“Oligopolies and the Anti-Systemic Ratio. The Importance of Social Progress”
Summary
The article analyzes the risks created by extremely large companies and investment funds that become “systemic” entities, meaning that their failure could seriously damage the economy of a country or the global financial system. The author argues that social progress, such as democracy and modern financial markets, has transformed humanity but has also created new challenges that require better regulatory tools.
The article begins by describing two major social innovations: democracy and the creation of modern capital markets. The ability of ordinary citizens to invest in companies through shares, especially after the Dutch East India Company issued shares in 1602, changed the economic world by creating stock exchanges, financial intermediaries, and new forms of investment. However, these developments also contributed to speculation, financial crises, and the rise of monopolies and dominant corporations.
A central issue discussed is the existence of companies that are “too big to fail.” The author focuses on large financial institutions and investment funds that manage enormous amounts of assets. He questions whether a private company should be allowed to become so large that poor management could threaten the stability of an entire economy. Although governments often rescue systemic companies to prevent economic collapse, the author argues that the real problem is allowing these companies to become excessively powerful in the first place.
The article classifies systemic companies into three groups.
The first group consists of natural monopolies, where one company is more efficient because infrastructure costs are extremely high. Examples include water networks, electricity systems, gas pipelines, and railways. In these cases, competition may not be practical, but strong management and oversight are necessary to prevent abuse.
The second group includes artificial monopolies, which are created through government support, subsidies, or political decisions. The author argues that these companies distort competition because their success is not purely the result of market forces. He gives the example of strategic technology companies whose dominance can create international tensions. ASML, a company essential to advanced semiconductor production, is presented as an example of how a technological monopoly can become a geopolitical problem.
The third group is accidental monopolies, which arise without direct government assistance. These can result from technological advantages, legal gaps, or aggressive business strategies. The article mentions Standard Oil, which controlled much of the American oil market in the late nineteenth and early twentieth centuries, and Microsoft, which maintained a dominant position in internet browsers because of its control over the Windows operating system.
Both cases eventually led to government intervention through competition laws. The author criticizes the idea that monopolies will always disappear naturally through competition. Even if some dominant companies eventually lose power, they can still harm markets while they exist. Therefore, regulation must evolve together with technological and economic changes. The article argues that society needs preventive measures instead of waiting until problems become impossible to solve.
The main proposal is the creation of the anti-systemic ratio, or Gómez ratio. This idea suggests that companies should be required to increase their capital reserves as their market share grows. The larger and more dominant a company becomes, the stronger its financial foundation should be. This would prevent companies from expanding too much while relying excessively on debt or weak capitalization.
According to the author, this rule would make extreme growth less attractive because companies would need to retain more profits as capital. At a certain point, it could become more beneficial for shareholders to divide a large company into smaller specialized or regional entities. The article compares this approach with historical examples such as the breakup of Standard Oil and AT&T, which increased competition after being divided into separate companies.
The article also argues that monetary policy can contribute to the creation of oversized corporations. Excessive liquidity and money creation may encourage the growth of large financial and industrial groups. To address this, the author proposes another tool called the “Interest Pattern,” which aims to maintain a balance between savings and investment.
Finally, the author focuses on investment funds, arguing that current regulations are not enough because funds can manage enormous amounts of money without being subject to the same restrictions as banks or industrial companies. He proposes applying anti-systemic principles to investment funds by introducing objective limits on size and requiring greater transparency.
In conclusion, the article argues that preventing excessive concentration of economic power is better than rescuing giant companies after they become dangerous. The anti-systemic ratio is presented as a new regulatory tool designed to protect competition, financial stability, and the long-term health of the market.
"The author, Prof. Pedro Gómez Martín-Romo, is a member of the Participatory Democracy community and a Professor at the Technical University of Valencia" Link: https://afe.webs.upv.es/
Link to the full article (in pdf): https://democraciaparticipativa.net/images/2026/Oligopolies%20and%20the%20Anti-Systemic%20Ratio.pdf
Enlace al articulo en Español:
Comments powered by CComment