Category Archives: Investment

Technology has changed market dynamics, and new economies of scale are making it increasingly hard for small businesses to compete.  National and international communications and transportation have increased the global nature of businesses, so scale and international optimization of supply chains make enormous advantage for the largest businesses. Another important example is the nearly infinite ratio of fixed to marginal costs in information businesses that leads to increasing pressure toward consolidation.  Meanwhile, the value of public companies shifting from 40% intangible assets in 1996 to 75% in 2000. These forces push toward anticompetitive oligopolies, and are newly strengthened because of the new communications and transportation infrastructures.

Unfortunately, when you combine the globalizing economy with massive consolidation pressures, the natural equilibrium is a monopoly.  A monopoly can act in its own best interest and harm consumers.  America has a long history of working to ensure consumer markets remain competitive.

If you want to reduce the burden on the Federal Trade Commission lawyers, then we should implement a structural incentive that acts to offset any negative changes in the economic dynamics.   Specifically, we could create a new incentive for competitive markets.

This can be achieved with a progressive federal corporate income tax that finances an investment company and, in turn, finances companies that can improve competitive pricing or innovate.   The progressive tax could begin at a high profit level so that competition would be encouraged. Not a very popular suggestion among stockholders in the largest corporations, I suspect, but the benefit in the long run would be very great.

Necessity is the mother of invention, and monopolists can sustain their position with far less innovation than occurs in competitive markets. We will see advancements in communications, transportation, environmental protections, health care, entertainment, safety, and even life span. These innovations will occur inevitably, but it is our decision as a society how we structure ourselves to best approach this evolution.

Note – The Government-financed investment company should probably be independent in a similar model to the federal reserve.

Note – The competitive application for the funds of the Government-financed investment company avoids the incentive problems associated with socialist policies.

Note – The investment company would consist of many competing portfolios, managed by accountable teams, and with regular culling of underperformers.

Note – This would be a particularly effective economic stimulus mechanism because it supports high velocity of money in productive markets and more directly drives employment.

Note – The enormous potential financial gain from the investment company would be reinvested and used to reduce corporate, individual, and other tax rates.  It has the potential to create a self-financing government.

Note – The investments of the investment company would be direct – new equity or debt capital – not the purchase of existing securities.