March 3, 2022 | Reading Time: 7 minutes
Introducing trust-busting Joe
It’s been 40 years since a president demanded more competition.
As the press and pundit corps prepared for Joe Biden’s State of the Union address, the top stories to emerge were Ukraine and inflation. While there were no surprises concerning the former, there were for the latter.
The president everyone said would lead us back to an era of normalcy is instead leading us back to an era in which the federal government took the side of normal people and the common good.
No where was that more apparent than when he addressed inflation. But rather than talking about prices, which is what the Republicans prefer, Biden talked about wages. Inflation is pushing wages higher.
Prices eat into those wages, obviously, but Biden took us in a new direction. He focused on costs – particularly the big structural costs grinding so many down, such as education, child care, prescription drug prices and so on. Forget about prices, Biden said. Cut costs.
How? By passing his transformative legislation, he said. The president’s Build Back Better Act would invest in “human infrastructure” the same way the bipartisan infrastructure bill invests in roads and bridges.
The political implications of this framing are clear. The GOP’s focus on prices means they’re seeing a partial solution to the whole problem.
“Biden is right. If you don’t have a check on the concentration of private power, what you’re left with is exploitation, coercion and extraction. These are the primary characteristics of our economy today. It’s exactly why we need to resurrect antitrust.”
But Biden went a step further – and this is what surprised me as well as Stacy Mitchell, co-director of the Institute for Local Self-Reliance. Another way of lowering costs is forcing corporations to compete.
Lowering your costs also meant demanding more competition. I’m a capitalist, but capitalism without competition isn’t capitalism. Capitalism without competition is exploitation — it drives up profits. And corporations have to compete, their profits go up and your prices go up when they don’t have to compete.
That’s a titanic heel-turn.
Every president in my lifetime embraced what Stacy calls the “Chicago School approach” to corporation concentration. Instead of greater competition, administrations allowed greater consolidation. Over 40-odd years, the business landscape became dominated by giants who profited by their sheer mass, not by their ingenuity and grit.
Yet here we are with a president seeing the whole problem for what it is. Monopolies are killing off competition, raising prices and enervating the American can-do spirit. “Capitalism without competition is exploitation,” Biden said. It drives up profits, because prices are higher.
The best thing? Antitrust doesn’t need new laws.
The laws are there. All that’s been missing is will.
“Biden is right,” Stacy told me. “If you don’t have a check on the concentration of private power, what you’re left with is exploitation, coercion and extraction. These are the primary characteristics of our economy today. It’s exactly why we need to resurrect antitrust.”
Biden called for more and greater competition. Thoughts?
One incredible surprise of the Biden presidency has been his total and unequivocal rejection of the Chicago School approach to antitrust.
That approach — the idea that antitrust officials should favor consolidation because it leads to efficiency — was embraced by Bill Clinton, Barack Obama, Ronald Reagan and George HW Bush.
So it’s remarkable that Biden, who’s been in the center of the Democratic Party during much of that history, would lead a complete turnaround.
In a July speech, he denounced the so-called “consumer welfare” standard that governs current antitrust enforcement. He then issued an executive order that tasks multiple federal agencies with using their full authority to target concentration and monopoly power.
He also appointed Lina Khan to head the Federal Trade Commission and Jonathan Kanter to head the Antitrust Division at the DOJ. These are two of the leading thinkers on why the Chicago School approach must be dismantled and what needs to happen in its place.
Biden is correct to identify concentration as one driver of the problems in supply chains and, in turn, of inflation. His thinking is very much an extension of the policy-setting he’s already been doing.
Why are monopolies dangerous for democracy?
The control monopolies exert is inevitably political. They have the power to set terms – for workers, suppliers, communities, whole sectors of the economy. That’s a direct threat to our liberty and our ability to direct our own affairs as a self-governing people.
Today’s most powerful monopolies have powers rivaling and even eclipsing that of government. Amazon, Google and Facebook, for example, control the underlying infrastructure for much of our commerce and communications. They effectively have the power to regulate these spheres – to decide who participates on what terms.
One way to understand why anti-monopoly policy is so essential to democracy itself is that it’s a check.
In the same way our system is set up to check the power of each of three branches of government, so no one oversteps, anti-monopoly policies function as the necessary check on private power.
“The control monopolies exert is inevitably political. They have the power to set terms – for workers, suppliers, communities, whole sectors of the economy. That’s a direct threat to our liberty and our ability to direct our own affairs as a self-governing people.”
As Senator John Sherman, author of the 1890 Sherman Antitrust Act said, “If we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of any of the necessaries of life.”
We don’t have kings, but we sure as hell have aristocrats. The same people owning the monopolies can pass down wealth to heirs with minimal tax. It’s literally dynastic power. What can we do about that?
These aristocrats control extraordinary resources and market power. The Walton family, which owns about 50 percent of Walmart stock, has more wealth than nearly half of all Americans combined.
They’ve amassed that wealth by monopolizing large segments of the grocery and retail markets. Walmart controls much of our food system, all the way up the supply chain, and uses that power to squeeze food production workers and farmers, putting their hard-earned income in the Waltons’ pockets.
Jeff Bezos, founder of Amazon, has amassed $200 billion by gaining control of the infrastructure of commerce, and levying a kind of tax on his competitors’ trade through the fees Amazon charges businesses that have little choice but to rely on its infrastructure.
So the first answer to your question about what do we do is that we need to break up these corporations and stop them from using the market chokepoints they’ve set up to pocket a big cut of the economy’s revenue – not because they earned it, but because they have the muscle to take it and put it in their pocket.
Can you unpack how this works?
Amazon captures two-thirds of online shopping traffic in the US. That means independent retailers and consumer product makers have no real choice but to sell their goods on Amazon’s site. This allows Amazon to impose steep fees on these businesses.
Amazon is now pocketing a 34 percent cut of the revenue earned by sellers on its site – that’s up from 19 percent in 2014.
In effect, Bezos has figured out how to impose a kind of tax on e-commerce. And it’s wildly lucrative.
In 2021, Amazon took in $121 billion in seller fees, double the $60 billion it generated in seller fees in 2019. That’s bigger than all of Facebook’s revenue.
It’s a huge stream of cash. Much of it is pure profit.
What does Amazon do with that surplus?
It uses it to engage in predatory pricing – selling goods and services below cost in order to eliminate competition and dominate markets.
A big part of this is Prime.
Amazon sells Prime, with its free shipping, at a huge loss. Losing money on Prime is a key way that Amazon locks-in consumers and maintains its hold over the market.
By providing free shipping, streaming video and other perks for an annual membership fee that doesn’t come close to covering the actual costs of these services, Amazon has induced 70 percent of US households to sign up.
Once someone joins Prime, studies show that they tend to make Amazon’s platform the first, and often only, shopping site they visit.
So losing money on Prime is how Amazon maintains its monopoly grip on the online; Prime users don’t shop around. The spoils of this monopoly power are the huge and highly profitable fees that Amazon levies on the businesses that need to reach that market.
This is a long example, but it’s important to look under the hood at how these corporations actually work, and to understand that the wealth they amass for a few shareholders is not legitimate.
Amazon today is little more than a mob boss that can shake down competing businesses and suppliers.
So, again, we need to break up these monopolies, force them to compete on the merits and not simply use their market muscle to dominate and extract.
Inheritance taxes and the like are all well and fine, but we should stop the obscene and illegitimate accumulation of wealth at the source, rather than just trying to fix it after the fact.
This approach has lots of advantages.
Stopping Amazon’s extraction would put more of that money into the hands of working people and entrepreneurs. That has major upsides, including not only less inequality, but an economy that is more dynamic, entrepreneurial and innovative.
Can you explain why small businesses should favor trust-busting?
The idea that small businesses are aligned with big corporations is a myth. The US Chamber of Commerce started peddling the idea in the 1980s. Progressives should never have bought into it, but they have.
Small businesses have plummeted in numbers and market share over the last 40 years. They’ve been losing ground about as rapidly as organized labor.
They’re decline can be traced to the 1970s, both political parties embraced the idea that giving big business free rein would produce faster economic growth and lower prices.
The idea that small businesses are aligned with big corporations is a myth. The US Chamber of Commerce started peddling the idea in the 1980s. Progressives should never have bought into it, but they have. Small businesses have plummeted in numbers and market share over the last 40 years. They lost ground as rapidly as organized labor.
Both parties then joined forces to gut our anti-monopoly policies.
Ask small business owners what threatens their survival, as we have in numerous interviews and surveys, and chances are you’ll hear a lot about predatory, monopolistic behavior by dominant corporations.
Indeed, many small businesses say monopoly power is the biggest threat to their continued existence.
In other words, antitrust = pro-competition, correct?
Antitrust is about having open markets in which anyone has a fair opportunity to succeed on the merits of their ideas and work.
Antitrust policies are the rules that make markets and competition work, like the rules of a sporting match.
If you eliminate antitrust, then you’re allowing larger corporations to win not by being better, but simply on being bigger and having the financial and market might to crush their smaller rivals.
There are lots of examples today where giant corporations significantly underperform smaller competitors, but are still gaining market share and growing.
That’s a pretty compelling indication that the prevailing approach to antitrust has been a total failure.
But monopoly policy isn’t simply about competition.
It’s a set of tools for structuring sectors of the economy in ways that reflect our values and goals as a society.
John Stoehr is the editor of the Editorial Board. He writes the daily edition. Find him @johnastoehr.