Monopoly: The Metaphor

Are you looking for a metaphor of the modern American economy? You might wish to glance in the direction of Monopoly.

No, I’m not referring to any of the real-world industries that are dominated by monopolistic organizations, although numerous examples abound of sectors in which one or two mammoth companies have bought out most of their competitors. I’m referring to Monopoly, Hasbro’s board game.

Last month, based on the results of an online social media competition, Hasbro retired the game’s Thimble, Work Boot, and Wheelbarrow tokens. The firm then announced the addition of Dinosaur, Rubber Duck, and Penguin tokens.

So why is this a metaphor for our contemporary economy? When the three retired tokens were first introduced decades ago, they illustrated common tools of manufacturing activities in America’s then-dominant industrial sector. Indeed, the icons represented the capabilities of the United States to generate its own wealth, a theme that reflected the goal of the Monopoly game.

But now these tokens have been replaced by an extinct beast, a toy creature, and an animal that is imported into American zoos from foreign lands. In other words, the original “plain but meaningful” icons of productivity have been replaced by a new set of “cute but irrelevant” icons of mass entertainment.

If Hasbro had wished to modernize its assortment of tokens, it might have chosen to adopt representations of mobile communication devices, surgical lasers, and sleek aircraft. But instead, it opted for a motley menagerie.

It’s an apt metaphor for the contemporary economy of the United States, isn’t it? Unfortunately, the American business tools of thimbles, work boots, and wheelbarrows are now as obsolete as the Monopoly tokens that recently portrayed them.

Netflix vs. Comcast: A “Ma Bell” Moment?

Do you remember Ma Bell? Do you miss her?

Ma Bell, as you may recall, was the colloquial name for AT&T’s national monopoly, a business that controlled virtually every telephone in the United States. From the time that the Justice Department granted it that franchise in 1913, until the time that the government launched a lawsuit in support of spunky upstart MCI’s antitrust case in 1974, AT&T possessed what might have been the most lucrative unchallenged legal monopoly in American business history.

Throughout that period, AT&T owned and operated every telephone pole, every phone line, and every piece of voice transmission equipment in the United States. It also provided service to each citizen and each organization that needed a telephone. But once MCI introduced a competitive plan to deliver voice services over AT&T’s system, the Justice Department decided to require AT&T to provide the same level of access to any external service provider that it provided to its own service division.

It remains a topic of conjecture as to whether the innovative threats of mobile phone service and the internet would have brought down the AT&T monopoly any way, had AT&T not voluntarily agreed to a break-up under Justice Department auspices in 1984. Amazingly, though, a very similar debate erupted last week between a cable television company and a pair of internet service firms.

Comcast: The New AT&T?

Comcast, like the old AT&T, is a communication transmission company, albeit one that enables customers to receive cable television service. In each of its communities, Comcast has been granted a monopolistic license to maintain the television transmission cables under (or over) the public streets, and to sell access to those transmissions to the general public. They have also been granted an exclusive license to provide the public with cable-based internet access as well.

Recently, however, a relatively new service firm named Netflix has begun streaming Hollywood films and shows to the television sets of Comcast customers through Comcast’s transmission cables. At first, Comcast did little or nothing to oppose that practice. But now that the Netflix movie streaming service has grown to the point where it utilizes over 20% of America’s internet bandwidth traffic during the peak evening hours, Comcast is suddenly paying attention.

Once Netflix agreed to rely on the internet service firm Level 3 Communications to help it grow even further, Comcast suddenly demanded that Level 3 pay it special fees for the privilege of using its transmission cables. But will the federal government permit Comcast to charge independent providers special fees for competing with Comcast’s own cable television service?

Net Neutrality Under Fire

Negotiations between Netflix, Level 3 and Comcast are now in progress. The federal government is looking on as a highly interested observer, due to the importance of a general principle known as net neutrality.

To put it simply, net neutrality means that an internet service provider cannot “play favorites” by providing one web based service with preferential transmission rights over another. It cannot, for instance, stream its own movies at full speed over the internet while slowing down or halting the streaming activities of rival firms. Likewise, it cannot transmit the email messages of its own customers more quickly than the email messages of others.

The problem with net neutrality, of course, is that internet service providers appear to be the only firms that are being held to the principle. Apple’s iPad, for instance, plays streaming videos in the HTML5 format but refuses to play videos in Adobe’s Flash format. And Facebook’s new email service initially places the messages of each user’s Facebook friends in a more easily accessible box than the messages of others.

To force full neutrality on all of these parties would be an overwhelming task; no one is currently suggesting that the federal government enforce such a standard. That being the case, though, can the government selectively enforce the net neutrality principle on Comcast and other cable television firms?

The Future: Web 2.0

One vision of the future, dubbed Web 2.0, is that the very concept of net neutrality will fall victim to the evolution of the communication medium itself. Facebook, for instance, seems to be evolving into a private password-protected version of the internet, with its users maintaining “walls” that function like web pages, and with email, text chat, and other communication capabilities available as well. And Iridium provides the entire earth with its own privately owned transmission service, operating via a network of 66 planetary satellites.

As such firms continue to grow in size and power, it will become progressively harder to force them to provide equal access to upstarts like Netflix. What may eventually emerge is a bimodal internet system, with a theoretically “net neutral” world wide web that relatively few people continue to use, and a number of private, proprietary services that represent the future of the medium.

Deja Vu at IBM: Return of the Trust Busters!

The week of January 12, 1969 was a momentous period in U.S. business history. Most of us who were alive at that time recall Super Bowl III, when Broadway Joe Namath led the New York Jets to the greatest upset victory in the annals of American football. The shocking defeat of the establishment NFL Baltimore Colts by Namath’s upstart AFL team demonstrated the parity of the two leagues; it later led to the merger that spawned what is arguably the economically strongest professional sport in the world.

But five days after that glorious moment, an even more noteworthy event shook the foundations of American business. Namely, the U.S. Department of Justice filed a federal lawsuit against IBM for monopolizing the business computer market. At the time, IBM was the sixth largest corporation in the United States, and the only computer technology company on Fortune’s Top Ten list.

The tug of war between IBM and the federal grovernment dragged on until 1996, when the firm and the federal government reached a final settlement and appeared to put the battle behind them. But earlier this week, the Department of Justice once again opened inquiries into IBM’s alleged monopolization of the mainframe computer market.

Mainframes? Again?

Now that was a surprising development! After all, we now live in a world of decentralized mobile technologies, where we wouldn’t be caught dead without our laptops, mobile telephones, GPS devices, and tablet e-book readers.

In fact, IBM itself has long been marketing its cloud computing services, and even its virtual reality facilities, as substitutes for obsolete mainframe based systems. So why would they even consider monopolizing mainframe computer systems, a technology that was once lionized in a 1957 romantic comedy featuring Katherine Hepburn and Spencer Tracy?

Although mainframe computers may seem like technological throwbacks to past eras, they remain useful for a wide number of business applications. And thus, like radio signals, railroad trains, and oil based internal combustion engines, they will probably continue to occupy a significant slice of the technology market for quite some time to come.

A Little History

It’s easy to forget how much IBM dominated the American computer industry when the Justice Department last investigated it for antitrust violations. Throughout the 1960s and 1970s, industry analysts routinely referred to the eight major mainframe firms as IBM and the Seven Dwarfs because IBM’s gaggle of competitors fell so far behind the market leader. And many movie critics assumed that the evil computer HAL in the 1968 film 2001: A Space Odyssey was modeled after IBM’s mainframe products because I follows H, B follows A, and M follows L in the alphabet.

It’s also easy to forget how vigorously the federal government prosecuted corporations that had grown into monopolies throughout most of the twentieth century. Republican presidents such as Teddy Roosevelt joined Democratic presidents such as Woodrow Wilson in supporting antitrust legislation. From the 1911 breakup of energy titan Standard Oil to the 1982 spinoff of AT&T’s local telephone businesses, such firms were aggressively prosecuted by federal regulators who sought to restore competitiveness in various market segments. The Department of Justice apparently suspects that IBM may have regained monopoly power in the mainframe sector.

But will the feds actually seek to impose a break-up or spinoff on IBM’s mainframe operations? Although the Obama administration has indicated that it intends to resume more aggressive antitrust enforcement positions, its recent track record in other industries does not appear to support this position.

Too Big To Fail

Instead, the Obama administration appears to be continuing the policies of the Bush administration, which contradicted decades of consensual bipartisan policy regarding antitrust law. After all, it was Republican President Teddy Roosevelt who was called a “trust buster,” due to his desire to shatter business monopolies into small pieces because they represented systemic risks to the American economic system. And it was Republican President Ronald Reagan who was in office when AT&T spun off its national local telephone monopoly to seven newly formed firms.

Such policies are diametrically opposed to the ones taken by Presidents Bush and Obama, Treasury Secretaries Paulson and Geithner, and Federal Reserve chair Ben Bernanke, who have chosen to bail out market leaders like Bank of America and General Motors under the principle that they are too big to allow to fail. To be sure, this comparison is not an analogous one because firms like Standard Oil were not in danger of financial failure; nevertheless, whereas Teddy Roosevelt sought to destroy monopolistic firms, George W. Bush sought – and Barack Obama is seeking – to save them.

Thus, it does come as a surprise that Obama’s Department of Justice has decided to investigate IBM for its dominance of the aging mainframe industry at the same time that his Treasury Department is frantically attempting to preserve the shaky dominance of firms like Bank of America and General Motors. The natural contradiction between these two policies is self evident; only time will tell whether one of these two will emerge triumphant.