Does The Government Create Monopolies?

The mainstream media believes that capitalism is the dominant economic system prevalent in the world today. This is why any economic failure in the modern world is quickly dubbed as being a failure of capitalism. However, according to many economists, the world is not really following capitalism. Free market and least government interference are the founding principles of capitalism. However, in most industries throughout the world, we see monopolies and oligopolies in existence. There are very few free markets across the entire world. The interesting thing is that these monopolies and oligopolies have been created by big businesses with the help of the government. Hence, instead of breaking up the monopolies, the government seems to be doing the exact opposite, i.e. creating and nurturing them.

In this article, we will have a look at the various industries in which oligopolies are present. Then we will also analyze the governmentís role in creating and nurturing these monopolies.

Banking Monopoly

The banking system is the foundation of the entire financial system. If a handful of firms can control who they provide bank credit to, they can literally pick the winners and losers in every industry. This is the reason why the monopolization of the banking system is dangerous. Firstly, the banking system constitutes about 8% of the entire economic activity taking place in the United States. Secondly, the policies of the Federal Reserve are clearly evident. The Fed favors larger banks over smaller banks. Also, there are a wide variety of regulations in place for the banking industry. These regulations work in favor of the big banks who can afford the costs of compliance. However, these regulations wreak havoc on the business of smaller banks.

Health Care

The health care industry accounts for 18% of the American GDP. Also, healthcare is strategic given the fact that the rising costs of healthcare have been a major political issue in the past few elections. The government is trying to create an image that it is trying to lower the costs of healthcare. However, in reality, the government is the one who is responsible for increased prices in the first place.

According to Milton Friedman, who is a Nobel Prize-winning economist, governments have created unnecessary licensing laws that apply to the medical profession. This ends up artificially restricting the supply of medical professionals which drives their prices upwards. Also, the government has been accused of working in cahoots with big pharma many times. The current patent system which is in place seems like a way created by the government to reward its cronies and to ensure that that the growth of their competitors can be stalled.

Fuel and Energy

The interference of government has ensured that the energy market in the United States is not a free market. The market is controlled by monopolies at every stage. Firstly, there is an international monopoly called OPEC which controls the price of oil for the entire world. Then, the job of supplying energy has been provided to regional utility companies. These companies are often monopolies and hence have no interest in innovating or improving the service provided by them.

Also, the government picks one fuel source over the other. For instance, the government has now decided to pursue the development of electric vehicles. This means that other energy sources such as natural gas, methanol based fuels, and renewable energy sources are at a disadvantage. The government will provide a subsidy to electric vehicles making it finically unviable for other fuel sources to compete. Also, through the licensing system, the government will ensure that it handpicks its cronies who will win in these markets.

Housing Sector

The American housing sector reeks of government interference and price manipulation. Firstly, the government has created a monopoly in the secondary mortgage market. Freddie Mac and Fannie Mae literally control the outflow of funds to the markets. Also, the housing markets in the United States are controlled by tightly regulated zoning laws. These zoning laws decide the way in which the land can be used and hence decide its commercial value. It is no secret that the cronies favored by local politicians get the better of genuine businesses thanks to the sudden changes in the zoning laws. The cronies donít buy the right parcel of land. They buy any piece of land and then make it right using the governmentís fiat power.


The education industry is also tightly controlled by the government. This is because even though private schools do exist, they are prohibitively expensive. Once again, they are expensive due to their scarcity. These schools are scarce because of the accreditation system. Every school which has started operations must be graded by the government.

Also, there are many public universities which function in an inefficient manner thanks to taxpayer grants from local, state and federal government. These institutes do not have any reason to become more efficient. Their survival is not threatened by their inefficient operations. This makes other private universities expensive as well. This is because teachers and staff working in private jobs also start demanding the same benefits as those engaged in government jobs.

To sum it up, the modern day economic system should not be called capitalism. Instead, it is a system wherein the government controls almost all the industries by creating oligopolies in each one of them.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.

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