The Monopoly issue

Most of the monopolies we interact with day to day have passed the point of even being questioned. Take the electricity supply. As legislation governing power supply developed it shaped the voltage on offer and the design of sockets/plugs.

As a householder it’s very easy to link into your country’s national supply. Any appliance you buy will probably have the right plug and be configured for the voltage pumped out by your local sub-station. But that version of electricity is not strictly a monopoly. You could buy your own generator and run it at whatever power settings you want, using any connecters you choose.

Of course, no-one bothers. The national electricity supply is convenient and reliable. Utility companies can be larcenous, but buying from them is still cheaper than purchasing your own plant and fuelling it. So the vast majority of us unthinkingly accept a complete lack of choice in the electricity we use.

In an industrialised nation we’re surrounded by these state-backed versions of a particular facility. Railway, roads, money, piped gas, water supply: the diversity of possibilities when the technology emerged has narrowed into one homogenous version. No-one complains. But “The Monopoly Issue” is quite rightly a concern when contemplating NEMs. Let’s address it here. There are three reasons why governments tend to use their powers to encourage a single models of a particular facility.

Planning for a mega-tunnel between England and Mainland Europe started in the Napoleonic era. But the project never became reality. Governments didn’t want to fund the project. Nor did the private sector want to dig a first tunnel knowing that, if it was commercially successful, someone else could build a second crossing and dilute their returns. Result: paralysis.

That was broken in 1984 when the UK and French government invited bids to build a fixed crossing with the assurance that the winner would have a monopoly that now runs until 2020. No one else can build a tunnel or bridge across the English Channel in that time.  It’s been a long haul for investees in the Chunnel, but that monopoly enticed them into providing the cash in the first place.

NEMs also requires significant upfront investment. A meaningful system of national markets is not just another website. The technology required is sophisticated and expensive. If it’s really to address deep-down problems then spreading public Internet access may have to be part of the package. Operators may even have to fund training for people who want to sell but don’t know how. (NEMs itself can offer very simple markets for personal NEMs trainers of course.) The return on this expenditure has to come from a fractional mark-up on very low value transactions. It’s not going to happen if operators know any success will be chipped away by cheaper me-too versions.

Why is their only one legal issuer of driving licences in your country? Government could stand back and allow any organisation to set their own standards for operating a vehicle. Then we’d all have a choice as to which company’s driving licences we held, and flexibility about whose standards we adhered to on the road.

In reality, driving licences are just one official document for which there is only one model and one repository. The same is true for property deeds, passports, birth cetificates and a lot of other records that are too important to be disapated across multiple repositories. Here’s a few of them:

Because there’s only one issuer of official driving licences, each one has value. If you’re on the national register of approved drivers you have a valuable document that allows you to get insurance then use a car across the whole national road network. That’s why we avoid the kind of behaviour that can lead to losing your licence.

The analogy holds for online trading records in NEMs. If you consistently trade within the rules that keep the market safe for all, you acquire a trading record of value that makes you an attractive counter-party across the whole of the National E-Markets system. If you become unreliable, you lose that record or have it downgraded. That’s more than a transient inconvenience; it could be a serious blow to your economic prospects. As with safe motoring, that’s what motivates reliability across NEMs.

The British electricity supply runs at 240 volts. To connect to it we have to use large 3-pin plugs with square prongs. In the US, household supply is 110 volts. You access it with small, 2-pin, round-pronged plugs. Other countries have their own formats. Which is the best?

The answer is none of them. They’re each a different trade-off between multiple factors. It’s the standardised design that makes electricity so convenient and cost-effective in each country. That national compromise arrived much quicker because of legislation. It minimised the expensive war of attrition between competing tradeoffs battling for supremacy.

Again with NEMs. No one market structure is going to be perfect for every transaction. The priority is simple, no-thought-required, ubiquity. Across thousands of market sectors, factors like screen designs, level of protection and operators’ mark-up percentage as to be constant. NEMs needs to be a no-brainer for potential users.

NEMs isn’t a monopoly compared to existing public infrastructure. You can’t create a full-scale alternative to your country’s money system, it would be illegal. You could create an alternative to the road network, on your own land, set your own rules for motorists, then charge for access. The costs would be huge and the benefits to users negligible. Like electricity supply, the road network is effectively a monopoly.

But cyberspace is big enough for all sorts of options. The legislation that creates NEMs must explicitly ensure nothing is done to stop any sort of competing offering being launched. If NEMs succeeds it’s only because all the ingenuity of the wider market can’t match its usefulness.

•  A framework for NEMs