Adapted from a front page story on European Tribune
Wake up to old-fashioned power of new oligopolies
What will it take to wake us up to the ever-tightening grip of oligopolies over ever more of our global marketplaces? Even though their power increasingly warps our production systems, and our free market systems, alarms are rare and fleeting.
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In a recent article for McKinsey & Co, one consultant wrote of the rise of "global mega-institutions". Although the writer did not refer to these as oligopolies, he described their character well. Not only, he wrote, have these companies developed "extraordinary scale and scope", but they capture "disproportionately high profits". It seems that only the citizen and politician remain in the dark. The global corporate endgame is well under way, and none of our societies is prepared for it, intellectually or institutionally.
It is not as if we need to search long for evidence of the problems traditionally associated with monopoly.
Capture of political power (...)
Extreme pricing distortions (...)
Artificial control over what technologies are brought to market and when (...)
Extreme profiteering (...)
This means we cannot ignore the effect on global industrial organisation of the radical relaxation of antitrust enforcement by the Reagan administration in 1981. One result of giving big companies a licence to grow horizontally was that many producers, once they captured control over their markets, opted to sell off or shut down expensive and risky manufacturing and research and development operations and buy these "services" from outside suppliers with few or no other pathways to the marketplace. Over time, many of these top-tier companies relied ever more on their power to dictate prices to their suppliers (including workers) to capture profits.
The increasing power of a few leading trade-oriented companies over entire production and supply systems results in a variety of economic and political ills. One is the degradation of many production systems themselves. That is what happens when the actual producers of goods or components are unable to capture a sufficient share of revenue to support innovation, or sometimes even to maintain existing machinery and workforces. Another is the heightening of competition within society as opposed to between leading companies. In a production system marked by extreme outsourcing, oligopoly does not result in the end of competition so much as the redirection of competition downwards, as lead companies capture more power to set supplier against supplier, community against community and worker against worker.
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In other words, it is not the Chinese who destroy US and European jobs, but roll up by the world's largest traders and retailers of the power to pit producer against producer, and to capture most or all of the gain from the arbitrage.
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most of today's powerful companies are not the result of new ideas, only the strategic reordering of markets. If anything, their goal is the oldest one in commerce - to fence in the place where deals are done, and to tax producers and consumers for the right to meet there. It will not be long until we realise that to save our free market system will require, among other actions, far more aggressive enforcement of antitrust. Simply stopping any further roll out of power will not be enough. True believers in the free market will admit there is no other choice than to roll the power back.
I find this article (by Barry Lynn, senior fellow at the New America Foundation, and author of
End of the Line, The Rise and Coming Fall of the Global Corporation) extraordinarily enlightening as it focuses on the invisible, yet pervasive trend made possible by the combination of sophisticated IT systems, cheap transport and relawed anti-trust rules:
outsourcing.
It is usually seen as a source of efficiency, as companies focus on what they do best. If the business press frets about it, it is only about the possible loss of core competences by companies to outsiders (and in the US there is the specific worry about the loss of manufacturing competences). But this article points out the opposite danger: the creation by big companies of "captive slave farms" which they harvest exclusively, not letting them survive on their own, not giving them independent means to grow, and keeping a permanent pressure on them to capture all the value added. Thus, the manufacturing capacity is outside the mega-corporation, but it is fully controlled by it as it remains the main buyer for its production and captures all the value that comes from it.
In this logic, the Chinese are victims as much as we are - all workers are victims of our (manufactured, and ideologically supported) atomisation and dispersion in the face of a few mega-corporations.
In a sense, I participate to that, in that project finance is typically about creating a stand-alone box which has one single purpose (determined by its owners/masters), and makes no money beyond the bare minimum needed to repay banks and provide a fixed return on the capital invested. But this makes sense in an industrial sector (energy) which can be likened to a long chain - it is only as strong as each link, and thus you cannot weaken one without weakening the whole chain - and in that sector, each link is hard to replace. That's the whole difference with other sectors without natural (physical) monopolies at the production level: there, the mega-corporations will make sure they can choose between various links at each stage, so as to squeeze all the value from each without risk, as they always have an alternative elsewhere.
The real danger, which was alluded to in a recent diary by rdf, is that the big corporations, led by Wal-Mart, are monopsonies - they rule by their buying power, not by their selling power.
And make no mistake - they purchase our labor, and they want to deal with us on an individual, isolated basis - and be as close to labor monopsonies as they can. Thus the fight against unions, the endless talk (and threats) about offshoring: they want to put us in competition against one another, while they get to pick and choose. Competition is good amongst suppliers, but does not apply to them.
That's the ideology of this new century, inspired by Thatcher and Reagan: what is mine is mine, and what is yours is negotiable.
Anti-trust regulations need to focus on that side of the story (the buying power of corporations, not just their selling power), and this article is a timely reminder.