It is becoming clear that there are some serious underlying problems with how we do business which are holding back and holding down average Americans. Problems we don't talk about on a day-to-day basis but which nonetheless affect our livelihoods and family fortunes.
There is abundant evidence of anti-competitive monopoly in many sectors of the American economy, with revenues and especially profits are being concentrated in the hands of a few companies.
The information technology sector is an obvious one but airlines, agriculture, manufacturing, retail trade and the financial sector are also showing the effects of monopolistic economic concentration.
Raise this point and big companies and their political supporters reply that this just reflects the fact that these companies are more competitive, deliver higher profits and deserve their huge chunks of the economic pie. Pure free enterprise- survival of the fittest in action. When their share of revenues and especially profits becomes unusually large however, it tends to indicate something more insidious is going on, as noted by the Harvard Business Review:
Mounting evidence, however, strongly suggests that harmful forces are also at play. “Concentration could arise from anticompetitive forces,” Autor and his colleagues note, “whereby dominant firms are increasingly able to prevent actual and potential rivals from entering and expanding.” Indeed, research shows that incumbent firms in a wide range of industries — airlines, beer, pharmaceuticals, hospitals — are wielding market power in ways that prevent rivals from emerging and thriving. The winners are winning bigger, while the number of new start-ups is falling. With waning competitive pressure, productivity growth slows, wages stagnate, and the gap between winners and losers widens.The symptoms of monopoly dominance are clear: Higher than average profits, generated by higher than average markups (resulting in higher than average prices); lack of business investment in the sector (no need when you are a monopoly) and a lack of business dynamism and innovation since new entrants can't get a toehold in the market.
It used to be accepted in America that monopolies had to be regulated and in many cases cut down to size to allow the American economy to grow and to ensure a fair deal for all Americans. This has changed over the past 50 years as Federal anti-trust regulators went soft on the companies they were regulating. As Jonathan Tepper noted recently:
Antitrust authorities once fought against monopolies, but for the past four decades they have given a green light to merger after merger. The guardians who were meant to protect competition have become the principal cheerleaders of monopolies.
The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have become revolving doors for highly paid economists and lawyers whose only goal is to look after their corporate clients rather than voters, consumers, workers, suppliers, and competition.
Americans have the illusion of choice, but in industry after industry, a handful of companies control entire markets. Two companies control 90 percent of the beer industry. Over 75 percent of households face local monopolies in high speed internet. Four airlines dominate airline traffic, often enjoying local monopolies in their regional hubs. Non-existent antitrust enforcement has made them all possible.
The boom in corporate mergers over the past 40 years surpasses the original merger mania under robber barons like John D. Rockefeller and J.P. Morgan. We are now living in a new Gilded Age.He traces this development back to a change in economic thinking in the 1960's:
Vigilant enforcement of these anti-monopoly laws and traditions once garnered bipartisan support. But beginning in the 1960s, economists most closely affiliated with the University of Chicago—chief among them Robert Bork—began to articulate an alternative theory of antitrust enforcement. Rather than addressing structural concerns of market power, Bork and others argued that the “only legitimate goal of antitrust is the maximization of consumer welfare” which ought be measured solely on the basis of price. Lower prices meant a better consumer experience, so Bork claimed that mergers should be encouraged (rather than discouraged) since large businesses could exploit economies of scale, increase efficiency, and deliver cheaper goods to market. The Chicago School’s theory of enforcement slowly trickled into the courts and was subsequently codified by the Federal Trade Commission in its 1982 merger guidelines.The effects of monopolistic market concentration have been most seriously felt in the agriculture industry with rural depopulation and the destruction of small towns being directly attributed to the overwhelming dominance of a few agricultural businesses. Don't expect change anytime soon; there is no stronger lobby in Congress.
Nobel Laureate Joseph Stiglitz has also recently sounded the alarm:
Multiple forces are driving the increase in market power. One is the growth of sectors with large network effects, where a single firm – like Google or Facebook – can easily dominate. Another is the prevailing attitude among business leaders, who have come to assume that market power is the only way to ensure durable profits. As the venture capitalist Peter Thiel famously put it, “competition is for losers.”
Some US business leaders have shown real ingenuity in creating market barriers to prevent any kind of meaningful competition, aided by lax enforcement of existing competition laws and the failure to update those laws for the twenty-first-century economy. As a result, the share of new firms in the US is declining.If we want to preserve free enterprise as the foundation of America's economy, we need to recognize that anti-competitive practices are a real threat. Monopolistic oligarchies are concentrating economic power in the hands of a few using laws and regulations bought from pliant politicians. They are holding Americans back by preventing entrepreneurs from competing fairly with them, by stifling new businesses and by preventing the creation new jobs. They are corroding our political culture.
The Alliance Party has sketched the way out:
We believe in the American Dream: a level playing field for all, no matter a person’s birth circumstances, to pursue life, liberty, and happiness to the fullest. We believe, in short, in ordered liberty and equal opportunity.
-- Mike Power
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