Scarcity is a foundation of free-market capitalism, but it can be artificially rigged in favor of corporations to a great cost to consumers.
In a capitalist system, a business is judged to be successful if it is profitable. To maximize profits, producers often restrict production rather than ensure the maximum utilization of resources. The strategy of restricting production to increase profits is known as artificial scarcity. It uses the forces of the capitalist “free market.” By restricting supply, demand will support higher prices. To accomplish this, free market competition must be suppressed.
This is accomplished in various ways. For example, intellectual property protection through patents and copyrights creates artificial scarcity, allowing the inventor to maximize profits by limiting competition and/or profiting from licensing agreements.
Drug companies are among the most flagrant abusers of artificial scarcity. We have all read about the obscene profiteering of the drug industry. Here is a real-world example: We have a friend who suffers from a debilitating lung condition. The drug she has been using is causing terrible side effects. She recently learned about a new drug that is more effective, with less severe side effects. But there is a catch: A one-month supply costs twenty-nine thousand dollars! Why would that be? The obvious answer: It is still under patent, and the drug company has decided to limit production to maintain a high price. Of course, the wealthy patients will pay and survive. This reflects a healthcare inequality whereby insurance companies refuse to pay such outrageous prices, so poor and even middle-class patients are doomed.
The obvious question in a case like this is: How much profit is reasonable, and who decides? Capitalists would not hesitate: The drug company owns the product, so they alone will decide. If patients die because they cannot pay for the drug, that’s not their problem. In many cases, the development of drugs is subsidized by governments, and yet drug companies are free to charge whatever they like for their products.
Oil companies are guilty of creating artificial scarcity too. Current high gas prices are not the government’s fault. The oil companies deliberately reduced production to drive up prices, increasing their profits. If normal market forces controlled consumers’ decisions in buying cars, the high prices for gasoline and diesel would cause demand for electric vehicles to skyrocket. That would be a good thing for the environment. But the Right-Wing MAGA folks prefer to blame President Biden for high gas prices…and continue to drive their gas-guzzling monster pickups and SUV’s.
And then they blame Biden for when the prices go down…
And finally, consider the electric power producers. In many areas, they operate as a monopoly, being the only provider available. In this case, the artificial scarcity is simply the lack of competition allowing a provider to charge whatever they like. Electricity is an essential service, so the customers are helpless. They have to pay whatever the power company demands.
Government regulation should protect people in such situations, but the regulators are appointed by politicians who are recipients of lavish “campaign contributions” (i.e., bribery) from those huge corporations. The result is that regulatory authorities are often biased in favor of those they are supposed to be regulating. If there were many possible suppliers, the market would determine the price of electricity, but that is not feasible with a single company owning the distribution network…the power poles, transmission lines, etc.
For homeowners, there is a solution. Residential solar panels have the capability to provide sufficient power for a home. At present, they are too expensive for many people, and going completely “off-the-grid” requires a large energy storage capability…also very expensive. The vast majority of solar panel owners are connected to the grid, and even though their bills are reduced by their solar input, they are still subject to a number of fees, including special fees imposed because they have a solar panel. Even so, the power companies see this looming threat, and are lobbying the government to reduce incentives that encourage solar panel installations.
They claim to be supportive of clean renewable energy, but they want to provide it on their terms, owned and operated by them, so they can continue the government-sanctioned fleecing of their customers.
Scarcity is a founding principle of capitalism. The basis of capitalist economics is the idea that there isn’t enough to go around, that somebody is going to have to go without. Here are some common capitalist tropes:
“If we raise the minimum wage, unemployment will increase.”
“If we spend money on social programs, our grandchildren will pay for it.”
“If we don’t decrease benefits, Social Security will become bankrupt.”
In today’s world of multimillionaires and mega-billionaires, there is an obvious alternative that capitalists absolutely reject: Raising taxes on the rich, and cutting corporate subsidies to invest in social welfare, good jobs, and education for the lower economic classes. Whenever such solutions are proposed, they are met with screams of SOCIALISM! That’s a dirty word to capitalists. They prefer their version of capitalism, which isn’t really capitalism at all. It’s crony capitalism.
Perhaps we need more Katie Porters in the Senate:
Bert Bigelow graduated from the University of Michigan College of Engineering, then pursued a career in electronic systems and software design. He has always enjoyed writing, and since retirement, has produced short essays on many subjects. His main interests are in the areas of politics and religion, and the intersection of the two. You can contact him at firstname.lastname@example.org.