Wednesday, January 22, 2014

Same As The Old Boss

I know, the blog has been dark for quite awhile. Call it a lack of inspiration, or perhaps a small amount of callousness over world events at moment, but either way here I am...Once more onto the breach, and all.

And despite some interesting events to talk about, we're going to open with an abstract post for the New Year.

This is a subject that I've been giving a lot of thought to lately, and it was further pushed to the forefront of my mind due to a Christmas gifting of The Nightly News by Jonathan Hickman. For a brief synopsis, it's a graphic novel revolving around a group of individuals who target media 'talking heads'. In it was a graph, showing media consolidation over the last 50 years, and it was this graph that brought me back to the subject at hand.

Since the end of the Cold War, and even during it, we have admonished those 'godless socialists'. The people who have bemoaned the North American consumerist society, and balked at their ideas of equality and lack of 'freedom' or 'choice'.

These people rejected the notions of Adam Smith and the freedom of the marketplace. They called for government intervention, for the establishment of state corporations or workplaces controlled directly by the people, and they demanded a social welfare state. The nerve!

Who were they to reject the wonderful freedoms of unbridled capitalism? Who were they to disallow the market to offer choice and competition, which always benefits the consumer,  in favour of a centralized economy?

Of course, in the end, the 'good guys' won. Freedom prevailed, and we were all free to choose between different products in the glorious free marketplace.

The problem is, we actually weren't.

I've never really used too many graphics before on the blog, but there's a first time for everything.

Companies Map
*map from; used without permission.

This is the first problem, the second we'll come to shortly enough with another graph.

When philosophers/economists, like Adam Smith, first defended the idea of the free market this was not what they had in mind. In fact, I'd say anyone who wrote anything about economic philosopher prior to the 1920s didn't have this in mind.

Free market philosophies called upon the market to regulate itself. Something either succeeded or failed; it was embraced by consumers or it was rejected. This was how business models were set up, a simple notion of pass/fail.

But as companies began to succeed on unprecedented levels, accumulating vast amounts of wealth, a strange thing happened. Rather than reinvest the funds into the company, and improve their own products, companies began to buy smaller successful companies. And this trend has only continued, and in some cases, led to the creation of 'corporate raiders'.

If you're unfamiliar with the term, and after Mitt Romney and stories of Bain Capital perhaps you've just blocked it from memory, a 'corporate raider' is a company that exists solely to buy other companies and rip profit from them. In many cases, the smaller company is completely dissolved by the end of the process, while the corporate raider sees an increase in their own capital.

Free market economies were not designed with the idea of corporations existing to buy other corporations. Free markets were designed based on the creation of a physical, material good that could be purchased by a consumer. Whether that was a new throw rug for the living room or a meal from a fast food restaurant, free market policies wanted consumers to have choice in rugs and meals.

As the chart above shows: KFC, Taco Bell, and Pizza Hut all answer to the same corporate master. So, while they offer different meals to consumers (fried chicken, tex-mex, pizza) their revenues are all handed up to the same corporate giant. And, perhaps, in the case of 'food stuffs' there's an argument to be made for this being not so bad.

After all, consumers are still given choice in a different variety of foods.

But there's times when this is far from true. And the best definition we have for this, sans the chart, is the Canadian Wireless market.

We should all be familiar with the term 'The Big Three'. Referring to Bell, Rogers, and Telus. These three own a fair chunk of Canada's wireless spectrum; and have a virtual monopoly afforded to them by protections put into place by the CRTC.

And when people tire of being jerked around by these three, they look to a smaller provider to save them. The problem is, unless you have a Crown Corporation (like SaskTel), you aren't getting away that easily.

After the Big Three, you have Koodo, Virgin Mobile, and Fido. That's odd, you might say, another three alternatives to the big three...What a coincidence! Except it's not, since Rogers owns Virgin; Telus owns Koodo, and Bell owns Fido.

So, it looks like the option of choice, when in reality you still only have three choices. Furthermore, thanks to the CRTC, the three have a monopoly. Take for example, Wind Mobile. It was an upstart, and many people complained about the Conservatives allowing it into Canada after it failed to meet foreign ownership rules. Nevertheless, it was allowed into the marketplace.

Flash forward about a year, and the CEO of Wind Mobile, Naguib Sawiris, announced 'regret over coming to Canada.' And then on the cusp of 2014, Wind Mobile announced it would not be bidding for the upcoming wireless frequency auction.

Sawiris correctly points to the fact that the Big Three have near identical revenue-per-user statistics; and this advertising campaign from the Three's subsidiary companies (Fido, Virgin, Koodo) really illustrate quite well how the Three have been keeping equal footing on pricing.

So, explain to me again how 'competition' is supposed to drive down prices for consumers?

Effectively, what we've seen over the last few years, is the erosion of the free market by the consolidation of ownership across a smaller number of corporations. With the wireless network in Canada, that has been helped considerably by the CRTC and government policy towards foreign investment.

And while I'm not always accused of being a free market endorser, when it comes to Canadian wireless infrastructure, we do need increased competition. After all, the CEO of Netflix compared internet access in Canada (and the price we pay for it) as  'third world access'.

The truth of the matter is that the big three have squandered their ability to invest in infrastructure, while at the same time raising rates for Canadians. In effect, we're getting zero benefit from the money we pump into these wireless companies. Saskatchewan is a great example of this.

We're fortunate enough to have SaskTel; which put up most of the towers that competitors like Telus use to provide cell phone service. The big three would have never bothered to put up towers that allowed province wide cellular service in Saskatchewan; yet they reap benefits from using the towers that exist here no thanks to them.

SaskTel is also rolling out its InfiNet service over the coming years; a high speed, fiber optic network. Obviously, this is costing SaskTel a lot of money to implement. And there are questions as to whether secondary broadband providers, like Shaw or Access, will be allowed to route their customers through this network.

What we're seeing, is vast investment by the government through Crown Corporations when it comes to infrastructure. And little to nothing coming from the companies who have a responsibility to upgrade the service they provide to consumers.

To a degree, the Harper Government is actually raising the issue. You may have seen the ads taken out about our wireless rates, and the need for increased competition. At the same time, the big three have also put out ads to counter this argument. Whether or not any actual policy comes out of it remains to be seen, but if it does, then hopefully it spurs on some actual competition.

Which brings me to the next point, and our next graph. You'd think that in a democracy that values education and informing the electorate, that we would hear more often about how our choices are being taken away from us. How more and more consolidation is occurring, and we are slowly moving away from a free market to an oligarchy controlled marketplace.

The problem is that the people we rely on to provide this information are caught in the problem. For example, CTV. CTV is owned by, surprise surprise, Bell Media. The same Bell Media who provides you your Bell or Fido cellphone. In fact, Bell owns most of the channels Canadians have in their homes. Not to mention, a ton of radio stations across the nation.

Then you have Shaw Media, owners of Global. In addition to their news, they offer home internet service, home phone, and television packs.

Things get even worse when you look to the US.

*image from Frugal Dad, used without permission.

Given Canada's limited marketplace, especially in news media, the US provides a much better example of mass consolidation.

The first fact is particularly shocking, and the one we really want to focus on: In 1983, 90% of American Media was owned by 90 companies. In 2011, 90% of media was controlled by just 6 companies.

What that really means is that 90% of the information flowing into households as 'news', was controlled by 6 corporations. As such, when debating an issue like campaign finance reform we are only hearing the views of those 6 corporations; despite whether we watch it on MSNBC or Fox News or the CBS Nightly News.

An educated electorate means providing as many sources and opinions and views on an issue as possible. The Socratic Method is based on the open conversation and free flowing of ideas, and is a method that is still pretty widely endorsed as a good means of education. But when we only allow 6 voices in the conversation, we limit what we can learn.

After all, these 6 corporations are on the hook to their stakeholders more than they are to the general public.

To make matters even worse, many of these corporations also own or are owned by those who manufacture our goods. For example, General Electric, used to own NBC (it sold it to Comcast). So, one has to wonder if there was a sudden recall or health hazard posed by an MRI Machine made by GE, would NBC report on it?

Would any news channel report on an issue that their parent company was having that presented it in a negative light?

Not if they could help it, seems to be the general answer.

Effectively, the main reason we aren't being told that our so called free market is becoming increasingly less free and consolidated is because the media we entrust to inform us is active in the buying and selling of other corporations. Media is a thing that can be bought, and it can be sold, and as such it is becoming increasingly useless as an effective tool in creating an informed and educated electorate.

The free market is dead, and competition is a lie. When competition actually does manage to push through, it's only a matter of time until the competition is bought up by the people they were competing against. The free market ideology was not designed for this mass consolidation of wealth and power; the idea of the free market should have evolved, but it didn't.

Consumers have lost more and more power, even through the fabled 'buying authority', because if we shun an item produced by one of these mega-conglomerates we can't affect their bottom line. In the last financial crisis, banks cried that they were too big to fail. In today's market economy, the true is same of these large companies.

They are too big to fail, and they are too big to ignore. The consumer has no purchasing power, and the free market cannot simply decide that these subsidiaries or these companies will disappear. All the while, the illusion of competition continues while more and more consolidation takes place.

I'm not sure where we go from here, to be honest. It will take a smarter, or at least a more visionary, person than myself to come up with the alternative. And more importantly, the steps we can take to reach that alternative.

But what I will finish on is this, and it's a point I've made many times before on the blog: We cannot expect anyone else to educate us. We are responsible for educating ourselves, and our children if we have them. We cannot assume that everything presented to us is true, or that everything presented to us is a lie. We have to assemble facts for ourselves and make our own judgement.

Only then, will we have a truly informed and educated electorate.