The bourgeois economic analysis—that is, the economic analysis of capitalism-friendly economists who look more at surface-level phenomena than structural issues with capitalism—tend to point to more immediate symptoms as the cause of the monopoly break-ups.
Hyperbolically, my feeling is that if you asked a bourgeois economist what was causing someone to eat, they would point to electrical signals in a person’s nervous system around their mouth, arms, and hands; without being able to express that the person was hungry. A Marxist should be able to point to both the specific phenomena and the abstracted patterns. For example, with the abstraction of ‘hunger’, we are able to make better connections with the rest of a person’s behavior. This style of thinking should hopefully allow Marxists to more easily develop a rigorous, interconnected understanding of systems.
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Let’s see how this plays out in economic analysis. Luxemburg’s Marxist analysis points to the bottom-line threat to the company’s profits—the exhaustion of further outlets of disposal (places to successfully sell their product), which threatens a cartels’ ability to jointly increase profits. On the other side, the bourgeois analysis points to how cartels and monopolies are large and therefore difficult to internally coordinate. In the most generous interpretation, this critique of monopolies is rooted in a Hayekian criticism of centralization—a criticism of centralized decision-making structures’ capacity to coordinate effectively at scale compared to a more decentralized system.
The bourgeois analysis is somewhat circular. Monopolies are structurally defined by their capture of the market, size, and high level of hierarchical internal coordination. Essentially, monopolies are characterized by anti-competitive, high levels of centralization of production in a sector. To say that a monopoly is failing for reasons of ‘centralization failing to establish control of the market’—as the bourgeois economists have—is to say that a monopoly is failing because it fails to be a successful monopoly. It is not a serious analysis in my eyes. Of course if a monopoly is failing, this will be noticeable in its failures to internally coordinate to capture the market; that is by definition what it means for a monopoly to fail.
In this case, a better question to ask is: Why does a monopoly structurally succeed at one point but not at another? There must be at least another variable, not a circular explanation. Bourgeois economists have provided less of a scientific explanation, and more of an ideologically-masturbatory, barely-veiled Hayekian ribbing of centrally-planned economies. Is it that they think there is a tendency for monopolies to accidentally grow too much, so that it’s difficult for them to internally coordinate? That seems unlikely, but maybe it is what they believe.
At best, I think we may call the bourgeois analysis a description—not an explanation—of the phenomenon. Insofar as we take the stance that the bourgeois analysis is a description, it may coexist with Luxemburg’s analysis. Luxemburg’s Marxist analysis, however, appears more causally explanatory in my eyes.
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In my understanding, Luxemburg’s analysis in Chapter 2 of Reform or Revolution implies this sort of explanation:
Capitalist companies compete with each other in ways that detrimentally hurt each others’ profitability. As a result, some companies get competed out of existence, while the surviving companies differentiate into different niches of the market, and an informal cartel between the surviving companies forms.
The alternative to a cartel would be competition. But competition is not desirable for these individual companies who have found their niche. This is because it costs significant money to compete—to undercut other businesses’ prices, or to develop new innovations. This prevents effective profit extraction across the market in the short-term, with no guarantee of eventual success. The risk/reward calculation does not favor a strategy of competition. Thus, insofar as investors value profit, there is a tendency in capitalism away from competition and toward monopolies and cartels.
The move to monopolies and cartels is profit motivated. And simply having a cartel or monopoly doesn’t change the profit motive—capitalists still want to grow their profits. Capitalists are simply pushed to employ non-competitive methods for increasing profit. The liberal idea that capitalism’s competition will produce better outcomes for people has been extinguished by capitalism’s very own profit motive.
Without the pressures of competition, capitalists continue to increase their profits by increasing the efficiency of their internal coordination and production process. This allows them to decrease the amount of money spent on workers and to increase prices on consumers. Members of cartels, and segments of conglomerates—by staying in their lanes and not competing—are able to capture and saturate parts of the market which they were previously unable to do. Because they don’t feel as much pressure from competition, they are also able to stagnate and slow-roll the development and deployment of consumer-focused innovations. Also relative to the lack of competitive pressure, the efficiencies of production will not get passed down to the consumer in the form of cheaper prices.
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Capitalist monopolies and cartels want to grow. Their anti-worker, anti-consumer, anti-competitive coordination allows them to better collectively saturate every corner of the existing market. But when the market gets fully saturated like this, the companies have run out of further outlets of disposal. There are no more places in the market to expand into, but each company in the cartel still wants to grow.
Monopolies and cartels have two options here for their companies to keep trying to grow:
Their first option is to break apart the cartel/conglomerate and compete again as individual companies. This is expensive and risky. By doing so, they would risk being competed out of existence. On the other hand, it is potentially the only way they have a chance to grow as an individual company. And capitalist companies want to grow. The risk/reward for competition has changed to favor competition.
The second option is to try to double down on their attempts to internally coordinate. They would try even harder to keep pushing down worker wages/benefits, and to coordinate to raise prices on consumers and expand cheap credit available to consumers. But again, this can only last for a short while—they will ultimately run out of outlets of disposal.
This is evident from the fact that workers are consumers, and the money available to spend comes from what they can earn in wages and take out in loans. By restricting workers’ wages, companies eventually reduce their capacity to sell to consumers. Expansion of consumer credit also has its limits—there’s only so much debt that consumers can take on, as debt payments will ultimately come from workers wages. If loans didn’t work this way, it would be unprofitable for the loan companies.[ftnt2] Risky expansions to consumer credit, like we see with pushes for people to get credit cards, or Buy-Now-Pay-Later schemes really are examples of companies scraping the bottom of the barrel, trying to get consumers to spend money they don’t have.
Doubling down does not remove the basic problem of the limits to the market’s outlets of disposal. Companies will run out of people and places to sell things to. Capitalists efficiently exhaust every possible mechanism to extract as much as possible from every corner of the market. The internal coordination of the cartel can destroy working class power and saturate the consumer market, but it cannot change the fact that there are limited outlets of disposal.
When this occurs, there is an increased pressure for cartels to break their agreements to coordinate. The first option becomes the only option. Competition breaks out once more, even more desperately.
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Note that the failure of doubling down on internal coordination in the Marxist analysis is not the Hayekian criticism of internal coordination.
That is not to say that there aren’t Hayekian information-processing limits to economically viable top-down internal coordination. Cartels likely push up against those information-processing limits in addition to the limits of how ‘internal coordination cannot that there isn’t enough money in the system to fund the cartel’s collective growth’. But why would cartels/conglomerates run up against the limits of internal coordination in the first place?
Marxist analysis shows that cartels push themselves up against the limits of internal coordination because the easiest and more profitable way of doing business leads them to form monopolies and cartels, and therefore to run out of outlets of disposal to sell their product. Once they’ve saturated their outlets of disposal, it becomes immensely more difficult to maintain profit growth—regardless of how much the monopoly can internally coordinate. Internal coordination is failing because they are out of outlets of disposal, not because their organization’s size and complexity makes it impossible for them to internally coordinate.
Even then, for a while, attempts to internally coordinate against workers/consumers will be more profitable than breaking up a cartel and competing. When the cartel finally can no longer conjure new outlets of disposal (through antagonism against workers/consumers, and expansion of consumer credit), growth is finally and truly restricted; and the marginal benefits of internally coordinating in a cartel or conglomerate falls. It becomes increasingly enticing to break apart a cartel or conglomerate.
The cartels’ failure of internal coordination is ultimately not Hayekian in nature, as the bourgeois economists seem to gesture. The cartel/conglomerate’s failure is an expression that the capitalists believe the conditions of the market have made increases to internal coordination less marginally profitable compared to breaking up the cartel/conglomerate. Indeed, cartels and conglomerates continually invent new ways of internally coordinating, particularly with computational logistics and more superficially ‘democratic’ mini working-group structures. The Hayekian limitations to internal coordination might hold some water against the centrally planned socialist economies of the 1900s, but perhaps less so against the even newer innovations of monopoly capitalism.
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Once again, it seems that bourgeois economists have noticed merely the immediately prior situation and not their underlying causes. They often miss the deeper analysis because they don’t think about the economy at the levels of abstraction that Marxists allow for. Marxists have an analysis that posits the possibility, and even likelihood, that capitalism is simply one mode of production in the history of a human society. If we take the bourgeois view that capitalism is the immanent, most natural representation of human nature in economic form, then our analyses are likely to attribute internal capitalist failures as being representative of something other than capitalism—this seems to be what happened in their analysis of monopolies and conglomerates.
Our economic systems are pushed forward by the human desire to implement technical advancements in the production of value—to the point that this collective desire pushes against the limitations imposed by the ruling class that are meant to consolidate the ruling class’ power to dominate and exploit others’ productive efforts. The technical developments of an economic system eventually overcome the fetters of the current mode of production, and a structurally more efficient system coalesces, which is implicitly better at distributing economic power and value. With a Marxist frame of reference at the scale of economic epochs, different explanations for economic shifts become more prominent and analytically self-evident.
Footnotes:
[ftnt2]
In part, this is why rich people have been pushing for a sort of Universal Basic Income—so that people can get money from the government instead of taking out loans. Further analysis has to be done to see if this system is economically sustainable. It’s morally bankrupt, but does it fall apart similar to how expansions to consumer credit do?