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“Robber Baron Recessions”: Growing Monopoly Power Is A Big Problem For The U.S. Economy

When Verizon workers went on strike last week, they were mainly protesting efforts to outsource work to low-wage, non-union contractors. But they were also angry about the company’s unwillingness to invest in its own business. In particular, Verizon has shown a remarkable lack of interest in expanding its Fios high-speed Internet network, despite strong demand.

But why doesn’t Verizon want to invest? Probably because it doesn’t have to: many customers have no place else to go, so the company can treat its broadband business as a cash cow, with no need to spend money on providing better service (or, speaking from personal experience, on maintaining existing service).

And Verizon’s case isn’t unique. In recent years many economists, including people like Larry Summers and yours truly, have come to the conclusion that growing monopoly power is a big problem for the U.S. economy — and not just because it raises profits at the expense of wages. Verizon-type stories, in which lack of competition reduces the incentive to invest, may contribute to persistent economic weakness.

The argument begins with a seeming paradox about overall corporate behavior. You see, profits are at near-record highs, thanks to a substantial decline in the percentage of G.D.P. going to workers. You might think that these high profits imply high rates of return to investment. But corporations themselves clearly don’t see it that way: their investment in plant, equipment, and technology (as opposed to mergers and acquisitions) hasn’t taken off, even though they can raise money, whether by issuing bonds or by selling stocks, more cheaply than ever before.

How can this paradox be resolved? Well, suppose that those high corporate profits don’t represent returns on investment, but instead mainly reflect growing monopoly power. In that case many corporations would be in the position I just described: able to milk their businesses for cash, but with little reason to spend money on expanding capacity or improving service. The result would be what we see: an economy with high profits but low investment, even in the face of very low interest rates and high stock prices.

And such an economy wouldn’t just be one in which workers don’t share the benefits of rising productivity; it would also tend to have trouble achieving or sustaining full employment. Why? Because when investment is weak despite low interest rates, the Federal Reserve will too often find its efforts to fight recessions coming up short. So lack of competition can contribute to “secular stagnation” — that awkwardly-named but serious condition in which an economy tends to be depressed much or even most of the time, feeling prosperous only when spending is boosted by unsustainable asset or credit bubbles. If that sounds to you like the story of the U.S. economy since the 1990s, join the club.

There are, then, good reasons to believe that reduced competition and increased monopoly power are very bad for the economy. But do we have direct evidence that such a decline in competition has actually happened? Yes, say a number of recent studies, including one just released by the White House. For example, in many industries the combined market share of the top four firms, a traditional measure used in many antitrust studies, has gone up over time.

The obvious next question is why competition has declined. The answer can be summed up in two words: Ronald Reagan.

For Reagan didn’t just cut taxes and deregulate banks; his administration also turned sharply away from the longstanding U.S. tradition of reining in companies that become too dominant in their industries. A new doctrine, emphasizing the supposed efficiency gains from corporate consolidation, led to what those who have studied the issue often describe as the virtual end of antitrust enforcement.

True, there was a limited revival of anti-monopoly efforts during the Clinton years, but these went away again under George W. Bush. The result was an economy with far too much concentration of economic power. And the Obama administration — preoccupied with the aftermath of financial crisis and the struggle with bitterly hostile Republicans — has only recently been in a position to grapple with competition policy.

Still, better late than never. On Friday the White House issued an executive order directing federal agencies to use whatever authority they have to “promote competition.” What this means in practice isn’t clear, at least to me. But it may mark a turning point in governing philosophy, which could have large consequences if Democrats hold the presidency.

For we aren’t just living in a second Gilded Age, we’re also living in a second robber baron era. And only one party seems bothered by either of those observations.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, April 18, 2016

April 19, 2016 Posted by | Economy, Monopolies, Verizon | , , , , , , , | Leave a comment

“Squeezing Out Any Would-Be Competitors”: Building Monopolies, One Merger After Another

Corporate World is experiencing a surge in the urge to merge.

Control of market after market — from cable TV to chickens, banking to washing machines — has been seized by less than a handful of enormous corporations. Rather than compete, they collude to set prices, cut quality, shrink service and squeeze out any would-be competitors.

There was a time, not that long ago, when monopolies, duopolies and oligopolies were not only frowned upon by our public officials and watchdog agencies but also aggressively challenged and busted up. In recent years, however, corporate giants feel free to get ever-gianter by gobbling up their competitors, knowing that the watchdogs will barely bark, much less bite. In fact, now that the Supreme Court has turned corporate campaign donations into legalized bribes, our so-called “public” officials — including congress critters, governors, judges and even presidents — have become tail-wagging accomplices to the amalgamation of corporate power.

The Bush-Cheney regime was infamous for cheerleading this consolidation, including allowing the merger of AT&T and Verizon to capture 70 percent of all wireless phone subscribers. But this is not just a Republican phenomenon. Obama’s Justice Department, Federal Trade Commission and Federal Aviation Administration genially waved through American Airline’s takeover of US Airways and United’s consumption of Continental, effectively leaving air travelers to the brutish mercy of one or two bullies in every major airport — and no service at all in smaller cities.

Now come dominant health-care giants Aetna, Humana, Anthem and Cigna, as well as Walgreens and Rite Aid, demanding to merge into behemoths that would control the availability of health insurance and essential medicines to millions of Americans. Ironically, the very lawmakers, corporate lobbyists and pundits who push and praise each of these mergers are also the noisiest preachers of the virtue of competitive markets, small business and consumer choice.

Oh, they also claim to be champions of the people’s will — even though the clear will of the vast majority of Americans is to stop the merger-mania and anti-consumer monopolization that corporate America and its political servants are hanging around our necks. That’s not just ironic. It’s cynical, hypocritical… and disgusting.

Even our brewskis are falling to monopolists. Belgian conglomerate Anheuser-Busch InBev is set to swallow South American-owned conglomerate SABMiller. The merger, they gloat, will be the first “truly global brewer.” Indeed, it will control a third of all beer sales in the world and a whopping 70 percent of all U.S. sales.

The monopolizers assert there’s no anti-trust problem because hundreds of small breweries are popping up like dandelions all over America and the world, thus creating wide-open competition. The winner, says the Anheuser-Busch behemoth with a wink and a crooked smile, will be the one that gets the most customers.

How free-enterprise-y! And fallacious. The “winner” will be the one with the key to the marketplace gate. To get customers, you first have to be able to get your beers in the bars and on store shelves, which is mostly controlled in the U.S. by beer wholesalers who distribute beers from various breweries to the retailers. These wholesalers can simply refuse to distribute the brews of smaller “competitors.” Now, guess which big honking beer-maker has been aggressively buying up wholesale distributors in recent years in order to fill the shelves with their brands and lock out the new independents?

If Anheuser-Busch InBev is allowed to become the first global brewery, it won’t be because it makes the best beer but because it’s rigging the marketplace to slam the door on its “free enterprise” competitors. The word “free” in “free enterprise” is not an adjective, it’s a verb; i.e., let’s “free up” the enterprise of small business people by stopping giant monopolists from locking them out of the marketplace.

 

By: Jim Hightower, The National Memo, December 2, 2015

December 2, 2015 Posted by | Corporate Mergers, Monopolies, Small Businesses | , , , , , , | 2 Comments

“Court Sanctioned Discrimination, Again”: Big Monopolies Are Now Free To Ruin The Internet

Countries like China or Russia, with centuries-long traditions of authoritarian rule, revert to their past practices when confronted with any kind of novelty. The United States, with its tradition of frontier free marketism, reverts to the laissez-faire when confronted with the new. But the result in both cases is the same: the radical constriction of popular democracy and freedom. A case in point is yesterday’s Appeals Court ruling on net neutrality.

The question is this: Can internet providers like Verizon and Comcast allow some web companies to provide better (that is, faster) service to their customers than their competitors by paying a higher price to the providers? Can Amazon knock an upstart by providing better service to its customers by paying off Verizon? Or can the Heritage Foundation’s web site provide better service than, say, that of the Economic Policy Institute by paying higher prices to Verizon? In 2010, the Federal Communications Commission (FCC) ruled that internet providers could not discriminate among web sites in this manner. Yesterday, the Appeals Court ruled that they could. That’s an obvious blow to consumers, who will suffer the usual effects of monopoly; but it could also be a blow to free speech on the internet.

The obvious villain is the Appeals Court, but the damage was actually done earlier. In 2002, the FCC under chairman Michael Powell—the son of Colin Powell and reputedly an extremely decent person, but also a doctrinaire pro-business libertarian in the mold of the Koch brothers—issued a ruling that internet companies were “information services” and not “telecommunications companies.” That seemingly innocuous decision on wording held momentous consequences, because it meant that the internet could not be regulated like the public utility that it is. Phone companies, for instance, can’t by law provide static-free service to callers from a wealthy suburban area (at a price), but barely audible service to callers from the inner city, because they are regulated like a public utility. By the FCC’s ruling, internet providers could discriminate, and in 2005, the Supreme Court affirmed the FCC’s right to make this invidious distinction.

Obama’s first appointee as FCC chairman, Julius Genachowski, understood the damage that Powell’s ruling had done, and sought to undo it. In May 2010, Genachowski announced that he was redefining cable as a telecommunications service.  That would have opened the door to re-regulating it. The cable and wireless industry stepped in.  “He felt himself to be in a difficult position,” Susan Crawford, the author of Captive Mind and an expert on communications law, recalled.  She said Genachowski feared that it would “be World War III. And the president didn’t need World War III.”  So in December 2010, Genachowski announced that he would not attempt to counter Powell’s definition. That left any attempt to regulate broadband—including the net neutrality standards that the administration adopted—open to a court challenge. Verizon then proceeded to challenge the FCC’s right to set net neutrality standards, and yesterday it won, and the FCC and the American people lost.

Powell was happy about the ruling. He is now the President of the National Cable & Telecommunications Association in Washington, the industry’s chief lobbying arm. “It’s ironic that the big winner coming out of the court’s decision could end up being the one person who wasn’t a litigant—the consumer,” Powell declared. It’s unclear whether Genachowski’s successor as FCC chair, former industry lobbyist Tom Wheeler, will challenge the ruling. But if he doesn’t, and the ruling stands, the FCC can kiss goodbye its power to regulate the internet and the protect the rights of citizens and consumers against avaricious monopolies.

 

By: John B. Judis, The New Republic, January 15, 2014

January 16, 2014 Posted by | Monopolies, Net Neutrality | , , , , , , , | Leave a comment

   

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