Competition is Amazing

As the healthcare bill is debated in Congress a key sticking point is whether or not to include some sort of public option. Ignoring the rhetoric and hype, the need for a public option for health insurance comes down to the need for real competition in the industry. If health insurance were already functioning by the laws of capitalism, then we would not be paying more per capita to provide care to our citizens than any other country on the planet. And we wouldn’t need a public option. Health insurance in most markets is a near monopoly, and for obvious business reasons, insurance companies want to keep it that way.

For their part, health insurance companies are claiming they cannot compete against a not-for-profit player in the market. They claim they are already providing the best possible price and that if they are forced to make cuts to stay competitive, patient care will suffer. Should we believe them? I’m thinking no, and not because I think they are evil, but because I think they are capitalists. Capitalism says you charge as much as the market will bear. It does not say you charge as little as you can. The only time that “as little as you can” balances with “what the market will bear” is when there is fierce competition. There is not. And frankly, if there were then no one would be fearing a new player in the market.

A recent example of just such a scenario is playing out now in another industry. ISPs are claiming they need additional ways to charge customers for Internet access if they are to be able to build out the higher speed networks that the market is demanding. But ISPs are pretty much monopolies in most of the markets in the USA. Experts cite that other countries, where real competition exists, are able to provide much higher speed networks at lower prices. Yet domestic companies assure us they are already lean to the bone. For various reasons, what works overseas won’t work here.

It’s curious then that there are two recent examples where municipalities have opted to form their own ISPs in order to provide high-end broadband service to their citizens. In the case of Monticello, Minnesota the local ISP (TDS) attempted to force the local government out of the market with a suit that went all the way to the state’s supreme court. But when it became clear they would lose on legal grounds, the ISP quickly rolled out its own 50mbps fiber solution at no incremental cost to customers. This move effectively shutdown the city’s plan for a municipal network. It was no longer needed. TDS would not have made this move if they were not able to still turn a profit.

In Wilson, North Carolina it played out differently. The local ISP (TWC) bypassed the courts and went straight to the state legislature trying to lobby for laws that would have prevented the town from building its own ISP. In the end, the town has gone ahead and built its own service. TWC has pretty much lost the market, although they are still lobbying to put their competitor out of business. This, despite the reality that TWC could have provided a competitive service for an investment of less than $100/house. Had TWC pulled its head out of… oh, let’s say “the sand”, and rolled out a DOCSIS3 upgrade instead of opting to out-lawyer the competition, Wilson’s municipal ISP would have never left the ground.

In the end, the message is clear. Capitalism does work, but only where there is viable competition. In too many industries, tacit government sanctioning of monopolistic business models has resulted in companies that don’t really compete. In the past, companies like these were considered public services (e.g. power and telephone companies) and were heavily regulated to compensate for the absence of competition to protect consumers.

At this point, it’s too late to simply take away the rules and agreements which have allowed these companies to grow. The companies are by and large too big and too powerful for new start-up companies to come in and offer any serious competition in the short term. There remain two basic alternatives. Either declare these industries public services and regulate the hell out of them, or use the power of the government to create a real market competitor, thus forcing the industry players to compete or die.

I respect the conservative ideology that says the government never should have allowed this monopolistic situation to occur in the first place. That should be a lesson going forward. But we are where we are. The government got us into this mess, it cannot now simply abandon us with a promise to try harder next time.

Regulate or compete. Pick a path.

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