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Market Competition Lives


With the resignation of Steve Case as chairman of AOL Time Warner, we have yet another demonstration of the greatness of the marketplace and a striking contrast with its nemesis, government. Think back to the day three years ago when the mega-merger between AOL and Time Warner was announced. The anti-market (that is, anti-freedom) chorus sang apocalyptic dirges about how we soon would all be prisoners of that Internet and media monster. How could it not happen? The giant AOL would somehow rope everyone into its Internet service-providing corral, and Time Warner would provide all the content. No other competitor would have a prayer. The age of the One Big Monopoly would be here, and there’d be nothing any of us could do about it.

It didn’t quite work out that way, did it?

AOL, with 35 million subscribers around the world, is adding new customers at a slowing pace, and its ad revenue has fallen a lot. Earnings are down. Last May the combined company was worth $260 billion. Today, its value is estimated at $66.5 billion. The decline in the stock price erased $200 billion in shareholder value since 2001. Right after the corporate marriage, the stock was $55 a share. Today it’s around $15.

As the Wall Street Journal put it, “America Online is just an underperforming unit of a media giant.”

What’s all this mean? It means what champions of free-market capitalism have long maintained: in the marketplace the consumer is king. He is fickle, and if he doesn’t like something, he doesn’t buy it. Most important, no one can force him to buy what he doesn’t want.

Contrast that with government, which operates entirely on the basis of force. I can say no thank you to AOL or HBO or CNN. I can’t say the same to the IRS or EPA or CIA.

The fear of “market power” is an irrational fear. Strictly speaking, market power is only the ability to offer consumers value on terms they like. It’s the power to persuade. In contrast, government power is the ability to use legal violence against people who have violated no one’s rights. There’s a world of difference between those kinds of “power.”

Consider the fear of Microsoft that inspired the recent antitrust suit. You’d think that Bill Gates was poised to take over the world. But if that were so, we’d all be slaves to MSN, the company’s Internet service. After all, if Microsoft “controls the desktop,” then MSN should have had a huge advantage over AOL and other competitors. But MSN has not become top dog. If it finally makes it, the reason won’t be Microsoft’s “power.” It will result from the company’s competence and its savvy at exploiting AOL’s decline.

A little historical perspective is useful. AOL wasn’t always the No. 1 Internet service provider. It had to dethrone CompuServe, which it accomplished in a distinctly low-tech way: blanketing the country with disks containing its software and free hours of service. It worked, and AOL eventually bought out CompuServe.

The upshot is that the market changes at a manageable pace. Not too slow. Not too fast. But just right. We avoid stagnation and get progress, but not at such a blinding speed that we have chaos. As Proudhon said, “Liberty is the mother not the daughter of order.” (Yes, Proudhon was a socialist. Go figure.)

While entrepreneurs are the engine of that progress, it is important to remember what they are striving to do: please us hard-to-please consumers. That doesn’t mean they provide only what we already want. Visionary entrepreneurs often introduce us to products and services that we did not desire until we learned they existed, such as the Internet. But contrary to John Kenneth Galbraith and his socialist ilk, entrepreneurs can’t make us want things. They can attempt to persuade us, but we are free to remain unpersuaded.

Government operates on the opposite principle. Why try persuasion if you can compel by fines and imprisonment instead? Moreover, to the extent that government meddles in the marketplace, it undermines service to consumers. That’s why laissez faire is a good idea, regardless of what Republicans and Democrats think.

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    Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.