Writing in the New York Times, Tim Wu (@superwuster) a law professor at Columbia University, a contributing Opinion writer and the author, most recently, of “The Curse of Bigness: Antitrust in the New Gilded Age” suggests
...We have, for the past few decades, put our faith in an economic model that insists that everyone will be better off if we do everything to make production as cheap as possible, keeping prices and salaries low, and make every region of the economy highly specialized. That approach, it turns out, does make some people rich, but it does not help everyone.
The guiding legal principle in anti-trust law enforcement these days is that if you can’t show consumers paying higher prices due to a merger, consolidation, etc. then there is no reason to block it. Bigger is always better. Except it isn’t. There’s more to the story.
- Mergers and consolidation lead to loss of jobs — redundant positions are eliminated, and the loss extends to all of those who benefit from the spending those now unemployed can no longer afford.
- Mergers devastate communities — redundant facilities are closed, leading to loss of local property tax revenues, the blight of empty buildings, and the effect on other businesses that supported them, on top of all the people now out of work.
- Consumers lose choice — where before they might have been able to go with what best fit their needs, they end up having to settle for Hobson’s choice.
- There’s a loss of innovation — fewer people working to improve products or develop new ones when the companies they work for are gone, and less pressure on the remaining companies to improve their own products.
- Consolidation makes it difficult for new players to get a foothold — big companies can offer big discounts to customers to keep their market share, and lock them into exclusive purchasing deals and other arrangements. (See the article by David Dayen linked below for particulars.)
- There’s a loss of the ability to regulate — when a corporation spreads over many states or around the globe, the ability of government from the local level all the way up to national and international to enforce good behavior becomes academic at best, regulatory capture at worst.
- There’s loss of resiliency — when there’s only one big supplier left, any problems for that supplier become problems for everyone when there is no other alternative.
This last is especially critical in an age when disruption is the order of the day. Fast-talking venture capitalists love to claim disruption is good for everyone because it shakes up old paradigms — a dubious claim at best — but it’s a different story when the disruption is a pandemic or a climate disaster.
David Dayen has an article at American Prospect that is an object lesson in how this works:
“an excerpt from my book Monopolized: Life in the Age of Corporate Power. I wrote it before the coronavirus hit, but one chapter had an astounding relevance to what we’re going through right now. In particular, it shows how monopolies make vital supply lines for necessary medical equipment more vulnerable to sudden shocks. This wasn’t a new phenomenon generated in the crisis, but a long-standing issue caused by consolidation and monopoly middlemen, as this excerpt details.
Dayen looks at the experience of Ben Boyer watching a nurse having to slowly inject his wife with chemotherapy drugs by hand, instead of setting up an IV drip with the drug injected into a bag of saline solution, “salt and water in a bag”. Why?
“I thought, ‘This is insane, this is crazy, this is wild,’” Ben recalled. And the association with Puerto Rico made it doubly surreal. Ben’s father was a health care professional in the navy who was stationed in Puerto Rico; Ben had spent years on the island growing up, and his sister had been born there. But though both parents worked in health care—his mom was a nurse—Ben didn’t understand Puerto Rico’s centrality to the U.S. health care system. It’s been a haven for pharmaceutical manufacturing for decades, and Baxter International, which produces about half of the nation’s IV solution, uses two facilities on the island for this purpose. Both of them were crippled during Hurricane Maria, leaving hospitals scrambling for months.
It was a classic consequence of concentration: supply chain disruptions magnify when one company makes too great a share of the product. But the even dirtier secret, the one that confuses this simple explanation, is that IV solution has been on the Food and Drug Administration’s shortage list since 2013—four years before the hurricane knocked out Baxter’s facilities in Puerto Rico. The Justice Department had already been investigating the matter. Once again—and I can’t stress this enough—we’re talking about salt, water, and a bag.
Stalwart capitalists snicker that shortages occur only in centrally planned communist countries. But here we have private-sector companies unable to match demand, with grave potential implications for public health. How did this happen? The complex, multifaceted answer can be found by trekking through the forest of monopolies that constitute America’s health care system, not only among clinics and facilities, but everything required to deliver care. Competition has died, leading to absurd pricing, lower wages for medical workers, and substandard results.
Read the whole thing if you want to get an idea of just how bad things are, how monopoly power works at so many levels. (Charles P. Pierce has some excerpts along with his inimitable commentary if you want a shorter version.)
This goes hand in hand with the idea that corporations have but one responsibility: increase shareholder value. To get back to Tim Wu, consider this example from the flour industry.
...Consider King Arthur, founded in 1790 in Boston and now based in Vermont. It experienced a tripling of sales over the spring, buoyed by legions of new bakers in quarantine. (Sales at Gold Medal also went up, but not nearly as much.) Among consumers, King Arthur is probably best known for connecting with people who are learning to bake. Its website introduces them to new challenges, like building a sourdough starter and folding dough for baguettes, and the company has a hotline for bakers in distress.
But King Arthur is most distinguished by its corporate structure. It is a private company, owned entirely by its employees (it has about 350) and run by two chief executives. It is also a benefit corporation, which means that having a positive social impact is part of its legal corporate mission. Ralph Carlton, one of the company’s chief executives, says that its different structure leads it to act differently from other companies. “Being accountable to our employee-owners means we have to take them into account,” he told me. “We don’t believe in growth for growth’s sake. We are not under external requirements” from stock owners or market analysts.
We face a huge number of challenges. Trump is demolishing democracy before our eyes. Climate change is not taking time off. The racial divisions Black Lives Matter and the death of George Floyd have forced front and center are not going away quietly. The pandemic is making millions sick, the U.S. death toll is 140,000 and rising, and it can’t be wished away. The economy is in a shambles, and the Republican Party refuses to face reality or recognize how badly the economy is broken. The Big Tech monopolists are determined to block any attempts at anti-trust reform.
There is this though. Denial is not proving to be an especially viable survival strategy. The horrors we are experiencing can either drive us deeper into despair, or empower us to take action. Rebuild Better is a phrase even establishment groups are starting to embrace.
This is the great test of America today.
“I've always thought tests are a gift. And great tests are a great gift. To fail the test is a misfortune. But to refuse the test is to refuse the gift, and something worse, more irrevocable, than misfortune.”
― Lois McMaster Bujold, Shards of Honour