Alberto Mingardi's
2007 Blog Archive
Link to 2004 Archive
Link to 2005 Archive

	If It's Implausible, Should It Be True?	05 MAY 2008
	Sarkozy and the Dilemma of the European Right	21 APR 2008
	Is Italy Moving Toward a New Protectionism?	02 APR 2008
	Cowboy Socialism	11 MAR 2008
	Pharmaceuticals: Where No Atnitrust Has Gone Before	05 FEB 2008
	A Great Little Book on Antitrust	18 JAN 2008
	No More Ads?	07 JAN 2008
	Alitalia: Where is Italy Flying?	04 JAN 2008
	Antitrust Against Producers	19 DEC 2007
	Two Cheers for Mandelson	13 NOV 2007
	AMD Goes to Brussels	05 OCT 2007
	France to tax foreign lorries	09 JUL 2007
	The Post office and the Free Market	01 JUN 2007
	It's the Market, Baby	02 MAY 2007
	The Taste of Competition	02 MAR 2007
	Some Sense from McCreevy	22 FEB 2007
	Epstein's Overdose	01 FEB 2007
	Government Doesn't Like Low Costs	09 JAN 2007

If It's Implausible, Should It Be True?
05 MAY 2008 – Long ago Alan Greenspan declared the world of Antitrust to be like "Alice in Wonderland": "everything seemingly is, yet apparently isn't, simultaneously."

The world may have changed in the last fifty years, but Antitrust did not change as much. See, for example, an article in the latest issue of “The Economist”. An article reports on how “the American way of trust- busting” is being imported to Britain. By the "American way" of trust- busting, the Economist means “a growing awareness that cartels not only raise prices, but also blunt other benefits of robust competition” plus an aim to “punish market riggers with fines and prison” – By "imported to Britain", the Economist means a recent investigation of the Office of Fair Trading implying that “supermarket buyers used some of the world’s largest consumer-goods companies as a switchboard to swap information that would help them to coordinate the prices of thousands of products”.

In another article, the very same Economist recognizes that “a fiercer business battle would be hard to find than that for the £110 billion ($220 billion) that Britons spend on groceries each year. Over the past decade shoppers have switched from one supermarket to another in their millions, crowning new kings of the trade and deposing its once undisputed lords, whose market shares have been as squishy as overripe tomatoes. The greatest winners have been shoppers themselves: they have more choice than ever, and real food prices in Britain fell by about 7% between 2000 and 2007”. The magazine also admits that “the British grocery market is one of the places you would least expect to find price-fixing. Large supermarkets have little reason to collude in the market as a whole”.

Still, in its editorial the Economist comments that the OFT’s investigation suggests that “cartels are not just more prevalent, but also more sophisticated than anyone thought”. “The startling thing about the OFT’s investigation is that it is in branded goods, where coordinating a cartel should be hard”.

This sounds to me like: if it is very very implausible, then it should be true. Pure Antitrust, à la Greenspan.

I think some other thoughts may have occurred to the writers. If there is evidence of strong competition between British supermarkets, and yet the regulators believes there is also a very well established form of exchange of information in between those very supermarkets, can it mean that, well, perhaps that exchange of information is not a “conspiracy against the public, or in some contrivance to raise prices” resulting from a Smithian meeting of “people of the same trade”? See Pascal Salin’s fascinating essay on cartels as coordinating devices.

During the last thirty years, economists basically argued that almost anything the trust busters assumed about vertical integration and mergers was, basically, wrong. Perhaps it is time to revisit our common wisdom on cartels too?
feedback permalink

Sarkozy and the Dilemma of the European Right
21 APR 2008 – My colleague Jacob Arfwedson had a terrific piece on Nicholas Sarkozy in The Wall Street Journal . Jacob defines him as "the status quo radical", highighting very well how Sarkozy is far from representing anything truly "new" to France – as the European press keeps portraying him. Now, I understand he is still better than Bayrou (who is as appealing as an Italian 1950s Christian Democrat), but he is as much of a free marketer as I am a tango dancer.

However, Sarkozy is not the exception which makes the rule in European politics. The sad truth is that non-socialist parties will return to power in several places: in England, it looks like Gordon Brown will not succeed in keeping the Tories out of Downing Street any more. In Spain, Jose' Luis Zapatero is building consensus for his opponents. In Italy, after the record of the Prodi's government, the latest elections have gone to Berlusconi again.

However – perhaps with the exception of the Spaniards – this new wave of right wingers seem well intentioned to stay way from "Thatcherite" market oriented policies. The gospel of lower taxes, free trade, and competition is seldom preached in European politics. This brings us back to the very mission of organizations such as CNE. We are strangers in stranger land. We face the immense work of changing, little by little, the public opinion in Europe, towards a more sensible approach towards reforms that are very much need, just for the sake of keeping Europe alive. The European right is not quite ready for that. Sarkozy and his likes seem more attracted either by the micro-managing of daily politics, or by the grandeur of some newer kind of protectionism. The conservatives often end up being the party of the state. This is not what Europe needs. We will need conservatives that are open to the culture of markets and competition, that understand the value of entrepreneurship and liberty. France will never have a Margaret Thatcher, and even the best free market think tank ever will not be able to manufacture one. But it rests with institutions like CNE and intellectuals such as Jacob Arfwedson, to spread our ideas in a way that will make, day after day, the Sarkozies of this world less radical, in defending the status quo.
feedback permalink

Is Italy Moving Toward a New Protectionism?
02 APR 2008 – Romano Prodi's government was far from being market oriented, but Italy may switch toward being a great lobbyist for protectionist measures if the center-right comes back to power: this seems to me a rather depressing situation for my country, looking at the new book by Giulio Tremonti. Mr Tremonti was treasury minister with Berlusconi, for most of the five years the leader of "Forza Italia" spent in government. Tremonti is an outspoken critic of the process of globalization, and advocates tariffs and quotas as to make competition from Chinese businesses "endurable" for Italian ones.

If he favors more regulation in international trade, he also seeks less regulation coming out of Europe. Tremonti's vision is not different from Sarkozy's. They accept liberalization "internally" but not "internationally". The problem is that globalization is the main drive towards liberalizations within the boundaries of nation states. If we didn't have competitive pressure coming from "barbarians at the gate", why bother changing rules and rolling back the state? It is no big consolation, though, that free trade is having tough times also on the other side of the Atlantic.
feedback permalink

Cowboy Socialism
11 MAR 2008 – Ronald Cass, chairman of the Center for the Rule of Law, dean emeritus of Boston University School of Law and a Senior Fellow at ICER, has written a bold and noteworthy article on the "cowboy socialism" of our Antitrust autorities. Cass put it bluntly:

"While socialism is retreating in nations like China and former Soviet satellite states, it is gaining in the bureaucratic heart of Western Europe. Among those leading this socialist charge is EU antitrust chief Neelie Kroes".

For philosopher Robert Nozick, the fundamental rule of justice in a market society is: "from each as he chooses, to each as he is chosen". The first part of the sentence is very important: if we want to stretch it to competition law, it may sound as a plea to opening up markets. Having free entry to markets make possible for individuals to enjoy wider choice. But the second part of the sentence is also fundamental: as the holdings of an individuals have to be considered legitimate insofar as he has acquired them lawfully, so the market share of a firm has not to be charged with antitrust law insofar as that company gained that level of "dominance" in a free market - i.e. being "chosen" by consumers.

Indeed, there is a role for Antitrust in economies where the state is still so strong, as it is in Europe. But it is not the role of the destroyer of successful, fully private, and truly enterprising businesses.
feedback permalink

A Great Little Book on Antitrust
18 JAN 2008 – Edwin S. Rockefeller served as chairman of the Section of Antitrust Law of the American Bar Association, and ever since 1961 has been the chairman of the Advisory Board of the Bureau of National Affairs' "Antitrust and Trade Regulation Report". He recently gave to the press what seems to me the best example of "confessions of an antitrust lawyer": a short, highly readable and greatly provocative book entitled "The Antitrust Religion" (Cato Institute, 2007, pp. 128). If you have any interest in these issues, you should rush to Amazon and buy it. It will be an eye-opener.

One reviewer has attacked Rockefeller's "Pollyannish view of an unregulated free market". But criticisms do not go much beyond that. Even if they were true, if Rockefeller and those of his persuasion were actually blind to the evils of unrestricted competition, this would not make the vision of Antitrust zealots any less Pollyannish.

Rockefeller's is a book as slim as it is powerful. He points out the many reasons why, dealing with Antitrust, we're not "in the rule of law but in roulette". As religion was once understood to be the opium of people, we may now say that antitrust is the opium of (self- interested) economists and lawyers. I say "self-interested" because Antitrust is after all a very good employment program, bringing bread to the table of many practitioners in economics and law. What brings Rockefeller to call Antitrust a religion is the vagueness of its tenant propositions. Take market power – "the imagined power that a seller may have if an assumed future, in which all other things remain unchanged and which cannot be verified, were to occur". To have market power, you have at first to define the relevant market. How? No matter ho careful analyses are but the definition is arbitrary - and often looks so. Writes Rockefeller: "Determinations of the market and market power are made through a self-hypnotic process of circular reasoning".

Not that the author does not take into account the evolution experienced by Antitrust, mostly under the pressure of the law and economics movement. But he notes that, no matter how reasonable the writings of Posner and Bork (to name just two) look, little was done to reduce legal uncertainty in Antitrust law. Actually, since law has to be certain, we could say "there is no such thing as antitrust law. Antitrust is a religion. Antitrust enforcement is arbitrary, political regulation of commercial activity, not enforcement of a coherent set of rules adopted by Congress".

Trust me, the confessions of Mr Rockefeller are well worth reading.
feedback permalink

No More Ads?
07 JAN 2008 – Nicholas Sarkozy is getting married to a truly beautiful woman who benefitted from (and was often part of) advertising campaigns, yet he is planning to ban ads from public television. Sarkozy wants public channels to be "funded by a tax on the increased advertising revenue of the private channels and an infinitesimal tax on the revenue of new communication means such as internet access or mobile phones." The first part of this proposition seems, somehow, fair: the slice of the advertisement cake to be eaten by private tv channels would get bigger, if the public tv does not collect ads. This is why shares of private channels that compete with the public/state ones for budgets, jumped up after the announcement.

The second part of the proposition is far less fair: tv is one among many media, and with declining audience (as compared to the Internet, or Internet and new television channels on cell phones, etc). So, why should New Media be taxed to pay for Old Media's bills? Internet consumers certainly do not find much benefit in this. Sarkozy's statement underlies the distance between old and new media. The new media are basically financed just by ads. News is provided on the Internet free of charge, with advertising campaigns paying for the content. Since targeting campaigns is actually more efficient on the internet (think Google Ads), thanks to new ways to profile the customers, the trend may well be of declining volumes in ads for television. Sarkozy is perhaps just anticipating the future - but why should Internet and mobile phone companies pay for the decline of television?
feedback permalink

Alitalia: Where is Italy Flying?
04 JAN 2008 – Altalia has a well established reputation for inefficiency, delays, and grunginess. On that I quietly disagree: the quality of the service on Alitalia flights is as good (bad) as on many other carriers, the reason for which is certainly immense quantity of money thrown at the company. Spending so much, you cannot be hopelessly bad. And Alitalia indeed has been losing money (better: spending away Italian taxpayers' money) for eight full years now. Now the company's board is expected to recommend one of the two bids in the privatization process of the company. One is a solid bid: the one advanced by Air France/KLM. Some may remember that Alitalia was supposed to marry KLM, before the latter got engaged to Air France. Ar any rate, this would be now an acquisition on the part of a top carrier, with great aspirations in terms of market share in Europe. The other bid is by a smaller carrier, Air One, which by buying Alitalia would acquire a de facto monopoly on the lucrative Milan-Rome route.

The problem with Air One is not that, if it buys Alitalia, a neverending antitrust dispute would be opened immediately (the Italian antitrust authority would have the precedent of the Aer Lingus/ Ryan Air case to refer to here). The real problem is that Air One is too small a company to eat Alitalia, and the bid would be largely financed by banks who possess the right keys to create pressure on Italian politicians. The problem is, once more, political. An inefficient Alitalia was a pain in the neck for the Italian taxpayers, but contributed to making the Italian market permeable by low cost carriers, which enhanced the supply for Italian customers (see ppt slideshow here). Now, with such a belated privatization, the buyer may bargain with the government regulation à la carte to stop the stream of low cost competition. This is why Italians should keep their eyes open.
feedback permalink

Antitrust Against Producers
19 DEC 2007 – After the ruling against Microsoft was upheld by the Court of First Instance, it was easy to forecast a new wave of antitrust cases. The EU Commission proved to be sympathetic to market followers rather than market leaders: and if it is up to a certain extent consistent with dominant (indeed) economic theories and the EU Treaties, it is also something that has to do with politics. Smashing big bad (possibly American) firms gains you the reputation of a though politician.

What nobody could forecast, was that antitrust was to go "back to the future". Opera has just filed a complaint to the EU Commission, asking the EU to apply the same standards applied to the bundle of Media Player into Windows, to the bundle of Internet Explorer into Redmond's OS. Which is exactly the old case brought by Judge Thomas Penfield Jackson, even though at that time it was Netscape working against Bill Gates and his fellows. How that ended up is well known - but I think anyone could benefit from re-reading this excellent article by Clyde Wayne Crews Jr. (pdf here), written at the time.

I just want to add a note. The peculiar thing with antitrust today is that it is becoming clear how regulators want to be the one dictating to producers what a product is. It was the case with Acer, which was required to unbundle Windows from their laptops in France. It is continuously the case with Microsoft, required to cut pieces of what evolved to be their operating system. This is more than policing competition: this is going back to old fashioned industrial policy, ie dictating people what they should produce and, by doing so, dictating consumers what they should buy.
feedback permalink

Two Cheers for Mandelson
13 NOV 2007 – Commissioner Peter Mandelson has recently, vigorously come out in support of free trade. Now you may say talk is cheap, but there are some points in Mandelson's recent speeches, that are worth mentioning. First, the Commissioner has said that the US and the EU should partner for freer trade. He is also preaching that the US and the EU should join forces in enforcing trade obligations with China. But politically speaking, Mandelson is right: more cooperation between America and Europe is needed, to fight back the evils of protectionism that populate political parties everywhere.

Mandelson was also courageous in making this point during the American primaries (he was then speaking at the Carnegie Endowment). In the current race, unfortunately, Republicans and Democrats are contesting each other over "Chinese and Indians stealing our manufacturing jobs"! Second, the Commissioner made a singular point that brought the Wall Street Journal to speak of "the Mandelson curve" - i.e., the Laffer curve applied to tariffs. Writes the WSJ:

"Arthur Laffer couldn't have said it better himself. When you tax something you tend to get less of it, and a tariff is just a tax on imports. Lower tariffs, and you'll probably get more imports -- and taking a smaller portion of a bigger pie often is better than taking a larger hunk of a tinier pie".

AMD Goes to Brussels
05 OCT 2007 – The Wall Street Journal had an excellent editorial [subscription only here] on "Intel in Euro-land". The headline says it all: "The EU punishes another US success". On July 26, the EU Commission sent a Statement of Objections to Intel, possibly opening thus a new antitrust quarrel.

Intel is accused of having abused its dominant position, with the aim of excluding its main rival, Advanced Micro Devices (AMD), from the CPU market. Intel is considered having engaged in "predatory pricing", by selling its CPUs below cost or by allowing substantial rebates as to keep its market share. The case was brought to the EU’s attention by AMD, which is also pursuing antitrust charges against Intel in other countries: in the US, the federal district court of Delaware is expected to rule in 2009.

In Europe, AMD may expect a more favourable judgment. Both because the case bears some resemblance to the one in which the Commission opposes Microsoft, and because AMD owns an important factory in Dresden, which employs quite a few Germans, making it a heavier political player, in Europe, than Intel.

I find the history of the development of the CPU market a truly fascinating one (see, for example, this interesting timetable). It is a story of intense competition, which is now evolving – sadly – into "competition by litigation". Intel should find not a sympathetic ear, but a fair one in Brussels. The business practices it is accused to have put in place are fully legitimate: at any rate, the producer owns what it is making and it is free to sell it at whatever price it wants. In addition to that, predatory pricing has lived more in the regulators' nightmares than in real world markets, and anyway it wouldn't be effective to close down competition, if only (a) there are no legal barriers, and (b) there is actually room for a second supplier.

AMD is a great company that developed from being one of the many "me-too" competitors of Intel into being a powerhouse in itself. It is so sad that, after proving so good at markets, it now likes the courts better.
feedback permalink

France to tax foreign lorries
09 JUL 2007 – France is thinking about a tax on _foreign_ lorries. Thanks to Google, we can track this proposal actually back to the last presidential campaign of... Jean-Marie Le Pen, who presumably believes that, as foreigners per se are more likely to spread diseases in France than French men, foreign trucks are more likely to cause car accidents than French trucks. Classical liberals are generally in favor of toll roads: they support road pricing, even though they do not want the tolls to be just another tax on car drivers (see this very illustrative article from the Adam Smith Institute). But it is one thing to shift financing for road maintenance from general revenues to tolls paid by those who use them, yet another to target exclusively foreign drivers. This Lepenist idea – to be implemented by the not very pro-competitive Sarkozy government (see Dalibor Rohac's point here) – tends to forget we live in a common market. And the point of being in a single market is that goods move freely from one member country to another. How do they move? Surprise surprise, on trucks. Taxing foreign lorries clearly endangers the most basic feature of a common market: free movement of goods.

Not only. Taxing transportation is ultimately like taxing consumers, who will have to bear higher costs for the foreign goods' import. And thus, this is, in turn, like subsidizing their "internal", "made in France" substitutes, that will benefit from competitors' higher prices. A very French idea indeed.
feedback permalink

The Post office and the Free Market
01 JUN 2007 – Though there are new calls for a delay, 2009 is the deadline for the liberalization of postal services in the European Union. Such a process has been speeded up by a series of European directives, implemented with various degrees of seriousness at member state level. The post office is one of the symbols of the very essence of the modern state: its liberalization should be then particularly near to the interests of classical liberals and libertarians all over Europe. And then, very few studies by market oriented think tanks are available on the matter.

Massimiliano Trovato and Rosamaria Bitetti (two promising young libertarian policy analysts) have just written a powerful Briefing Paper for Istituto Bruno Leoni. The paper is in Italian, but the message of Trovato and Bitetti is powerful and important all across Europe: the fullest liberalization of the sector, in Italy, has been slowed down by the incumbent, Poste Italiane, which happens to be state owned. The way in which Italy reacted to Brussels' directives is well worth studying. Instead of opening up the market, the political class has done whatever it could to fortify the "national champion" - a business that no one dared to privatize.

A more general and pan-European look at this issue is provided by the Institut Economique Molinari, with a remarkable article by Valentin Petkantchin. Petkantchin underlines several important considerations. Number one is the changing nature of the postal business. Even love letters tend to be love e-mails, nowadays (do you remember the delightful "You've Got Mail" with Meg Ryan and Tom Hanks?). Thus the nature of the post is changing, and what is delivered by snail mail tends to be, basically, goods. In this sense, one may argue that eBay is the best ally of the post service: buy virtual, mail physical, so to speak. Also, Petkantchin argues that, in such a context, the old justifications for universal service simply do not hold any longer. Price differentiation is in the nature of things, and there are an awful lot of different businesses (supermarkets, food chains, etc) that may prove to be a good substitute for universal mail service. "Mailboxes Etc" is already somehow doing that. Could you picture yourself buying a book on Amazon.com and picking it up at a Starbucks? I bet the market's imagination can bring us well beyond these limits.
feedback permalink

It's the Market, Baby
02 MAY 2007 – After much talking, the Royal Bank of Scotland (RBS), Fortis Bank and Santander Central Hispano made an offical offer for ABN Amro, the Dutch bank that on Monday announced an agreement with Barclays over a proposed merger. RBS, Fortis and Santader are willing to pay three euros more per share than Barclays would do. The Children's Investment Fund, a London hedge fund that owns something like 3% of ABN and has pressed ABN to be open to a higher bid than Barclays', welcomed this development, calling it a "compelling offer."

Who is going to win? It will depend on a variety of factors, including the fate of La Salle, in the US, which ABN is planning to sell to Bank of America (La Salle Bank is instead part of the reason why RBS is interested in the Dutch bank). Anyway, something can be said about one of the arguments used against RBS's offer; it is supposed to be damaging because it would lead to the break up of ABN, whose different divisions will finish under the umbrella of one or the other of the banks involved in the consortium. This is an argument somehow appealing, but shows that sometimes the mythology of enterprises may conspire against the freedom of business. There is no reason to believe that businesses should stay as they are now for ever. Enterprises are indeed "nexuses of contracts", and as such may be broken and re-arranged differently. There is a tendency to favor the survival of a firm in its current form as a value. Alas, the important things are others: consumers and shareholders. A successful business provides consumers with something they value, therefore creating value for its investors. Even the future of business is not fixed or decided, but will depend on the market. Investors may find a smarter way of using a firm's assets than keeping it together how it is. Opposing change qua change is not a smart strategy.
feedback permalink

The Taste of Competition
02 MAR 2007 – One of the most common misconceptions about the very idea of competition is that it should merely consist in having a wide number of producers competing, selling perfectly substitutable goods. This is, in a nutshell, the essence of the neoclassical theory, which has been very severely criticized by Austrian economists (for example, by Murray N. Rothbard, by Israel Kirzner, and by Domenick Armentano). The idea that competition is about many many producers selling almost identical products rules out by definition one of the most interesting characteristics of competition - i.e., the fact that we know that in a market, entrepreneurs competing with each other tend to innovate (in production, marketing, communications, you name it), to the benefit of us consumers. It also leads to very severe problems, from the point of view of antitrust regulation. Basically, any intervention of antitrust policy cannot but start from a "definition of market" (upon which the regulator is intervening) that is often very arbitrary.

In his last book, Richard Epstein uses a very apt example. He mentions, as a highly competitive market, the market for wines. I thought this to be absolutely brilliant. Wine producers are all producing and selling a very similar product. After all, wine is always liquid, always sold in bottles, available in a limited number of colors (white, red, rosé). It looks like a competitive market, neoclassical style: many producers, very similar goods. However, prices are far from being similar: you go from a few bucks for a bottle to the stellar prices of SuperTuscans, very expensive Bordeaux, legendary masterpieces such as Mondavi's Opus One.

Why such a big difference in pricing? Because any and each of the producers is in fact the monopolist of a unique product: its "own" wine. Producers pursue the highest degree of product differentiation, strive for innovation, sometime go for the best quality for the price, sometime go for excellence at very important price. Isn't the wine market highly competitive? It is: no barrier to entry. The number of labels is quasi-infinite, perhaps a bit of consolidation would be needed indeed (but, of course, there is little incentive insofar that smaller producers are subsidized in some countries), but prices are far from being similar and he who comes about with a great idea, a great new product, retains the right to charge how much he wants, if he finds consumer willing to spend such an amount of money. Also, the market has benefited from quite a few guides, rankings, magazines (first and foremost Wine Spectator) that provides consumers with informed opinions, and help them in exercising their freedom to choose and drink whatever they like best.

I bet many antitrust regulators could use a glass of Barolo. I wish they could think of the wine market as a good example of how competition should look, and learn some lessons out of this fact. Try "market definition" with wines, and you'll understand what's wrong with most antitrust regulations.
feedback permalink

Some Sense from McCreevy
22 FEB 2007 – European Commissioner Charlie McCreevy has given an interesting interview to the Financial Times, saying that hedge funds are good for the European economy. McCreevy's remarks came in reply to the criticisms raised by Nicolas Sarkozy a week ago, when the possible successor to Jacques Chirac said that there is "no wealth creation" in the US economy and proposed a tax against "speculative finance".

Statism has new clothes, and one of this is the preference for "industry" (i.e., traditional farms, located in a particular town and village, unable to move around at the same speed capital enjoys in jumping from, say, Italy to Slovakia) over "finance" (i.e., dreadful rich people playing with their money all over the world). But, as McCreevy said, finance cannot be accused of not being fruitful. When buying companies, private equity firms push on better management, making it possible to add value to their original investment and sell to the market at higher prices. The "evil speculation" is nothing but seeing opportunities others did not see. The rationalization and restructuring of European business, which is so much needed, can't happen by itself. We need well equipped and clever financiers to push our economy further. We need to improve, and to have the right stimulus too. Of course, politicians prefer "farms" to "capital" for at least two reasons: a) Farms are easier to understand (you look at the work force and you are looking at voters), and b) far more importantly, farms are easier to control, and "industry" can become the subject of "industrial policy". But in a world of free movement of capital and labour, the era of industrial policy is really over.
feedback permalink

Epstein's Overdose
01 FEB 2007 – Finally a good book on pharmaceuticals. It is "Overdose", recently published by Yale University Press and promoted by our friends at the Institute for Policy Innovation, a remarkable think tank based in Texas. The author is Chicago's Professor Richard A. Epstein, among the most highly regarded law scholars today, and author of many books that could rightly be considered classics in the literature of the free society. Epstein examines closely the productive stages of the pharmaceutical industry, and the impact that the regulatory framework exercises upon them. Research seems to be less effective than fifty years ago. Less spectacular, let's say. Innovation gets incremental. Competition makes research more risky: many companies may be working on similar projects at the same moment, but just one will get to patent and release a blockbuster. At the same time, newer pressure is put on regulators by healthcare scandals. So, the common cry is that pharmaceutical capitalism is neither competitive enough to produce breath-taking innovation (as it used to be), neither sustainable enough to release safe products. Either way, a stronger role for regulation is called into place - particularly in the US, which still enjoys a freer market. Epstein's book persuasively demonstrates that excessive government regulation stifles innovation. His treatment of issues as varying as intellectual property rights protection, pharmaceutical pricing, FDA regulations, is superb. The book is acute but written with great clarity, profound yet accessible to lay readers. The section on intellectual property rights, in which Epstein explanes how commons and a stringent defense of IP should me mixed to guarantee sustainable innovation, is a must read. This is a book that teaches us that there is no "ceteris paribus" for pharmaceutical innovations. Other things equal, stronger government intervention would paralyze technological progress. Instead, entrepreneurial creativity can't flourish but in a market context. And the evils commonly attributed to such a market context are far less dangerous than their alleged cure.
feedback permalink

Government Doesn't Like Low Costs
09 JAN 2007 – Consumers like low cost airlines. They make it possible for a new generation of Europeans to get to know each other and to exchange ideas, experiences, memories, goods, stories, sentiments, food, wine and ideas. Seen from Milan or Prague, London is now really next door - as are Madrid and Brussels. The godmother of all the low-costers is Ryanair - a company that has arguably had an impact on young Europeans tantamount to that of the Erasmus programme. See Siobhan Creaton's fascinating book or this interesting analysis (pdf here in Italian) by Andrea and Mauro Gilli.

The essence of Ryanair's business model is to keep costs, well, low, and to focus on its core business - flying people around - rather than engaging into the fancies traditional airlines endlessly get into.

Low costs worked: In the real world of supply and demand, they indeed worked so well as to put competitive pressure on traditional airlines, which often benefited from the increased competition as it pushed them to rein in expenses and get bolder in attracting customers.

But while consumers like low costs, governments do not. The Italian government is trying to privatize Alitalia, a carrier ever on the brink of bankruptcy, and to "put lipstick on the pig" for potential buyers, it is proposing new airports legislation (story here in Italian) that would make it more difficult for low cost carriers to cut deals with regional airports.

The French government, meanwhile, is being challenged in court by Ryan Air CEO Michael O'Leary for trying to clip his company's wings. O'Leary contends that the French are forcing foreign airlines to apply French labor laws when they base aircraft in France, and by doing so they are breaking the European laws on free movement of labor and services. O'Leary is a clever and courageous businessman, one who isn't afraid to stand up for his company and its values. However, the truly sad thing is that European governments do not get what Ryanair represents. Cheaper prices for consumers, okay. But also a fabulous opportunity for a country. Ryan Air embodies the essence of the "Irish miracle". Lower taxes, lower regulation, and look what happens. You become a business tiger, after ages of economic backwardness. But instead of learning the lesson, Italy and France prefer to endure in the defense of smaller interest groups. And we lose twice: first as consumers, then as citizens.
feedback permalink