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What you’re describing is what Paul Goodman called “the great realm of cost-plus.”

The main function of government regulation is to impose artificial capital outlay requirements and artificial levels of overhead on production, in order to protect the giant, capital-intensive, high-overhead operators from competition.

It’s obvious why they would be running scared. When the desktop revolution reduces the capital outlays for designing software, editing and distributing music, desktop publishing, etc., by two orders of magnitude, and homebrew CNC machine tools can produce factory goods with a similar cost reduction, the old dinosaurs certainly need something to rig the game if they’re to survive.

The lower the capital outlays required for production, the lower the investment to amortize, the lower the overhead, the lower the revenue stream that’s required to service that overhead. That makes it more feasible for someone in the wage system to establish a microenterprise incrementally, with virtually no risk, because they can weather periods of no income stream without going in the hole. And when the money’s coming in, it’s free and clear. That means the boundary between being “in business” and “out of business” becomes pretty much meaningless.

No overhead on expensive machinery means lean, small batch production geared to orders. No pressure to fully utilize capacity to amortize costs, and hence push marketing to make people buy crap they don’t want.

So the Marxist argument that markets inevitably lead to capitalism–because the “winners” eat up the “losers”–goes right out the window. When there’s no real cost to riding out periods of slow business, and the basic tools of production can be afforded by anyone, the whole idea of “winners” and “losers” is meaningless.

So much of what we consume can be most effectively produced by microenterprises in the informal-household sector, using spare capacity of ordinary household capital goods we already own (e.g. microbakery using ordinary kitchen oven, unlicenses cab using family car and cell phone, etc.). So how do the big operators fix the problem? Zoning laws, which require you to rent stand-alone commercial real estate rather than working out of your home. “Safety” and “health” codes that require you to buy an industrial-size oven and diswasher. So instead of zero capital outlay, you’ve got regular monthly expenses of thousands of dollars that can only be serviced by large batch production. Either get big, or get out. And the big “professional” bakery breathes a sigh of relief.

Your point about the utilities having no incentive to cut costs with a guaranteed return gets back to Goodman’s “realm of cost-plus” thing. That’s the same accounting system used by Pentagon contractors, with its incentive for cost-maximization, that gave us the $600 toilet seat. But it’s just a more extreme version of the standard Sloanist management accounting system that treats labor as the only direct-variable cost, and doesn’t regard capital expenditures or administrative costs as real “cost” because they can just be sold to inventory via “overhead absorption.” I see it in person every time I go to work in the hospital, where management obsessively shaves off every spare minute of nursing labor and then pours millions down the rathole of white elephant capital projects and has an administrative culture straight out of “Brazil”–hence, the infamous $10 aspirin and $300 bag of saline. Like the old Soviet economy, the American corporate economy equates the consumption of inputs to the creation of value–and if every input consumed is added to the “value” of a good “sold” to inventory, why not? If they get a guaranteed markup on every expenditure of inputs, why not?

Incidentally, I find that a great deal of “progressivism” reinforces this tendency, because 20th century liberalism is at its core a very Schumpeterian ideology. Schumpeter argued that only the large bureaucratic organization could afford to be “progressive” or innovative, because it had the market power to administer prices and charge above marginal cost and thereby amortize R&D costs. Similarly, mainstream liberalism sees the ideal economy as one of giant “progressive” corporations like the GM that employed Michael Moore’s dad in the Golden Age of postwar consensus capitalism: a handful of oligopoly corporations guaranteed profits and stable markets, in return for providing guaranteed lifetime employment and good benefits. It probably has something to do with the origin of liberalism in the Progressive Era, as the ideology of the professional and managerial classes that ran the new giant corporations and government agencies. You see the same general cultural tendencies in the work of people ranging from Thomas Frank to Andrew Keen and Mark Lilla, with an instinctive affinity for Weberian/Taylorist work rules and an equally instinctive aversion to everything decentralized and self-managed.

You might be interested in this article by Monbiot from several years back: http://www.guardian.co.uk/world/2002/mar/12/globalisation.comment

Agreed, patents are broken.