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…”

Dead Empires: How China May Overtake the U.S.

By Polly Cleveland

“The earth is the tomb of dead empires, no less than of dead men.” Thus wrote the American economist and journalist Henry George in his 1879 worldwide bestseller, Progress and Poverty. Adam Smith had identified cooperation and specialization—“the division of labor”—as the forces that generated economic growth and prosperity. George claimed that those same forces led eventually to collapse, as monopolization of land and other natural resources directed more and more wealth into ever fewer hands. (George was nonetheless an optimist; he argued for heavy taxes on wealth and checks on monopoly—causes vigorously taken up by Progressive reformers in the early twentieth century.)

When George first wrote, the sun never set on Queen Victoria’s Empire, and looked like it never would. Yet twenty years later the British Empire was visibly faltering, plagued by bankruptcies of investments in U.S. railroads, the failure of obsolete industries, and the quagmire Boer War in South Africa. New rivals—the United States, Germany, and Russia—peered over the horizon.

Two astute observers have recently offered complementary predictions of the imminent demise of the American empire, and its replacement by China. One is historian Alfred McCoy of the University of Wisconsin, and the other is investigative journalist Barry Lynn of New America.

In The Geopolitics of American Global Decline: Washington Versus China in the Twenty-First Century, McCoy describes the Chinese strategy to break through the encircling ring of American bases to reach—and control—its markets and resources directly. As U.S. officialdom has already noted with some alarm, China is aggressively seeking to assert dominion over the South China Sea between it and Japan and the Philippines. It has been dredging landfill to create airbases on the unoccupied Spratley Islands, and has demanded that U.S. and other aircraft overflying the area obtain Chinese permission. But that’s just the eastern end. McCoy presents maps showing China’s massive investments in infrastructure to link it westward overland to the rest of the great Eurasian heartland. While U.S. railroads and bridges crumble, the Chinese are building a dense internal network of sophisticated high-speed high-volume railroads, plus oil and gas pipelines. These will connect up with transcontinental railways and pipelines, crossing Kazakhstan, reaching Moscow, and from there to Hamburg, Germany on the Baltic Sea. Another corridor will connect through Pakistan to the Arabian Sea, and yet another across Myanmar to the Indian Ocean. Meanwhile, the Chinese are making huge collaborative investments with these neighbors and with willing partners in Africa and Latin America. McCoy sees the TPP as Obama’s last-ditch effort to contain China.

For years, Barry Lynn has reported on the growing power—and weakness—of multinational monopolies. The power is more obvious: higher prices, less choice, less innovation—and greater political influence. The weakness is less obvious: less investment, fewer jobs, lower wages, and restriction of manufacturing to dependence on a small number of cheap, mostly foreign suppliers.

Here’s where China comes in, as Lynn reports in The New China Syndrome: American business meets its new master. Multinational businesses, like the auto companies and computer companies, increasingly depend on China both for cheap manufacturing and for access to the growing Chinese consumer market. Lynn reports a number of instances where Chinese have intimidated multinationals into concessions on price, or ownership shares, or jobs for children of Chinese leaders. He describes an episode in which bureaucrats summoned in-house lawyers from some thirty companies, including GE, IBM, Intel, Microsoft, Siemens, and Samsung, told them that half the companies were under investigation for monopoly crimes—without saying which—and  instructed them write public “self-criticisms” under threat of double or triple fines should they refuse. The great monopolies must submit to this arbitrary tyranny precisely because they have destroyed so many other sources of supply, and have so eroded consumer markets in the rest of the world.

Bill Clinton saw U.S. investment in China as a way to “a more open and free China.” What if, Lynn asks, “the extreme economic interdependence between the United States and China is not actually carrying our values into a backward and benighted realm, but accomplishing precisely the opposite — granting the Chinese Politburo ever-increasing leverage over America’s economic and political life?” And, one might add, leverage over all the other multinational host countries? That could hardly have been more obvious than in the obsequious reception given to President Xi Jinping on his recent state visit to Great Britain. The meeting sealed a series of business investments, including a deal in which Chinese investors take a one-third stake in Hinkley Point C, Great Britain’s first new nuclear plant in a generation.

So, on the one hand, as Alfred McCoy suggests, Chinese infrastructure investment and joint ventures in foreign countries increasingly constrain U.S. power from the outside. On the other, as Barry Lynn suggests, Chinese control of multinational corporations threatens U.S. power from the inside. After the British Empire collapsed in the bloodbath of World War I, it staggered on a few more years as a zombie agent of the growing American empire. (See Middle East.) That empire may in turn stagger on as the zombie agent, not of a western democracy, but of a giant nation contemptuous of our values—and with thousands of years’ experience managing empires.