Too Big to Succeed
The Pitch: Economic Update for Thursday, November 24th, 2022
The grocery list for your Thanksgiving Day meal was probably more expensive this year than it was last year, or the year before. We’re all wrestling with inflationary higher prices, and grocery bills in particular have skyrocketed. Economists and pundits might try to diminish the effects of inflationary pressures on ordinary Americans or dismiss it as a temporary inconvenience, but wallets don’t lie — you know when you’re feeling pinched.
Corporate greed has played a significant part in those higher prices, and they could go still higher for millions of households in communities with grocery stores that are part of the Krogers and Albertsons chains. Last week’s episode of our podcast, Pitchfork Economics, featured an interview with Institute for Local Self-Reliance Co-Executive Director Stacy Mitchell about the proposed Kroger-Albertsons merger, which could combine two of the biggest grocery chains in the United States into the nation’s second-biggest mega-grocer after Walmart.
Mitchell compared the Kroger-Albertsons merger to another American grocery merger she encountered in her historical research — one that I’d never heard of before.
“In the mid 1960s, there was a significant antitrust case that went all the way to the Supreme Court in which the antitrust agencies blocked a grocery merger that would’ve given one company a 7% market share in one metro area,” Mitchell said, “and they won.”
Think about that: Not so very long ago, it was unthinkable that one grocery chain should be allowed to control seven percent of a single city’s market share. At the time, Los Angeles’s population was just under eight million people, and now our grocery mergers have escalated so much that the Albertsons-Kroger merger, if it passes, would drive up grocery prices and close stores for 85 million American households — particularly in California, Virginia, my home of western Washington, and other places where Kroger and Albertsons are the dominant competing chains. (It’s also amazing to think that the grocery chain that was blocked from buying its competitors in 1966, Von’s, has long since been swallowed up by Albertsons, which is itself merging with another larger chain.)
These kinds of dramatic changes don’t just happen overnight. So what happened? Relaxing the rules on corporate mergers was one policy issue in a larger push to instantiate trickle-down economics as our dominant understanding of how the economy works.
Like most movements, trickle-down started small and likely seemed ridiculous to anyone who bothered to pay attention. But then in 1982, President Ronald Reagan directed his Department of Justice to rewrite the nation’s merger guidelines, which are the policy statement that lays out the conditions under which government agencies act to challenge mergers.
The new merger guidelines were incredibly lax, even to the point of supporting corporate mergers and acquisitions. Merger after merger has been approved without a second glance, establishing the pond full of big fish that America is today, where regulators don’t even blink before rubber-stamping Facebook’s purchase of Instagram, or Disney snatching up 20th Century Fox.
1982 has proven to be one of the most significant years in American economics, triggering 40 years of corporate consolidation of power and codifying trickle-down as the dominant American economic system. And it was also the year that the Reagan Administration made stock buybacks legal, thereby allowing corporations to take profits that used to be devoted to worker pay and customer improvements and turn them into massive giveaways for the elite shareholder class. (This merger between Albertsons and Kroger also involves stock buybacks — a $4 billion dollar buyback that would weaken Albertsons to the point of bankruptcy, thereby making the merger a necessary condition for the chain’s financial survival. Thankfully, Washington’s Attorney General Bob Ferguson temporarily blocked the suicidal buyback from taking place earlier this month.)
These last 40 years have seen big fish in the corporate world getting swallowed up by even bigger fish in a pattern of gorging that has left virtually no facet of American life — from banking to health care to technology to food to entertainment — untouched. To those born in the early 1980s, these mergers and acquisitions must seem as natural as gravity: Businesses buy each other and get bigger and bigger, reducing competition and cutting jobs and siphoning money and resources out of communities. It’s just what corporations do.
And that’s exactly what happened. The whole time that businesses were getting bigger, Americans were getting screwed. These consolidations resulted in huge paydays for CEOs and the shareholder class, but American paychecks stayed stagnant, and $50 trillion that used to go to wages is now in the hands of the wealthiest 1 percent of the population. Supply chains stretched across the globe in search of ever-lower wages as trade laws loosened, becoming increasingly vulnerable to the disruptions that sparked the global inflation crisis.
After 40 years of unchecked greed, the age of mergers seems to have finally stalled out. First, the Biden Administration successfully blocked the $2.2 billion merger of two of the biggest publishers in the world, Penguin Random House and Simon & Schuster. (It’s incredible that one of the publishers trying to merge this year has a name that is still freshly frankensteined together from their most recent merger of a few years before.) Just this week, we learned that this publishing merger finally collapsed for good, with Simon & Schuster backing out completely.
Change is finally in the air. Attorneys general around the country are fighting to stop Kroger from merging with Albertsons, and Senators Klobuchar and Lee have reached across the aisle to make a bipartisan commitment to “hold a hearing focused on this proposed merger and the consequences consumers may face if this deal moves forward.” After 40 years of inaction on monopolies, it’s incredibly heartening to see these proposed mergers go down in flames. We now have the opportunity to create an environment like the one that existed before 1982, in which we would be surprised to see a giant merger successfully pass through the approval process, rather than just shrug it off as business as usual.
Mitchell said on Pitchfork Economics that the antitrust division of the Department of Justice is set to release a draft of their new proposed merger guidelines in the next few months. “It really is pretty momentous,” she explained, “because this policy statement will change not only how the agencies look at mergers, but it will also influence the courts and it will help judges develop a better understanding of the implications of mergers and how merger law as written by Congress ought to be interpreted.”
Once the Biden Administration’s draft proposal for merger guidelines is released, I’ll let you know here in The Pitch. When that happens, it will be time for public comment, and we’ll all have to make our voices heard — to speak out against these companies that have grown so big that they’re beyond all human scale. It will be a challenging time. These companies have tremendous power and unlimited resources, and they will be working hard to fight any changes that make it harder to form monopolies and monopsonies. (A monopsony is a monopoly in buying power, like when farmers have only one megacorporation to sell their produce to, thereby allowing the buyer to set the prices.)
But this is why it’s important to remember that policy is a choice. Remember — the corporate concentration of power we’ve seen in most of our lifetimes is the result of the hard work of a small group of people. And what one group of people can do, another group of people can undo.
Even in the darkest times, I always lean toward optimism. But even my most pessimistic friends tend to agree that this moment feels different. After decades of inaction, our leaders are listening to people and standing up against power that has gone unchecked for far too long. We’re on the edge of generational change in the fight against monopolies and corporate mergers, and the trickle-downers are on the run. A lot of smart people agree. It’s an exciting time, and I’m thankful to be taking part in it with you.
Happy Thanksgiving,
Zach
