi-monopole, ont été notamment inventé le langage Fortran, l’architecture RISC, les bases de données relationnelles... Gerd Binnig et Heinrich Rohrer, en 1981, ont inventé le microscope à effet tunnel, instrument de recherche fondamental aux immenses applications, de l’électronique à la biologie, pour lequel ils ont reçu le Prix Nobel. En 1986, Johannes Bednorz et Karl Müller ont découvert un nouveau type de supraconductivité à une température de 35 K : deux autres Prix Nobel pour IBM. Je n’ai pas l’impression que les actions anti-trust menées contre IBM et l’intensification de la concurrence permettront de maintenir une recherche de ce niveau.

Le CNET était un instrument de recherche formidable où ont été mis au point les systèmes de transmission de données Transpac et Numéris, le Minitel, le Télétexte,  la technique ATM de transmission à très hauts débits, les premiers écrans plats à matrice active, les  premières transmission par fibre optique. Il est facile de citer quelques chercheurs de très haut niveau qui ont travaillé au CNET ; je doute qu’il sortira un jour un Prix Nobel de Bouygues, Free, ou SFR.

D’ailleurs, selon les données de l’Arcep (Agence de régulation des communications électroniques et postes),  l’investissement moyen dans le secteur des Telecom est passé de 21.2% du chiffre d’affaire 1995,  à 11.3% en 2004, et 14% en 2007, soit une baisse d’un tiers. En ce qui concerne la part du chiffre d’affaire de France Télécom consacrée à la R et D, la chute est encore plus brutale, de 3.7 à 1.3 %. Par contre, les dépenses de communication ont explosé. Vive la concurrence libre et presque parfaite ?

Les monopoles contre le déclin technologique

Ou vive le monopole ? On peut légitimement se demander si les structures de monopoles et d’oligopoles, ne sont pas les seules à pouvoir imaginer, concevoir, financer des innovations de ruptures, innovations faisant appel à la fois à des avancées fondamentales et à la science appliquée et que les Etats et la recherche publique ne parviennent pas à engendrer, faute d’une vision et d'une expérience industrielles. Du moins lorsqu’il s’agît de monopoles naturels, reposant sur la construction d’une barrière technologique forte – et d’ailleurs, les plus conséquents d’entre les libéraux - Hayek par exemple – contestent même l’intérêt d’agir contre ce type de monopoles et dénient à l’Etat le droit de le faire. Avec l’idéologie de la concurrence libre et parfaite, avec la lutte artificielle, volontariste, bureaucratique contre les monopoles naturels risquent alors fort de disparaître les grandes innovations ou  inventions. Nous devrions rapidement voir, c’est peut-être déjà le cas, s’enclencher un relatif déclin technologique, un ralentissement de l'innovation.

Oui, mais les monopoles sont peu incités à développer leurs innovations ? C’est là un autre problème, pour lequel il existe des solutions ; mais c’est un problème subalterne, car enfin, on n’a jamais vu développer une invention qui n’a pas été faite.