Monopolies Are Strangling Our Economy

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Graphic Courtesy of the WaPo

In Washington Monthly, Barry C. Lynn and Phillip Longman argue that the increase in jobless recovery and stagnation is an artifact of the increasingly monopolistic marketplace that we encounter:

If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.

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But while the mystery of what killed the great American jobs machine has yielded no shortage of debatable answers, one of the more compelling potential explanations has been conspicuously absent from the national conversation: monopolization. The word itself feels anachronistic, a relic from the age of the Rockefellers and Carnegies. But the fact that the term has faded from our daily discourse doesn’t mean the thing itself has vanished—in fact, the opposite is true. In nearly every sector of our economy, far fewer firms control far greater shares of their markets than they did a generation ago.

Indeed, in the years after officials in the Reagan administration radically altered how our government enforces our antimonopoly laws, the American economy underwent a truly revolutionary restructuring. Four great waves of mergers and acquisitions—in the mid-1980s, early ’90s, late ’90s, and between 2003 and 2007—transformed America’s industrial landscape at least as much as globalization. Over the same two decades, meanwhile, the spread of mega-retailers like Wal-Mart and Home Depot and agricultural behemoths like Smithfield and Tyson’s resulted in a more piecemeal approach to consolidation, through the destruction or displacement of countless independent family-owned businesses.

It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.

One of the points that I have made when I discuss the role of the large monopoly Telcos and how this effects the availability and price of broadband is that when a company gets large enough, it's more profitable to keep out competitors than it is to improve the quality and efficiency of its process.

If one understands the nature of any corporation, which is that they are short-sighted sociopaths by design, this makes perfect sense: You can spend billions on innovation, or millions on locking out and/or buying up competitors.

Even Sci-Fi author Jerry Pournelle, who describes himself as being somewhere to the right of Attila the Hun, says that for the free market to function, aggressive anti-trust activities are essential. (No link, it was from his "Chaos Manor" column in Byte about 20 years ago)

H/t Kevin Drum.