Steel Trade Monopoly leads to potential War

ANALYSIS, Global — A lot of people keep telling me they dislike religion because it leads to war.

There are a plethora of voices in the media crying for atheism in the Left, on the other hand the Right, have stated that anyone who doesn’t worship God in the prescribed manner is unpatriotic to their country.

The prosaic reality is that modern wars are about trade, power balances, resources like oil and water, or land for expanding populations.

Further, the reality is, in short, that imbalances create war. Imbalances in resources (and thus power) have led to most major wars.

And monopolies that gouge countries for profit lead to tensions on the road to war.

The Steel supply-side monopoly is one such tension.

The 2thinknow position is that governments need to regulate corporations and trade, as I said in my much read recent post, commenting that governments need to be umpires.

Even the idol of the free marketeers, the lucid and intelligent Friedman, agrees that governments should umpire. He has been mis-represented, as Smith was.

Governments needs to step up and prevent monopolies. Which is hard with businesses based in more than one nation.

Let’s take steel and BHP.

Proposed BHP Steel Monopoly creates Asia imbalance

“ASIA’S giant steel makers are increasingly uneasy at the prospect of BHP Billiton swallowing Rio Tinto and “monopolising” the iron ore trade, but they are coming to believe there is almost nothing they can do.

A senior Japanese official, who runs an industry that includes the world’s second and third-largest steel companies, told BusinessDay that industry bargaining power “would be very much weakened” if the merger proceeded.”

The Age, Business Day, 28th January

Let’s follow the probable strategic regional implications of that.

Asian countries need steel for development. Steel is also a resource in war, for self defence.

And with increased China, Japan, India, North Korea and other tensions in the Asia region on one hand, Australian government is near-approving a deal to monopolize steel.

A single source Steel monopoly would be perceived in Asian countries as a strategic weakness, necessitating a strategic response. And quite possibly longer term military options.

Ask yourself what would your country do to a threat to it’s strategic interests?

The US would respond fiercely to anyone threatening their strategic interests in steel. If Australia were not an ally. That is how the USA did respond to a threat to oil supplies. War in Iraq.

Asia will respond in a strategic fashion to strategic resource weakness. That will include a broader suite of military options, increasing armaments in the region.

This is what happened before previous 20th century wars. Arms build-up.

Or do those twenty-something analysts expect Asia to swallow a steel monopoly? At the same time as we ask for ‘free trade’.

I know what the US response would be to restriction of its strategic interests. And we have to see China’s and Asian advisors are the equal of the US advisors.

But it is not in any of our strategic interest to attempt to create a supply imbalance in an important resource.

And if you do not think that will happen, ask yourself when did a corporate monopoly not try to raise prices on its customers? Or lower quality?

Some analysts will think this power imbalance is good, but in reality imbalances are bad for all citizens of the world whether they live in Shanghai, Sydney, New York or Zurich!

Are Market Analysts the right human beings to set strategic priorities?

I am not proposing draconian regulation, but the current corporate monopoly free-for-all is not good.Think about this simply for a second.

Would you give all the power in any industry to one group? A monopoly on all potatoes? All milk globally? All schools controlled globally by one power?

Communism was a monopoly. Ask people living in Communist countries how monopolies worked out.

Without checks and balances?

This is calmly what markets support. It is efficient in economic-speak.

I remember on my many forays consulting into investment banks finding half-eaten breakfast cereals, ties, clothing, and old pizza boxes lying on desks. Those in the industry know this.There is a well documented macho culture, as published in numerous books. And some leading analysts have a reputation of having a decidedly mercenary streak, and many leave the industry after a few years.

This enlightened group of people are good to maximise banks profits and shareholders returns.

But we should have someone with an eye on history stopping them from overstepping banking and creating deals with strategic implications.

Teddy Roosevelt stopped Getty’s Standard Oil and others. It can be done again.

What monopoly policy am I proposing?

Not dissembling global monopolies.

But merely setting rules that in a global market no one player can have more than a percentage of trade, and setting rules about percentage ownership.

There must be a minimum of 4 or 5 players in a global industry. Not 2. Definitely not 1.

The how of this can be worked out by policy analysts and economists.

A simple example of Global Monopoly

Take razor blades. Schick & Gilette. No one else much.

More expensive, useless 5 blade monstrosities which hack your chin to pieces. Is that innovation? Not really.

Do we need that? How about maintaining quality standards instead, and passing savings on to consumers.

Razor blades are incredibly overpriced. My 2 blade heads are around $2 each.

A Global Review of Monopolies

We need to stop corporate monopolies and thus need a thorough review of global monopoly power and laws passed in the USA and Europe to restrict global monopolies further.

Monopolies have bad social outcomes

Whilst we can live with a razor blade duopoly, a single-supplier steel monopoly is dangerous regionally to Asia and beyond.

It creates the same imbalance as the mid-east oil monopoly.

And why would we let twenty-something analysts at investment banks who are motivated mainly by unrestrained profit, and have a total lack of engagement in strategy decide the future relationship of regional powers in Asia.

Market analysts are good at making money. Not at strategic regional thinking. That should be the government’s job in each nation.

There needs to be a restraint on markets. And a giving up on the idea that everything should be decided by markets, which often means analysts.

Governments have given over too much power to markets in areas such as strategic thinking.

Trade imbalances, and supply-side monopolies lead to world powers seeking other ways to circumvent the rules. War is a tool used where laws or diplomacy don’t work.

Religion, values or culture may be their excuse, as it was in Iraq. But most reports subsequently from ‘people in the room’ say the war was about oil.

Resources and trade are the reason for wars.

So let’s prevent regional tensions whose main benefactor are investment banks.

We all want to ensure peace for our grand-children.

Take care,

Christopher