Want to revive Middle America? Bring back antitrust.

Consolidation is hurting workers and choking the economy

Photo by Aaron Burden on Unsplash

Even though the media talks about an economic recovery and record gains in the stock market, its presenters often fail to recognize that the prosperity generated in the aftermath of the Great Recession has not been evenly shared. Most people in Middle America — and even many of those working service jobs while living in the suburbs of major coastal cities — have not benefited from a recovery in which the largest corporations and wealthiest individuals have captured nearly all of the gains.

The negative repercussions of the divide between the rich and the rest is already being felt throughout American society, as evidenced by the election of Donald Trump to the presidency and the growing number of demonstrations happening across the country. If the United States wants to remain a functioning, democratic country, it needs to remedy the pain of those who have been left behind by neoliberal capitalism and ensure that they share in the prosperity of the richest country in the world.

Trump has unequivocally failed to help the downwardly mobile people he claimed to represent during his campaign; his policies will further exacerbate the record levels of income and wealth inequality gripping American society, but that does not mean those challenges cannot be overcome. The consolidation that has occurred across all economic sectors since the 1970s has funneled the gains to those at the top, and one of the best ways to reverse that trend is to return to an understanding of antitrust that doesn’t simply treat lower consumer prices as one of the ultimate goals of the economy.

The consolidation of the economy

The tech giants are often presented as the prime example of why antitrust is needed in the twenty-first century, and for good reason: they have quickly become some of the largest and most powerful companies in the world — Apple, Alphabet, Microsoft, and Amazon are among the top five publicly traded companies — which they achieved through buying up their competitors and using their size to capture additional product and service categories. And while their place in this discussion should not be downplayed, it’s also important to recognize that consolidation — more specifically, the control of particular industries by a small number of very large companies — is a widespread problem not contained to the tech sector.

Across American society, a small number of large companies have come to dominate their respective sectors of the economy. Cable companies carve up the country into regional monopolies, making it difficult to switch to a competitor if prices are too high or service quality is terrible; airlines merge and buy up their competitors, leading to higher prices and fewer direct routes as they moved from a point-to-point to a hub-and-spoke model; and media companies — be they in news, television, publishing, video games, or film — use their power to increase copyright terms and control the narrative of acceptable discourse to limit the ability of citizens to challenge their power. This is not only bad for democracy and for economic empowerment of average people — it’s also hurting the economy.

3/4 of economic sectors have become more concentrated and 10% of the economy is considered highly concentrated

Over the past twenty years, three-quarters of economic sectors have become more concentrated and ten percent of the economy is considered highly concentrated — which means that nearly all the revenue in those sectors goes to just a few companies. The more the economy is concentrated in the hands of massive corporations, the more power they have to lobby governments and push for policies that help themselves instead of small- and medium-sized businesses, which are more likely to benefit local communities. It’s for this reason that some of the largest companies in the world — Amazon, Apple, Foxconn, and more — are getting billions of dollars in public subsidies to set up warehouses and call centres across the United States; and why local governments across North America were recently throwing money at Amazon in what was essentially an attempt to buy its second headquarters.

And, far from giving back, those same megacorporations that lobby for billions of taxpayer dollars to subsidize their operations also push for lower tax rates and stash money in offshore tax havens to avoid paying any tax at all. The Institute on Taxation and Economic Policy estimates that US multinational companies are holding a record $2.6 trillion in tax havens, which means $767 billion in lost revenue for the government — at least before the Trump tax cuts, which, it must be said, have benefited shareholders far more than workers.

US multinationals have $2.6 trillion in tax havens, which means $767 in lost revenue for the government

Amazon is a particularly obscene example of this trend. The company is one of the biggest recipients of tax incentives and subsidies — more than $1.1 billion since 2000 — and that’s without considering its many government contracts and the additional benefits it will inevitably receive when it finally chooses the location of its HQ2. However, even though the company made a $5.6-billion profit in 2017 and is on track to become the first trillion-dollar company at some point in 2018 — surpassing Apple — it didn’t pay a penny of federal income tax in 2017, showing how the tax regime has become shockingly favorable to the largest companies and wealthiest individuals after decades of tax cuts and loopholes designed for their exclusive use.

While many sectors of the economy have consolidated, Amazon demonstrates why the conversation around monopoly power and antitrust renewal has focused so much on tech companies: they have an almost unique ability to use the digital nature of their business models to take advantage of economies of scale and easily expand on a global scale. Compared to traditional industries, tech companies employ far fewer people and earn far more per employee — Facebook made $600,000 per employee in 2016 — and as companies have consolidated and used automation to reduce their workforces, average people have not seen the promised benefits.

People left behind in a monopolized economy

The stock market shows how much corporations and the wealthy have benefited from the recovery, namely from the Fed’s quantitative easing policy of pumping money into the stock market and the coffers of massive corporations instead of putting it into the pockets of average people. It’s just another version of the trickle-down policies that have been failing — at least from the perspective of workers — for decades, but which politicians continue to champion because they benefit wealthy campaign donors.

75–80% of mergers approved by regulators led to price increases

The argument in favor of consolidation and against the enforcement of antitrust was that larger companies could deliver lower prices to consumers, and not only has that not occurred — antitrust expert John Kwoka estimates 75 to 80 percent of mergers approved by regulators led to price increases — but the additional power accrued to corporations has allowed them to capture a great share of national income. As unions were decimated, corporations were able to use their dominance to counter worker demands for better benefits and higher wages. University of Chicago economist Simcha Barkai estimates that workers would be making an average of $14,000 more if this concentration had not occurred.

But concentration has affected workers and the economy in more structural ways. The number of new businesses has halved since 1978 and, between 2010 and 2014, 60 percent of counties saw more business close than open in a time when the economy was supposed to be in recovery. Businesses also moved to larger centers: 71 percent of net new businesses came from counties with fewer than 500,000 people during the recovery in the 1990s, while only 19 percent came from counties of that size from 2010 to 2014.

Counties with fewer than 500,000 people created 71% of new business during the 1990s recovery, but only 19% from 2010 to 2014

This reflects the larger shifts occurring in the US economy as monopolistic corporations have captured a greater share of economy activity. Large cities, particularly those on the coasts, have seen significantly more job and income growth than smaller metro areas, many of which continue to stagnate because massive corporations are not interested in them and fewer new businesses are being created that may have employed people in smaller cities during past recoveries.

Changes in employment are also reflected in the polarization of incomes in cities across the United States. Between 2000 and 2014, 203 of the 229 metro areas analyzed by Pew Research Center experienced a decrease in the share of their populations that were considered middle-income, while 160 experienced an increase in low-income people, and higher-income individuals become more common in 172 metros areas. In short, the middle class is being eroded and while some may be moving up, a lot of people are unable to maintain the lifestyles they became accustomed to before the recession.

Break up the megacorporations

It’s undeniably clear that the consolidation that has occurred in the economy and the lack of antitrust enforcement has contributed to increased inequality, stagnating wages, and a concentration of economic activity in large urban centers. The increasing presence of massive, monopolistic corporations has made it harder for smaller competitors to emerge, robbing small- and medium-sized cities of the drivers of local job creation. Instead, headquarters with high-paying jobs are located in a small number of urban centers, while other municipalities have to compete for low-skill warehouse and call center jobs by giving away future tax revenue.

This situation clearly isn’t sustainable, and action must be taken to try to restore some semblance of balance. When it comes to enforcing antitrust on the tech monopolies, there are a few major ideas being contemplated. The first is to to separate the businesses of large corporations into different companies, such making Kindle, Whole Foods, AWS, and more of Amazon’s businesses independent of the core online marketplace.

There’s also the option of letting these companies largley remain in their current forms, but forcing them to license their patents to competitors, which was one aspect of the Consent Decree that the US Department of Justice enforced against Bell Systems, the forerunner to AT&T, in 1956. It also limited AT&T’s ability to expand into new markets.

Finally, and most controversially, there’s also the proposal that some digital platforms should be nationalized or collectivized due to the integral role they play in the lives so many people around the world and how the profit motive is forcing them to take actions that are not in the best interest of their users — Facebook’s data policies are the best example that come to mind, and how nearly everything Twitter does makes it core product worse.

These are only a few broad ideas of how antitrust could be approached. The reality is that enforcement action will have to be tailored to each monopolistic entity on which it is subjected, and may borrow from these possible routes or take another form altogether. Whichever form enforcement ultimately takes, it’s undeniable that antitrust is essential to reducing corporate power, rebalancing the economy, and ensuring productive wealth is shared more equally between capital and labor. The time to act on antitrust is now, before more helpless people are seduced by right-wing demagogues.