Not long ago I visited some farmers in Missouri whose profits are disappearing. Why? Monsanto
alone owns the key genetic traits to more than 90 percent of the soybeans planted by
farmers in the United States, and 80 percent of the corn. Which means Monsanto can charge
farmers much higher prices. And farmers are getting squeezed from the other side, too,
because the food processors they sell their produce to are also consolidating into mega
companies that have so much market power they can cut the prices they pay to farmers. This
doesn’t mean lower food prices to you. It means more profits to the monopolists.
America used to have antitrust laws that stopped corporations from monopolizing markets, and
often broke up the biggest culprits. No longer. It’s a hidden upward redistribution of money
and power from the majority of Americans to corporate executives and wealthy shareholders.
I’m in a supermarket. Looks like lots of choice, doesn’t it? But, let’s take a
closer look. The four largest food companies control 82 percent of beef packing, 85 percent
of soybean processing, 63 percent of pork packing, and 53 percent of chicken processing.
All these products and brands? From just ten huge corporations.
Look at all these brands of toothpaste. 70 percent of toothpaste sales go to just two
companies.
Lots of sunglasses. Actually, one company: Luxottica. They also own nearly all the eyeglass
retail outlets.
Practically every plastic hanger in America is now made by one company, Mainetti.
What brand of cat food shall I buy? Hmmm. There are basically just two companies.
The problem with all this consolidation into a handful of giant firms is that they don’t
have to compete. Which means they can jack up your prices.
Drug companies, in effect, pay the makers of generic drugs to delay cheaper versions.
Such “pay for delay” agreements are illegal in other advanced economies, but antitrust
enforcement hasn’t laid a finger on them in America. They cost you and me an estimated
$3.5 billion a year.
You think your health insurance will cover this? Well, health insurers are consolidating,
too. Which is one reason your health insurance premiums, copayments, and deductibles are soaring.
Massive consolidation into a handful of giant businesses is going on all over.
You think you have a lot of options for booking discount airline tickets and hotels online?
Actually, you have only two. Expedia merged with Orbitz, so that’s one company. And
then there’s Priceline.
How about your cable and Internet service? Basically four companies. This is unfortunate
to say the least, and not just because industries and services with little competition charge
you more. It’s also troubling because such consolidation keeps down wages. Workers with
less choice of who to work for have a harder time getting a raise. When local labor markets
are dominated by one major big box retailer, or one grocery chain, for example, those firms
essentially set wage rates for the area.
These massive corporations also have a lot of political clout. That’s one reason they’re
consolidating. Power. Antitrust laws were supposed to stop what’s been going on. But
today, they’re almost a dead letter. That hurts you.
The first antitrust law came in 1890 when Senator John Sherman responded to public anger
about the economic and political power of the huge railroad, steel, telegraph, and oil
cartels – then called “trusts” -- that were essentially running America.
A handful of corporate chieftains known as “robber barons” presided over all this
– collecting great riches at the expense of workers who toiled long hours often in
dangerous conditions for little pay. Corporations gouged consumers and corrupted politics. They
had so much political power they made it impossible to enforce the Sherman Antitrust Act.
Then in 1901, progressive reformer Teddy Roosevelt became president. By this time, the American
public was demanding action. In his first message to Congress in December 1901, only
two months after assuming the presidency, Roosevelt warned, “There is a widespread
conviction in the minds of the American people that the great corporations known as the trusts
are in certain of their features and tendencies hurtful to the general welfare.”
Roosevelt used the Sherman Antitrust Act to go after the Northern Securities Company,
a giant railroad trust run by J. P. Morgan, the nation’s most powerful businessman.
The U.S. Supreme Court backed him up and ordered the company dismantled.
In 1911, John D. Rockefeller’s Standard Oil Trust was broken up, too. But in its decision,
the Supreme Court effectively altered the Sherman Act, saying that monopolistic restraint
of trade was only objectionable if it was “unreasonable,” and that determination
was to be made by the courts. So what was an unreasonable restraint of trade?
In the presidential election of 1912, Roosevelt, running again for president but this time
as a third party candidate, said he would allow some concentration of industries where
there were efficiencies due to large scale. And then he’d have experts regulate these
large corporations for the public benefit. Woodrow Wilson, who ended up winning the election,
and his adviser Louis Brandeis took a different view. They didn’t think regulation would
work, and thought all monopolies should be broken up.
For the next 65 years, both views dominated. We had strong antitrust enforcement along
with regulations that held big corporations in check. Most big mergers were prohibited.
Even large size was thought to be a problem. In 1945, in the case of United States v. Alcoa
(1945), the Supreme Court ruled that even though Alcoa hadn’t pursued a monopoly,
it had become one by becoming so large that it was guilty of violating the Sherman Act.
All this changed in the 1980s, after Robert Bork -- who, incidentally, I studied antitrust
law with at Yale Law School, and then worked for when he became Solicitor General under
President Ford – wrote an influential book called The Antitrust Paradox, which argued
that the sole purpose of the Sherman Act is consumer welfare.
Which means that mergers and large size almost always create efficiencies that bring down
prices, and therefore should be legal. Bork’s ideas were consistent with the conservative
Chicago School of Economics, and found a ready audience in the Reagan White House.
Since then, even under Democratic administrations, antitrust has all but disappeared.
We’re seeing declining competition even in cutting-edge, high-tech industries. In
the new economy, information and ideas are the most valuable forms of property. This
is where the money is. We haven’t seen concentration on this scale ever before.
Google and Facebook are now the first stops for many Americans seeking news. Meanwhile,
Amazon is now the first stop for more than a half of American consumers seeking to buy
anything. Talk about power.
Contrary to the conventional view of an American economy bubbling with innovative small companies,
the reality is quite different. The rate at which new businesses have formed in the United
States has slowed markedly since the late 1970s. Big Tech’s sweeping patents, standard
platforms, fleets of lawyers to litigate against potential rivals, and armies of lobbyists
have created formidable barriers to new entrants.
Google’s search engine is so dominant, “Google” has become a verb.
The European Union filed formal antitrust charges against Google, accusing it of forcing
search engine users into its own shopping platforms. And last June, it fined Google
a record $2.7 billion. But not in America.
Remember, economic and political power cannot be separated because dominant corporations
gain political influence over how markets are organized, maintained, and enforced, which
enlarges their economic power further. One of the original goals of the antitrust laws
was to prevent this.
Big Tech — along with the drug, insurance, agriculture, and financial giants — dominates
both our economy and our politics.
It is time to revive antitrust.