Monopolies are Destroying our Economy
When most people hear antitrust, they stop listening, their eyes glaze over, or they look for something else to do. With seemingly endless amounts of scandals and policy fights to worry about, who is going to take the time to learn about something in the back of an economics textbook?
But the truth is, antitrust matters because the fact that we don’t have strong antitrust laws anymore is destroying our economy.
To explain antitrust, first we must understand its history. In the United States, that history begins with Senator Sherman who was the namesake of the Sherman Antitrust Act of 1890 and solved a problem we had in this country. That problem- a small number of huge corporations (or “trusts”) owned an outsized amount of wealth, and thus an outsized amount of power and influence.
Senator Sherman decided that these companies were too big and had to be broken up. And that’s exactly what his law allowed the US government to do — to the likes of Standard Oil, US Steel, and more.
Despite what you might hear from those on the right, antitrust works to improve competition. That’s because, at its core, antitrust laws are used to regulate businesses that are so big that they overrun the basic rules of a free market system.
Consider a company like Walmart. Walmart is so big and so powerful that it hurts free market economics in a number of ways. For one, Walmart often doesn’t have to compete for labor. When you are the largest employer in a given area, you can determine for yourself what rates and benefits are available.
In addition, Walmart can squeeze its suppliers by lowering the prices it is willing to pay for certain products. Those suppliers have no choice but to accept Walmart’s low prices because Walmart makes up such a large part of the market. If their products are not sold at Walmart, their business cannot survive.
At the same time, Walmart uses that power to lower its prices for consumers. Sounds like a great deal, except that eats into the markets of local, smaller retailers. And when those businesses close down, all it does is give Walmart even more power.
Though I’m picking on Walmart to illustrate why large companies are so dangerous, it is only a small part of the problem today. In fact, there are many other industries where the situation is significantly worse. Consolidation in certain industries is so bad that there are only one, two, or three companies controlling the market.
Without antitrust, these types of anticompetitive practices are quite common. Companies aim to grow larger and larger, buying up or driving out of business all of their competitors, until one or two large brands control the entire market.
When this happens, the owners and shareholders are the ones that benefit. They drive down costs and drive up prices in order to maximize profits. This is one major driver of the rampant inequality that persists throughout the United States today.
What antitrust laws do is work to curb such behavior. And they have proven to work in this way in the past.
Since the passage of the Sherman Antitrust Act in 1890, there have been a number of additional laws and amendments to those laws that aimed to strengthen and clarify the power of the US government to intervene in cases of anticompetitive behavior. Things like price discrimination, price fixing, bid rigging, collusion, and monopolization — all quite common in their day — were outlawed.
Though companies did, and continue to do whatever they can to get around these laws, having them on the books allowed the various branches of government to ensure markets were as fair as could be.
Most of the antitrust laws that we’ve passed are still on the books. So it’s not like the laws themselves stopped working. Instead, different groups of politicians over the years have decided to stop enforcing them.
In the 1980s, a new view of the Sherman Antitrust Act came to dominate conservative political and economic thinking. It said that the sole purpose of the Act is consumer welfare. They thus argued that mergers should be legal, so long as there is no demonstrable harm to consumers.
Starting with the Reagan administration, and proceeding through both Republican and Democratic controlled governments since, this view has held firm. Antitrust enforcement actions have plummeted, along with industry regulation more generally. And that has allowed the rise of corporate behemoths in industries from agriculture to finance, air travel to technology, and many, many more.
How Do We Fix It?
Fixing the problems with antitrust in the United States is easy. All that is required is to return to the original view of Senator Sherman and the other politicians who designed these laws. The American people need the various regulatory bodies — the SEC, the FTC, the Consumer Financial Protection Bureau, and the Justice Department — to do their jobs and protect our economy from corporate power.
In addition, a new interpretation of monopoly needs to take hold. What is required is a broader view of consumer welfare beyond prices. Companies like Walmart and Amazon offer low prices, but at what cost to the labor market? Consumers are also workers, and when a company’s size negatively impacts workers in an industry or geographic location, that company is behaving like a monopoly.
As easy as it seems, the actual work of reviving antitrust is going to be quite difficult. And the reason why is that the same corporations who should be the target of enforcement have amassed immense political power in recent decades and they have every incentive to fight for the status quo.
What is required is the attention of the public, and the determination of voters to ensure that those politicians in a position to influence our economy take action. If they refuse, we need to replace them with people with more courage, who will put the American people ahead of corporate interests.