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Uncommon Knowledge: Peter Thiel on the Virtues of Monopolies
In this final excerpt from my recent conversation with Peter Thiel for Uncommon Knowledge, he defends the part of his recent book (Zero to One: Notes on Startups, or How to Build the Future) that has received the most attention, not to mention criticism: his contention than entrepreneurs ought to be pursuing monopolies. What say you, Ricochet? Convinced?
Published in General
Comment edited. Gosh… never mind.
One may be a long time contributing member who has supported countless others and has ponied up for Thatcher membership, but apparently unless you’re a Holy Roman you don’t count.
Why wouldn’t you, if you can. Buffet likes firms with “moats”, same idea. I’ll admit, I was prepared to be underwhelmed. Most of these guys are built up to be some kind of next generation Jobs or Gates and they turn out to be boring. Thiel was insightful and surprisingly modest. Who couldn’t be a Reaganaut and not nod your head in agreement when he defines regulation as a serious drag on growth.
True to form, like the weather, Republican politicians complain about regulation all the time but never do anything about it. The Bush administration might as well have been Clinton III, for all the good they did on that front.
What do you call 5 vacant slots on the EPA org chart?
A good start.
Of course you want a natural monopoly: you achieve first-mover advantage, economies of scale, brand recognition, provide the best possible good or service at a price that optimizes market penetration and profits. Would-be competitors are faced with R&D costs, marketing costs, and the challenge of overcoming the reflexive name recognition you enjoy.
There is absolutely nothing wrong with any of this.
What there is something wrong with is that it never stays like this: with zero exceptions, corporations cannot resist the lure of lobbying for the deck to be stacked in their favor. “Capitalism on the way up; socialism on the way down” is one way this is expressed. “Privatizing profits; socializing losses” is another (generally applied to bailouts). This problem is so old Adam Smith discussed it in On the Wealth of Nations.
I wish I knew what to do about it. The most I can think of is a carefully constructed set of corporate bylaws that somehow bind management and prevent them from seeking legislation on their own behalf. Of course, the problem is no one thinks they’re stacking the deck. They think they’re simply protecting what they’ve built from other unscrupulous parties. They may even be correct in that assessment. But the result is still lopsided markets, cronyism, and stifled competition.
To make matters worse, what “trust-busting” there is essentially always comes down to uncompetitive concerns using anti-trust legislation against successful competitors who are not engaging in anti-competitive behavior, price-fixing, or any of the other purported evils of monopoly. This is documented quite well in the (badly misnamed) How Capitalism Saved America.
So please do create a natural monopoly… and then fight to keep it one.