Green Ink on the Mediocracy

Competition in the Media industry

In his excellent book A Capitalism for the People, The University of Chicago economist Luigi Zingales lays out the case for a pro-market not pro-business ideology. He argues that the Tea Party and the Occupy movement are protesting against two different heads of the same leviathan, because big government is always captured by big business. (Or big business always captures the government and enlarges it for its own benefit.)

“When a business gains excessive market power, so that it can increase prices indiscriminately, customers can seek protection through the political process. But when a business obtains both market and political power, escape becomes impossible. Under these circumstances the system starts to resemble a socialist economy instead of a free market. In a socialist economy, the political system controls business; in a crony capitalist system of this kind, business controls the political process. The difference is slim: either way, competition is absent and freedom shrinks.”

Luigi Zingales

Lobbying firms have their own special circle in Zingales’ hell. They deliberately complicate legislation to create loopholes and gain subsidies for their clients, and also for themselves. Zingales therefore proposes a tax on lobbying. As no doubt he would be the first to admit, with any tax comes tax evasion. How would companies evade a lobbying tax?

They would invest in the media. And of course they already do. One example of the evils of lobbying that Zingales’ provides is the so-called ‘Mickey Mouse Protection Act’ where Disney Corporation successfully lobbied for an extension in the life of copyright. As well as Mickey Mouse, Disney also owns ABC news, which is the only part of the group that is unprofitable.

Disney is a media corporation, so it has some excuse for owning a news channel. It is more difficult to understand in terms of economic efficiency why for example the French Aerospace company Dassault owns Le Figaro newspaper, or why Lagardère (also aerospace) owns Paris Match, or why GE owns NBC, or why Bain Capital owns most of the talk radio stations in the US. And of course like the lobbying industry, the media industry has its own special interests to look out for too, as in the Disney example.

Many of these media companies run at a loss. Or do they? Perhaps the losses are not really losses but considered to be lobbying fees. When professional lobbyists approach politicians, they know that crucial to their persuasion is to convince them that whatever they are advocating will receive public support. As a result, much lobbying work is directed towards getting favourable items into the media. How much more straightforward then simply to own the media.

It is hardly surprising that media owners play down the amount of influence they have, but now and again they let it slip. For example, while he was the proprietor, Irish press baron Tony O’Reilly spoke of “the value of The Independent [which has never made a profit] as our calling card”.

Zingales also refers to ‘Tullock’s Paradox’ wherein the amount of money spent on lobbying is shown to be surprisingly low, considering the potential benefits. Part of the answer may be the failure to include media expenditure in the equation.

But isn’t using the media in this way to make your case perfectly legitimate? After all, in the (mangled) words of Milton, we should not doubt the strength of truth to win out in the battle of ideas.

There are two main objections to this. The first is that for truth to win out, the battlefield must be level. Milton was protesting against a government proposal to license the use of a printing press, which at that time would have meant government control over the right to produce any copy other than writing out by hand. So for him, freedom of the press and freedom of expression were more or less the same thing. Nowadays, they are almost opposites. A whisper of truth will not prevail in a thunderstorm of lies.

The second is that the truth may never join the battle, since powerful media organisations can suppress as well as expose the truth. This is especially true when exposure would not be in the best interest of the established media industry as a whole, as in (to pick a random example) the social benefits of independent regulation of the media.

Suppression need not involve deceit or cover-up. It can also be a simple reluctance to give favourable coverage to a particular person or organisation. Perhaps here more than anywhere is where media influence is most potent. When seeking election, all a politician or political party has is its public profile and its record, and both of these are in the hands of the media. When elections are decided by only a few percentage points in a few marginals, upsetting a large media organisation is political suicide.

It is therefore unsurprising that politicians and media barons are so cosy, or that whenever any politician speaks out in support of media interests, they are instantly touted as a future prime minister. An editorial in the Financial Times in 2000 claimed “it was said of a former UK media baron, ‘Without his newspaper, he is just an ordinary millionaire. With it, he can knock on the door of 10 Downing street any day he pleases’”. Since then, we have plenty of proof that this is indeed the case.

As Zingales explains, the wealth creating force is competition, but only when the playing field is even:

“Competition does not work however when legal protection is weak. When shareholders are not well protected, competition favours the most crooked managers not the best ones. When investors are ignorant, competition favours the biggest swindlers , not the best money managers. When customers are poorly informed, competition induces firms to exploit this ignorance rather than to improve efficiency.”

Democratic politics also relies on competition, and the playing field is the media, and when voters are poorly informed, competition induces politicians to exploit this ignorance. In other words we elect populists who claim to represent the people but really serve some corporate interests, particularly the media. This is why we need an independent regulator, with all the checks and balances to prevent political meddling, but even more importantly, we need to reverse the process of consolidation in the media and set very low thresholds of permitted market share. If we don’t, then the regulator is sure to be captured even if it is initially independent.