July 26, 2016 by AK
The Economist runs regular columns named after prominent figures from the past: Bagehot, Charlemagne, Babbage. Under “Schumpeter,” they wrote of Peter Thiel earlier this year:
In a book, “Zero to One”, published in 2014, he pooh-poohed competition and celebrated the power of “creative monopolists” who add “entirely new categories of abundance to the world”…
There are lots of reasons for Mr Thiel’s Nietzschean turn… Ayn Rand’s book, “Atlas Shrugged”, describes a world where the creative minority of business geniuses has retreated from the world, and left the masses to enjoy the fruits of socialism…
Bringing up Ayn Rand must be a reflex: “He’s rich? Libertarian (ex-)? Pro-business? He’s an effing Randian!” But it was not Ayn Rand but a real, and rather prominent, economist who argued that
some degree of monopoly is preferable to perfect competition. Competition from innovations, he argued, is an “ever-present threat” that “disciplines before it attacks.” He cited the Aluminum Company of America as an example of a monopoly that continuously innovated in order to retain its monopoly. By 1929, he noted, the price of its product, adjusted for inflation, had fallen to only 8.8 percent of its level in 1890, and its output had risen from 30 metric tons to 103,400.
[He] never made completely clear whether he believed innovation is sparked by monopoly per se or by the prospect of getting a monopoly as the reward for innovation. Most economists accept the latter argument and, on that basis, believe that companies should be able to keep their production processes secret, have their trademarks protected from infringement, and obtain patents.
[He] stands for (Joseph Alois) Schumpeter.
Compare this with The Business Insider‘s summary of Thiel’s ideas from the same book The Economist referenced:
Getting to a monopoly, then, is a matter of inventing something 10x better than any peer product, or discovering an entirely new category.
Society doesn’t need to be scared of monopolies, Thiel says, since upstarts will always come along to dethrone them, as Apple’s iOS did to Microsoft’s decades-long operating system dominance, and as Microsoft did to IBM before them. In this way, Thiel says, “monopolies drive progress.”
That’s why, the investor continues, businesses are successful to the extent that they do what others can’t, that they “escape competition” with other companies…
Thiel’s ideas, as presented in the media, seem rooted in Capitalism, Socialism and Democracy. They have a Schumpeterian feel distinct enough to merit at least a mention of the Austrian-American economist in a column bearing his name.