Monopolies and Expropriations

In open national TV, Argentina's President Cristina Fernández de Kirchner, addressed the nation with proofs of the illegal appropriation of the paper company "Papel Prensa" during the military dictatorship in 1976 done by owners of local newspapers Clarín, La Nación y La Razón (now part of Clarín). The government accuses them of illegally forcing the company to sale at lower prices and controlling the materials by which written press is distributed, which represent severe accusations towards stock holders of the important local newspapers. In the other hand, Clarín and La Nación have expressed Kirchner's "steps against media" as well as government interests in controlling free press themselves.

In Clarin's webpage on Kirchner's news, a reader commented: "I want to live in Argentina, not in Caracas." This refers of course to Venezuela's President Hugo Chavez who has taken several actions in order to control free press and has done expropriations, such as recently Molinos Nacionales, a subsidiary of Mexican Company Gruma, which in fact, controls 2/3 of Mexico's corn-flour market. A monopoly itself.

Where does innovation stand in developing countries with monopolies/oligopolies/government-controlled activities?

Let's look at the bright side first. Monopolies cause larger, stronger companies that have an international reach, that a business-segmented national market with several medium-size companies probably wouldn't, bringing employment and attracting international capitals to the country. It is also important to difference monopolies and oligopolies with markets that, due to the magnitude or scale of operations, concentrate in only a few companies. Stronger an larger companies also have the power to invest in R&D and make international negotiations that also open national markets for new imports or world-class products. Probably many innovations we know, use and even love come from world monopolies. For government controlled products and services, its intentions (if good) is to guarantee that these products and services are distributed evenly to markets that might not be attractive to private sectors, for example, bringing light or education to poor sectors, and having the entire citizens’ interests in mind and in coordination with other government strategies, operations and security. There are also growth opportunities and innovation opportunities for small and medium size companies that do not compete but colaborate with either monopolies or in government licitations.

Now for the bad effects on innovation. Monopolies, oligopolies or government controlled products and services, block competition. Competition as we know, benefits consumers since companies have to "fight over clients" becoming more efficient, adapting prices and creating new products and services to attract them. Monopolies as well as government controlled products and services DO innovate, and some are really good in doing so in order to increase profits, but when there are no other market options but theirs, innovation is not prioritized as when competition pressures exist. Innovation is also "guided" towards their own interests. This means they might not venture into an innovation that harms their own products or services,or that won't represent a profit according to their own profitability standards or expectations, even though it adds value to customers. This type of practices also affects wealth distribution and creative disruption, blocking new ventures, business and entrepreneurships that could bring their own innovations into the game.

So, it's a negative balance. As small entrepreneurs we have little economic and even political power compared to large corporations in order to fight back. In Mexico, for starters, penalties for monopolies are calculated by a fixed number of salaries, when as in many developed countries, it is based on a sale's percentage. According to a TV discussion panel called Espiral (1) in Europe, a fine can add up to 1,000,000,000 of Euros, while in Mexico they are only as high as 82,000,000 Pesos (4,800,000 Euros, that's 0.48%), not to mention the low law enforcement environment that favors the rich. Entrepreneurs have found ways to colaborate with monopolies adding value in any stage of their supply chain or creating products that do not attack directly large corporation's interests. Creativity and innovation is needed even for avoiding or colaborating with monopolies.

As consumers, we should fight for adequate market policies as well as government efficiency, being open for new forms of innovation that benefit us with their value propositions as well as with their fair prices. A company can be large, strong and dominant and have strategies according to those qualities, but not in expense of others.

This applies to all sectors, especially in sensible ones such as information access control that affects free press. As I finish writing this post, Clarin and El Nacional Web Page have already removed their previously published news about Krichner’s confrenece and the screenshot I publish for this article has been taken away along with the comments.

(1) Monopolios En Mexico Y El Problema De La No Competencia ESPIRAL Oncetv

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