Once again, after two decades of silence, the Federal Trade Commission (FTC) is cracking down on Microsoft. For what? Microsoft is accused of monopolistic tendencies in their recent bid to acquire the company Activision Blizzard.

What is ironic about the FTC’s move is that Microsoft’s acquiring Activision will not even give Microsoft a majority market share in the industry. As of 2020, Microsoft’s share in the gaming market was 6.5 percent. Acquiring Activision Blizzard would then put Microsoft at 10.7 percent. This is a far cry away from a majority share in the market, let alone a total monopoly of 100 percent.

The definition of monopoly power is too broad. Any element of a good which sets it apart from another is said to give monopoly power. Consequently, every market participant is a “monopolist” to some extent. This is not a useful definition for the term.

What does the FTC mean when they use the term? In their own words: “[The] maker of Xbox [Microsoft] would gain control of top video game franchises, enabling it to harm competition in high-performance gaming consoles and subscription services by denying or degrading rivals’ access to its popular content.”

The FTC goes on to accuse Microsoft explicitly of trying to gain monopolist status in “multiple markets.” However, Microsoft would hardly go above a 10 percent market share in the gaming industry, the market relevant to this debate. But if you read article titles such as “Microsoft to gobble up Activision in $69 billion metaverse bet” or “Netflix will be next on Microsoft’s shopping list,” you get the sense that Microsoft is a giant, greedy leviathan, selfishly and recklessly devouring up smaller companies in an effort to become the fattest man in the room. In short, the antitrust crusaders want you to think this deal would make Microsoft too big.

Of course, the FTC will block this deal while having ignored Microsoft’s acquisition of Bethesda in 2021. There are special interests at play, namely Sony, the producer of the PlayStation. The Activision property at stake here is the Call of Duty franchise, which, according to Sony court documents, has a competitor in Electronic Arts’ Battlefield franchise, which is not as popular.

In a free market, Sony might be encouraged to purchase EA’s Battlefield franchise or to enter into a closer relationship with EA in order to provide better alternatives to Call of Duty; however, Sony is opting to use the government to strongarm Microsoft into abandoning the acquisition or at least to make concessions. This cronyist begging by Sony can be dismissed entirely.

On the other hand, all this talk of bigness and monopolies obfuscates the benefit of Microsoft’s acquiring Activision. At its core, this deal aims to increase the welfare of consumers, not add to their detriments.

To elaborate on this, one must keep in mind the concept of consumer sovereignty. Whether an entrepreneur makes a profit or makes a loss is ultimately dependent on the preferences of consumers. Entrepreneurs are engaged in an everlasting struggle in trying to fulfill consumer desires better. Microsoft is no different.

Microsoft would not have initiated this acquisition if they did not foresee that it would increase profits. In a free market, an increase of profits is attributable solely to an increased fulfillment of consumer desires. Microsoft is attempting to take the assets of Activision and arbitrage them across time, increasing its monetary value by increasing the satisfaction of consumers.

If Microsoft is mistaken, losses will ensue. At that point, Microsoft may decide to take a different approach: perhaps they might be willing to sit at the bargaining table with Sony over the rights to some of Activision’s properties.

Microsoft is now being forced to make concessions in order to win regulatory approval. This will sour the acquisition deal and harm consumers in the end.

When it comes to monopoly, we should only really be concerned about privileges on part of the state. This is how Murray Rothbard understood it: “Monopoly is a grant of special privilege by the State, reserving a certain area of production to one particular individual or group. Entry into the field is prohibited to others and this prohibition is enforced by the gendarmes of the State.”

As long as there are no legal impediments to new competition, the market remains free and competitive. If Microsoft fails horribly, there are always preexisting and potential competitors ready to take advantage of the opportunity. Microsoft may have its fair share of legal monopolies in the form of patents, but efforts should be focused on trying to dismantle the various intellectual monopolies they have as well as those held by their competitors. Instead, public outcry has been aimed at preventing mergers, even though these are beneficial, not detrimental, to consumers.

Microsoft is gearing up to fight the FTC’s injunction. In a rare case, a large company is taking up the free market cause, albeit temporarily. We should wish them luck.

The late Douglas North was correct to assert that institutions are a determinant of long-term economic growth. However, despite his genius in perceiving connections between economics and other fields, North wrote little on culture. Although leading economists are now beginning to take culture seriously, there is still a strong perception that all people are basically the same.

Unlike the legendary David Landes, who fearlessly classified some cultures as detrimental to progress, most economists jettison value judgments by arguing that culture is either functional or maladaptive. For instance, in a preindustrial setting where people are primarily concentrated in rural communities, sharing resources helps to insure against risks. However, in a post-industrial context where individualistic and commercial values are paramount, sharing could be perceived as a burden or an impediment to entrepreneurship. Hence, cultures that were once useful can inhibit progress and essentially become negative.

Therefore, countries and individuals would be better off if they shelved some practices. Without cultural change, modernization is impossible, but out of fear of arousing the anger of politically correct mobs, most economists are unwilling to recommend cultural change. Telling people that their culture is an obstacle to progress could invite charges of racism, and being a racist is the worst sin one can commit in our present climate.

But cultural evolution is just a path on the road to modernity, as the sociologist Georg Oesterdiekhoff reminds us in several articles and books. Premodern Europeans believed in magic and animism, but the advent of the Enlightenment and better schooling made such beliefs obsolete. Rejecting long-held cultural beliefs is hard but necessary in order for lagging countries to attain higher levels of development.

Japan became the first non-Western country to modernize because its intellectual elites had the intelligence to recognize that local institutions were defective relative to their Western counterparts. Fukuzawa Yukichi, who was a leading intellectual and institution builder in nineteenth century Japan, never hesitated to inform his countrymen that unless Japan transitioned to an innovative and industrious country with modern laws like its Western competitors, it would remain an economic backwater.

Today, similar musings would earn intellectuals the ire of the academy. However, economists are doing poor countries a disservice when they discount the relevance of culture. Rich and poor countries attract multinational corporations, but poor countries rarely have the culture and human capital to sustain foreign direct investment. David Morawetz, in his controversial book Why the Emperor’s Clothes Are Not Made in Colombia: A Case Study in Latin America and East Asian Manufactured Garments, contends that punctuality, productivity, and management quality best explain the superiority of manufacturing in East Asian countries.

Even though poor countries still attract foreign capital without a culture of performance and the human capital to fuel productivity, they will not ascend to first world levels. A classic example of the paradox of high foreign direct investment and low growth is Jamaica. Getting investments is quite easy for Jamaica, but like many poor countries, it is plagued by low levels of human capital, weak governance, and people who are unable to produce at the highest level.

Although Jamaica is a relatively poor country, Chinese and other ethnic minorities there have done spectacularly well. Most Jamaican-Chinese are the descendants of the Hakka Chinese, who migrated to the country in the nineteenth century to work as indentured laborers. The Hakka Chinese are revered for their work ethic and entrepreneurial insights, so despite relocating to Jamaica as laborers, they have succeeded in building intergenerational wealth.

People with the right cultural traits will create economic opportunities in harsh environments. East Asians score quite high on tests of long-term orientation, and there can be no capital formation without long-term planning. Entrepreneurship itself is a risky process requiring patient work and years of planning, so automatically, groups that are long-term oriented will excel at entrepreneurship regardless of their circumstances.

Unlike the Chinese, native Jamaican culture embraces wanton materialism and conspicuous consumption. Columnist Ian Boyne laments the materialism of Jamaicans in a Gleaner column:

As a people we are not culturally attuned to sacrifice and the postponement of gratification the way people in the Far East are. That is why they are capital surplus peoples and we are among the most indebted in the world. . . . That is why our education minister, whose philosophical sophistication is eclipsed by no Jamaican politician, can so easily talk to inner-city people about spending on their children’s education rather than . . . dancehall fashion and rum. Go into some ramshackle dwelling in the ghetto and observe appliances and gadgets. In some of these homes you see flat-screen TVs, and they are not bought by drug money.

Essentially, Jamaican culture fosters intergenerational poverty, and instead of reforming local culture, politicians cultivate a welfare- rather than wealth-oriented culture by professing their love for the poor. Idealizing poverty, however, will only encourage the immiseration of the poor because entrepreneurs, progressive intellectuals, and innovators, not poor people, move countries forward. Poverty is the natural condition of mankind and is more akin to indignity than achievement.

Societies that struggle to evolve culturally will fail to modernize and sustain economic growth. Africa is experiencing some growth, but academics worry that its success will be hampered by conspicuous consumption. Even recent studies measuring patience show that Africans are the least patient people in the world.

It is therefore conclusive that poor countries need cultural reform and not just more money and empty platitudes about decolonization. By discounting the significance of culture, politically correct economists have only been preventing poor countries from becoming developed. The truth is that a country reflects its people, so if you put Jamaicans in Singapore, you would get an economic backwater, but if Singaporeans relocated to Jamaica, you would get Switzerland.

In recent years, we’ve seen the issue of changing US state borders come up repeatedly. For example, activists in some Colorado counties in 2013 proposed breaking off to form a new state. Since 2021, a similar idea has persisted in having Weld County, Colorado join the State of Wyoming. In 2016, California activists sought a vote on splitting the enormous state into 6 states. It failed to get enough signatures, but in 2018, a similar proposal for 3 new states did get enough signatures. A statewide vote was only avoided because the State Supreme Court panicked and pulled the measure form the ballot with little legal justification.

This year, voters in San Bernardino County in California approved a proposal to “study” secession as a first step in separation. Meanwhile, in Oregon, voters in 11 counties have voted to direct county officials to pursue “relocation of the state border.” In Illinois, activists in Madison County (near St. Louis) have led an effort in which voters in three counties have voted to “explore” secession from Illinois.

When activists propose changes to the current boundaries of US member states, a common reaction from supporters of the political status quo is to scoff. “Not gonna happen” is what they often say, and it’s assumed that such measures are both impractical and unnecessary. As usual, we’re told that “democracy” will somehow magically solve any conflicts that have been growing between the states’ metropolitan cores and their distant, outlying frontiers far from the seats of power.

The knee jerk opposition we so often encounter to such measures is rather odd given that the nation’s current state borders were drawn, in most cases, well over a century ago. In many cases state boundaries were drawn more than two centuries ago. During that time, changes in migration, demographics, and political institutions have re-drawn the political landscape in a myriad of ways. Nonetheless, state boundaries are often treated as if they were created by the hand of the Almighty, and that it would be an unspeakably radical move to simply allow modern state boundaries to reflect modern demographics and populations. 

This policy of clinging to the lines on a map drawn many decades ago is a recipe for political conflict and resentment.

State Boundaries Have Become Functionally Obsolete 

Functional obsolescence occurs when a something no longer serves the function for which it was originally designed. For example, a bridge can become functionally obsolete when it becomes too narrow or too weak to support the types of new vehicles most people now drive. A canal can become functionally obsolete when it is too narrow to allow passage for the types of ships preferred by merchants. Historically, houses could also fall prey to similar problems. For example, a home with asbestos, ancient wiring, or a coal furnace no longer is compatible with modern needs and realities.

Such is the case with many state boundaries as drawn decades or centuries ago. After all, we can see the arbitrary nature of state boundaries out west where many boundaries are simply straight lines drawn by committees. For example, when Colorado residents sought to form a separate territory—which would later become a state—the mapmakers more or less just drew a big trapezoid around the Denver area. Much of the boundary between California and Nevada is similarly arbitrary. And, of course, the state lines that are also international borders—such as the border between Arizona and Mexico—is simply the product of a treaty born out the US’s brutal war of conquest against the Mexicans.

These lines, however, endured without much controversy for decades because so much of the Western US was so sparsely populated for so long. Populations tended to be small, agricultural, and driven by similar economic interests. Moreover, small populations often tend to have less diversity, and when Colorado was added to the Union in 1876—for instance—it had fewer than 150,000 people. When Idaho became a state in 1890, it has fewer than 90,000 people. California, when it became a state, had fewer than 100,000 people spread over 163,000 square miles. 

These populations in the nineteenth century were also spread out more evenly within states. When the borders of most western states were drawn—when they were territories and not even yet states—only a handful of areas had population densities above 18 people per mile. Most areas had far fewer than that. After the twentieth century, began, however, inequalities in population density took off. Some counties reached densities well over 50 people per square mile while many other counties at this time continued to have agricultural populations with densities below 5 people per square mile. The divergence has only grown since then, and this has fueled political conflict as populations became less uniform.

The End of Territorial Representation and the Switch to Purely Majoritarian Politics

The problem this presented was often mitigated, however, by the fact that at least one house in many state legislatures were apportioned based on territory or factors other than population. Most states apportioned representatives based on population in their houses of representatives, but in the state senates, representation was often apportioned regionally. This was recognized as a means of providing an electoral counterbalance to highly populated urban areas within the state. 

Critics often framed this a matter of rural areas having “disproportionate political power.” That, of course, was the idea. The goal was to provide a means for populations outside the urban centers to veto especially objectionable legislation at the state capital. This could been seen in very large differences in the size of legislative districts. In Nevada, Idaho, and Utah, for example, some districts had populations that were more than 50 or 100 times the size of other districts. This meant some agricultural districts with only a few hundred people might enjoy their own state senator, equalizing their representation with a state senator from an urban district with 10 times as many people. This served an anti-majoritarian function similar to that seen in the US senate today. 

This system was swept away in 1964 by the Warren Court (in Reynolds v. Sims), however, when it ruled that all legislatures must be apportioned in line with a one-man-one-vote principal. This means all legislative districts within the states have to be roughly the same size in terms of population. This has turned the state senates into nothing other than smaller versions of each state’s house of representatives. (The US Senate’s two-per-state scheme survived only because the chamber’s make-up is so explicitly stated in the US constitution.) 

Since then, regional populations that may be economically or demographically unlike the major population centers have had few ways to be heard in state governments. This has accelerated conflict between state metros and the periphery in each state. 

What is the Answer? 

Unless state governments are willing to press the issue in federal courts of returning to representation based on factors other than population, the only reasonable solution is to redraw state boundaries to better reflect demographic and ideological realities. 

This is hardly a novel idea, given that the classical liberals of the nineteenth and early twentieth century recognized that it only makes sense to change political boundaries as populations changed. This idea can be seen in the work of Ludwig von Mises who recognized that if populations are to enjoy rights of “self-determination” they cannot be locked into any particular political association by immovable borders. For Mises, self-determination means populations ought to be able to vote for themselves as to which government they will live under. This could be done at the regional level or even down to the village level. These preferences will change over time as the realities of local economic and cultural conditions change. In his examination of Mises’s views of nationalism and migration, Joseph Salerno notes that Mises advocated for “the continual redrawing of state [by which Mises meant a national state] boundaries in accordance with the right of self-determination and the nationality principle.” In this scheme, Salerno concludes, “the borders of states would move with the migration of peoples and nations.” Activists seeking to re-draw state boundaries are far less radical than this. They’ not even seeking to change any national boundaries that might have repercussions to global trade or geopolitics. The size or shape of the United States as a political entity wouldn’t change. Yet, the opposition to the idea of changing these arbitrary lines is quite feverish, indeed.

It’s been more than 150 years since most state boundaries were drawn on the US map. That’s an eternity in political terms as can seen by consulting a map of Europe or Asia from 150 years ago. Since then, factors such as domestic migration, foreign immigration, urbanization, industrialization, and the rise of the federal welfare state have enormously changed population and settlement patterns across most states. The idea that today’s state lines drawn so long ago represent the “correct” borders should be regarded as absurd and obsolete.