Is the Regulated Monopoly Model Really So "Progressive"?

Under a Matt Yglesias column calling for the deregulation of casket-making, one commenter -- Mark. R -- argued that free entry and price competition were overrated:

This is waaaaay too simplistic. Easy example: go back in history and think about The Jungle and what the spate of food safety laws eminating from that did to “Mom and Pop” meat production and competition in general in that industry. Killed it b/c the large cartels were best structured to conform and comply with new food safety regulations. Obviously the cartels consciously used this legislation and the legislative process to help kill the competition. Yet this was all for the public benefit.

Sometimes a well-regulated industry with minimal competition is the best outcome. Think of “natural monopolies” — e.g. public utilities — from micro 101.

I attempted to post a response, but Matt's stupid comment system -- once again -- ate my comment. So here it is:

You could make a case (although I wouldn't agree with it) that regulated monopolies are a necessary evil in terms of their external effects. That is, in regard to minimal safety standards for some goods and services.

But in terms of their internal culture, they are clearly evils. The regulated monopoly model is a very poor approach to cost control, because of all the assumptions regarding institutional culture that are taken for granted by both the regulatory agencies and regulated firms. I strongly recommend Paul Goodman's contrast (in People or Personnel) between ad hoc, bottom-up, self-managed organizations and the hegemonic norm of the giant corporation or government agency. The latter has prestige salaries, Weberian work rules, management featherbedding, mission statements, and everything else that's pathological about pointy-haired bossdom. The regulated monopoly is likely to have a high-overhead, cost-plus culture very much like the Pentagon contractors, which gave us the $600 toilet seat. And by its very nature, as Seymour Melman pointed out in his analysis of the military-industrial complex, cost-plus pricing systems like those that prevail in "regulated monopolies" create very perverse incentives for cost maximization. You wind up with internal organizational cultures like something out of "Brazil." The regulators who set the prices for the "regulated" monopoly are unlikely to squeeze out such bureaucratic overhead and management self-dealing, because regulators and regulated are both middle-aged white men who went to the same schools, share the same general institutional culture, wear suits and carry briefcases to work, etc. So most of the stuff that inflates overhead and causes stuff to cost 300% more than necessary is stuff that they accept as normal and it never occurred to them to question.

Mark R.'s position is a classic example of mainstream liberalism's Schumpeterian approach, which I described in "Thermidor of the Progressives": Only the large, bureaucratic, hierarchical and managerialist organization can afford to be "progressive," because only it possesses the market power to price above marginal cost and thereby pass the costs of its "progressive" culture along to the consumer. So you have the ideal of postwar Consensus Capitalism, where it's OK that GM owns the entire economy so long as Michael Moore's dad has a good union job, and it's OK that the "professional" gatekeepers at the Big Three control everything you watch so long as they're constrained by a Fairness Doctrine.

What it amounts to is that the state imposes artificial scarcity rents and artificial capital and overhead costs on the performance of every imaginable function, and it takes several times as many labor hours to produce our standard of living than is technically necessary; but everybody has 40 hr/week jobs with good benefits (even though most of their work hours are the equivalent of digging holes and filling them back in, or extra steps in a Rube Goldberg machine).