By Benjamín Santamaría
Some time ago we saw in Spain how the leader of Podemos, Pablo Iglesias, whose ideology is close to Venezuela’s Chavismo, used as a fallacy of authority the words of Bill Gates calling for tax increases. How can it be that a great businessman and multimillionaire shares an economic discourse similar to that of the left?
We tend to imagine, within a Marxist dialectic, the rich as an exploiter of workers whose ideology is, at base, a reflection of his class interests that have nothing to do with socialist pretensions.
However, we see in practice how big business often associates with progressives. We have recently experienced this with the example of enormous Silicon Valley companies that operate in favor of parties whose political projects consist of increasing the interventionism of the state in the economy. The State-Market dichotomy does not seem to fit with reality. Does this mean that it is obsolete?
The problem comes from interpreting the confrontation between the state and the private sector as a sort of Marxist class struggle. No, big business people can perfectly well have leftist ideas and, in addition, they can have economic interests that lead them to want them to rule. In fact, we could affirm that the right often attacks the privileges under which many fortunes are sheltered. The increased presence of the state can be beneficial for those who are well established. All this seems paradoxical, but we shall see that it is not.
Let us imagine the two extreme ideal and unattainable types of market being studied: monopoly and perfect competition. In terms of Paretian efficiency it is often said that the second option is preferable and the first undesirable, but the fact is that everything that exists is usually situated between the two concepts. Knowing this, we can use the generalization of the Cournot model that tells us how each firm allocates demand.
The price of goods will be lower when the market share is lower, i.e. the more companies there are (up to perfect competition). The monopolist has more capacity to “impose a price” or, in other words, to get hold of what is called consumer surplus, and companies operating in competition do not have this power. According to this, this ability to “manipulate” the price is given (among other things) directly by the number of entities offering the same good. We also know that the fewer barriers to entry, the more competitors there will be.
The monopolist (or, as this is an ideal, the oligopolist) has a great advantage in creating barriers to entry in order to keep more market share. These barriers can be tax increases, minimum wages or anything that we normally interpret as government interference in the market. Those who are already established will see their costs increase, but the presence of competitors would force them to reduce the price of their products. As long as the increase in taxes and expenses leads to an increase in cost that is less than the drop in revenue that their non-existence would entail (since their non-existence would give other companies more capacity to enter the market), the monopolist will prefer interventionism.
Also, an inexperienced corporation usually starts with a series of inefficient costs (i.e. average costs higher than those of those already established), which is already a stumbling block when it comes to confronting the others. If, in spite of this, the state dedicates itself to increasing these costs, the situation becomes more difficult to be able to enter and offer the same as the large companies offer.
From an economic point of view, it is not unreasonable to see large fortunes supporting statist parties and asking for tax increases. In fact, it is logical that they ask for them since they benefit them.
We could say that both the minimum wage and taxes, rates, and restrictive legislation are a kind of fee that those who have more capacity pay to the state to continue to maintain their position. That is to say, they pay a fee to maintain the oligopoly and use their influence to try to prevent another party from coming along that would give the rest of them a chance to stand up to them.
Benjamín J. Santamaría is National Delegate of the Economics Degree at UNED. He is a student of economics and writes articles in different media such as Navarra Confidencial.