The Democrats Confront Monopoly

By Polly Cleveland

In the 1970’s when I studied microeconomics in grad school, we got to monopoly briefly in one of the last chapters of the text. We learned that monopoly really wasn’t a such a problem. If a big corporation tried to raise prices to take advantage of a monopoly position, why, competitors would immediately rush in. So not to worry, it was in the interest of monopolists to behave. Moreover, monopolists enjoyed economies of scale, allowing the likes of Walmart to deliver lower prices to consumers than the mom and pop stores they put out of business. By that measure, laws like the Clayton Antitrust Act of 1914, designed to protect small businesses from anticompetitive practices…were actually anti-social as they kept consumer prices high. There was no hint of trustbusters’ original concern for concentrated political power, or exploitation of workers. This was the Chicago School theory of benign monopoly.

Since I knew the brutal history of some of the great monopolists like Standard Oil, American Tobacco, or AT&T, I took this lesson with a grain of salt. But I didn’t worry too much. Why? Because for the post World War II period, corporate concentration hadn’t notably increased. Yes, some big firms had merged, but others had broken up. Antitrust seemed to be doing its job. Little did I know how the Chicago theory of monopoly was even then taking the legal world by storm. That was the work of Yale Law School professor Robert Bork, who published The Antitrust Paradox in 1978. (In 1987, the Senate would deem Bork too conservative for the Supreme Court.)

The Democrats Confront Monopoly”, by Gilad Edelman in the November/December Washington Monthly, tells the story. Starting slowly in the Reagan Administration, then with gathering momentum, through both Republican and Democratic administrations, larger and larger mergers got the green light from the Justice Department and the courts. It was Bill Clinton after all, who took the Glass-Steagall shackles off the banks, allowing the disastrous merger of commercial and investment banking.

Meanwhile, economists began to notice growing inequality and wage stagnation. They came up with a variety of explanations: Maybe workers lacked skills to work with modern technology. Maybe it was competition with low wage workers overseas. Maybe it was just inevitable as machines took over jobs. I focused on a different explanation: Starting in the Reagan Administration, the tax system—federal, state, and local—increasingly favored what was not yet called The One Percent.

But in 2009, a book knocked me over: Barry Lynn’s Cornered: The New Monopoly Capitalism. Lynn, a business journalist, had seen a what we economists had missed: growing monopolization was making the American economy more unequal, less innovative and more unstable. In fact, the same was happening internationally, as multinational corporations took over more and more of the world economy. But Lynn didn’t stop with an exposé. Instead, he created a team of researchers at the New America Foundation, where he was a fellow. His team produced a whole series of eye-opening reports, published mostly in the Washington Monthly. Gradually the message got out, and was picked up by leaders on the left end of the Democratic Party, including Senators Bernie Sanders, Elizabeth Warren and Al Franken, and economists like Joseph Stiglitz and Paul Krugman.

Then, disaster, and a lesson. On June 27 this year, Lynn’s team released a statement welcoming a European antitrust action against Google. Google, a major funder of New America, apparently complained. Two days later, Lynn’s team were told to be out by the end of August. As observed in hundreds of outraged editorials and articles, there could hardly have been a better textbook example of the dangers of monopoly.  Lynn and his team have now set themselves up as the Open Markets Institute, but funding remains precarious.

Meanwhile, the team continues research and publication. In the same issue of the Washington Monthly, Phillip Longman explains How Big Medicine Can Ruin Medicare for All. Unless we address the growing monopolization of hospitals and their suppliers, Medicare-for-all or single-payer will resemble the Pentagon facing the defense contractors. (I can relate to the medical monopoly issue: In New York City, Mount Sinai Hospital has just taken over a number of other hospitals and medical buildings. Doctors practicing in these places were given a choice: sell their practices to Mount Sinai or get out. My gynecologist sold Sinai her practice; my shoulder surgeon angrily moved to an inconvenient midtown location.)

In June 2016, at an event organized by Lynn, Elizabeth Warren delivered a stunning speech on the damage of monopoly and the importance of reviving antitrust. Shortly afterwards, I attended a New York presentation by Alan Blinder, Hillary Clinton’s economic policy advisor. He focused on Hillary’s positions on issues vis-à-vis Trump’s and those of the median voter, complete with graphs. He suggested that Bernie had pulled her away from that median voter—a bad idea. Absolutely not a hint that Hillary should lead, rather than try to sniff out the densest patch of voters. One issue Blinder didn’t have on the list was antitrust, so I raised my hand and asked. “Oh,” he said, “that’s not a priority at present, but maybe after her first two years…”

2 thoughts on “The Democrats Confront Monopoly”

  1. I learned something about economics at Cambridge in the late 50s, and qualified as a Chartered Accountant in 1965. Return on real tangible investment for successful companies was quite low because the costs of real products were high. This changed dramatically after the 1970s with digital engineering and almost costless reproduction of digital products. There was paradigm shift in how profits were made, but no shift in the way profit maximization was seen as the one and only thing to be celebrated. Over time society was a big loser, but who cares when investors are making returns that were better than ever! I argue that unless we change the way we do the accounting we will never get the changes that the world needs … we must account for change in social and natural capital as rigorously as we account for change in financial capital
    Peter Burgess http://truevaluemetrics.org

  2. Great article. The anecdote about Google forcing Lynn’s team out of New America is a useful reminder that the power of monopolies extends far beyond questions of price setting. Monopolists also have enormous power to set the agenda for political debate by determining which topics are deemed fit for discussion. When Julian Assange discusses Google in his book, When Google Met WikiLeaks, he gives the impression that Google is the friendly face of the CIA and the NSA, collecting information that we freely provide. I don’t understand how it all works, but it seems almost certain that Google is as much involved in geopolitics and control over populations as it is in commerce. Thus, it is not too surprising that the iron hand might occasionally be revealed from within the velvet glove.

    One puzzle. The article attributes the acquiescence in the growth of monopolies to the influence of the Chicago School. My impression was Schumpeter’s theory of dynamic monopoly was the primary culprit. As I understand Schumpeter’s theory, monopolies are sustained by the limits of technology, but new technologies disrupt old monopolies. An example would be the way in which airlines disrupted the monopoly power of the railroads. On that basis, he reasons that monopolies are always temporary and thus not of great concern. But that means we should endure monopolies for many decades while we wait for a new monopoly to disrupt an old one.

    Another factor in the rationalization of monopoly has been the development of theories related to intellectual property, in which the claim is made that a long patent life is necessary for efficient investment in innovation. That is the sort of argument that can probably be traced back to Chicago School theorizing. What I don’t understand is why there are so few rebuttals to such arguments. Apparently, the old school of thought regarding industrial organization (exemplified by Joe Bain back in the 1960s, who warned against concentrated ownership) has disappeared. I’m unclear what has taken its place. I guess it is just laissez monopolizer.

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