IF THE UNDERLYING PRINCIPLE OF CAPITALISM IS COMPETITION, WHY DO WE ALLOW THE AMERICAN BUSINESS MODEL TO ELIMINATE IT SO EGREGIOUSLY?
U.S. BUSINESS IS ALREADY FRIGHTENINGLY CONCENTRATED—THOUGH A BETTER WORD WOULD BE MONOPOLISTIC
Monopolies do not act in the interests of the consumer. They drive prices up, service down—and are concerned solely for themselves. They tend to be selfish and predatory. That is why we have a free market system based upon competition (or did)
Ridiculous as it may seem, the U.S. is heading fast towards being not just a corporate state—which it is already—but a monopoly corporate state, at that
Am I exaggerating to make a point? I’m no longer entirely sure that I am.
The U.S. has already reached a situation where individual market sectors are de-facto monopolies. If this trend continues, the logical result will be one single giant corporation controlling everything—albeit disguised behind a façade of democracy—and different brand names.
Yes, there are anti-monopoly laws on the books—but they are rarely enforced because the political system is now controlled by corporate interests.
The longer I look at the current American Business Model, the more concerned I become. Why so?
- Firstly, because it is becoming a perversion of the free enterprise system, and veering so far away from the kind of capitalism that works (and some versions work exceedingly well) that it is hard not to be seriously alarmed. The U.S has evolved a model that seems to be bereft of integrity, that feels no obligations to anything other than profit, and which is as monopolistic as the individual corporation can get away with. A byproduct of all this is that corporatism has corrupted the political system. It is now largely owned by corporate interests which are, in turn, controlled by the ultra-rich.
- Secondly, because it is given such little public attention. You would think that a system that has such extraordinary impact on people’s lives would bear consistent scrutiny—and, god knows the U.S. has enough economists and other pundits—but the economic fundamentals attract surprisingly little comment. By and large, even the knowledgeable act as if the American Business Model was was much the same as it was decades ago. It isn’t. It has changed drastically—and not for the better.
How Mergers Damage the Economy
- by The NYT Editorial Board
- Oct. 31, 2015
- 3 min read
In many industries, like airlines, telecommunications, health care and beer, mergers and acquisitions have increased the market power of big corporations in the last several decades. That has hurt consumers and is probably exacerbating income inequality, new research shows.
A recent paper by two economists, Jason Furman and Peter Orszag, says that consolidation might have contributed to the trend of some businesses earning “super-normal returns” that are about 10 times as large as the median returns, up from three times in the early 1990s. This trend may have driven the rise in income inequality by increasing the income of executives and shareholders of those businesses relative to everybody else.
In addition, two finance professors at the University of Southern California estimate that nearly a third of American industries were highly concentrated in 2013, up from a quarter of all industries in 1996, according to The Wall Street Journal.
These trends ought to concern everybody, particularly lawmakers in Congress and officials at the antitrust division of the Department of Justice, the Federal Trade Commission and other government agencies that review mergers. It is increasingly clear that officials have allowed too many mergers. This has especially been true of Republican administrations and conservative judges who bought into the dubious notion that consolidation leads to great efficiency and that the free market will fix any problems.
The George W. Bush administration, for example, allowed Whirlpool to acquire Maytag even though the two companies controlled three-quarters of the market for some home appliances. Also under that administration, the wireless phone industry consolidated from six national companies to four. The two largest, Verizon and AT&T, now command about 70 percent of all subscribers.
The Obama administration has not been wedded to free-market dogma, but it has also waved through some big mergers. Officials approved two big airlines mergers — United and Continental, and American and US Airways. Just four national airlines now carry the vast majority of domestic passenger traffic, down from six when Mr. Obama came into office. The big carriers control so many gates and takeoff and landing slots at their hub airports that other airlines can’t mount a real challenge.
With fewer competitors to worry about, consolidated businesses can raise prices more easily without worrying about losing customers. And they can actively or tacitly collude with the remaining players in the industry to fix prices or production levels. The Justice Department is investigating whether the big airlines have agreed not to add more flights to keep their planes full and fares high.
Mergers tend to lead to more mergers. In the health care industry, big insurers like Anthem and Aetna say they need to get bigger to have more leverage in negotiations with hospitals and doctors’ practices that have become bigger through acquisitions in recent years.
Walgreens last week said it was buying Rite Aid so it could demand better terms from big drug makers and pharmacy benefit managers. Whether or not this merger improves Walgreens’s bargaining position, it will reduce consumer choice and may lead to higher prices.
The presence of a few dominant companies in an industry also makes it harder for entrepreneurs to start new businesses in that sector. The rate at which new businesses are created in the economy as a whole has been steadily falling since the 1970s, according to the Census Bureau. In 2013, the growth rate was 10.2 percent, down from 17.1 percent in 1977.
More legal challenges could help limit further consolidation and restore more dynamism to the economy. The Justice Department’s antitrust division has in recent years won nearly every merger challenge it has brought. The division and the Federal Communications Commission prevented Comcast from buying Time Warner Cable and AT&T from acquiring T-Mobile. But the division’s record suggests that it could be taking a tougher line. It allowed American Airlines and US Airways to merge after they agreed to sell just a few gates and take off and landing slots to other airlines. It should not have settled so quickly for so little.
Congress should also study whether there are ways to strengthen the antitrust laws. It could, for instance, require regulators to consider whether mergers in concentrated industries are in the broader public interest, not just whether they would harm consumers through higher prices. The F.C.C. can already use such a test to evaluate media and telecom deals to determine, for example, whether a merger will limit the diversity of opinions in media. Unfortunately, Congress is unlikely to adopt new antitrust legislation while Republicans are in control of both houses.
Given the already high consolidation in many industries, government officials have to be vigilant about investigating businesses that abuse their dominant position. In extreme cases, antitrust laws allow officials to seek the breakup of businesses, as the Justice Department did with the old AT&T monopoly in 1974. (That case was settled in 1982, and the company was broken up in 1984.) But it will be harder to use this tool now because most dominant companies are careful not to assemble that level of market power. That makes it all the more important for officials to do a better job of reviewing mergers in the first place.
Markets work best when there is healthy competition among businesses. In too many industries, that competition just doesn’t exist anymore.