August 29, 2007

On Robber Barons

Hillsdale History Professor Burton W. Folsom, pens a guest editorial in the Wall Street Journal today (paid link) and hits one of my favorite themes. Mexican telecom magnate Carlos Slim is derided as a robber baron. Folsom steps in to defend the robber barons:

Whoever satisfied the most customers would have the largest businesses. Only when Rockefeller sold cheap kerosene to tens of millions of Americans did he become the nation's first billionaire. "We must ever remember," Rockefeller told his partner, "we are refining oil for the poor man and he must have it cheap and good." Ironically, the price of Rockefeller's kerosene dropped to eight cents a gallon in 1885 from 26 cents in 1870 -- all the while he was viciously pilloried as a monopolist by the press, Congress and his competitors.

Ford, Walton and Mr. Gates also had to sell widely to masses of Americans at competitive rates before they rose to the top. Putting a car in every garage, not just the garages of the rich, was Ford's working motto. In serving the most customers, he reaped the largest reward. So did Bill Gates with computers. When America did deviate from free markets -- for example, by granting government subsidies to the Union Pacific and Central Pacific Railroads -- the economy suffered instabilities. But it recovered from the experience and learned a lesson. James J. Hill built the Great Northern Railroad with no federal subsidy -- and outperformed all other transcontinentals.

Rockefeller provided poor people with heat and light to earn his pejorative sobriquet. When people run him down, I always think of the old mining bumpersticker "Let the Bastards Freeze in the Dark!" Not only does Folsom honor the Robber Barons, but he tells Senor Slim: "I knew Robber Barons, Robber Barons were friends of mine, Son, you ain't no Robber Baron." Oh wait, that was Sen. Lloyd Bentsen.
His major opportunity came when President Carlos Salinas de Gortari decided to privatize some inefficient industries. Mr. Slim bought Telmex, the nation's phone company, in 1990 in a controversial auction which was decidedly less than transparent. With that purchase came a six-year monopoly guaranteed by the government. Although Mr. Slim was supposed to relinquish the monopoly in 1997, he used a variety of legal and political tools to maintain it, for example filing injunctions in court to block orders from the regulator to provide competitors fair access to his network. According to OECD figures, Mexican consumers and businesses still pay above market telephone rates. Fewer than one-fourth of Mexican homes have telephones.

With a near monopoly of fixed-line telephones and data access (the Internet), Mr. Slim has reaped windfall profits which, wisely invested, have propelled him to immense wealth. Meanwhile, Mr. Slim's newer ventures -- his construction company and his oil services company -- rely on government contracts for their major business. Recently President Felipe Calderón met with Mr. Slim and urged him to accept greater competition.

Economics and Markets Posted by John Kranz at August 29, 2007 11:05 AM