I’ve recently been thinking that the rising economic inequality over the past 40 years may have, at least in part, a simple but vexing source – the sheer size and scope of modern businesses. After all, it’s impossible to become a millionaire, let alone a billionaire, with the small, individually owned businesses that still prevail in much of my South Philadelphia neighborhood.
A recent piece by David Leonhardt, “Big Business is Too Big,” redrew my attention to the topic. I also, over Easter, borrowed my brother in law’s copy of Titan, the biography of John D. Rockefeller by Ron Chernow (later of Hamilton fame). Since we’re in a “New Gilded Age,” with levels of economic inequality unseen since the late 19th century, there must be a direct, causal connection between the size of a business and the amount of profit you can pull out of it. This is especially true of capitalism, which rewards ownership over all else, including character, wisdom and social utility. After all, Donald Trump became a billionaire (or so he says) by bankrupting businesses, stiffing contractors and slapping his name on any building or product he could find. Do we need further proof that wealth and merit are not necessarily related?
Whatever happened to antitrust laws? The Sherman Antitrust Act of 1890 is generally hailed as the first major piece of legislation in the Progressive era. Weakly enforced at first, it was used to great effect in the later Great Depression and post World War II periods, ushering the greatest period of economic growth and shared prosperity in US history. It fell out of favor at the outset of the first Reagan administration (of course), which relied on Chicago School of “free” markets which argued, like Rockefeller, Carnegie and other “Robber Barons” that huge size equals “efficiency.” The only standard would be consumer impact – that a merger or consolidation not drastically increase prices.
Since then we have witnessed the “Great Divide” between workers and corporations. US productivity nearly doubled between the 1980s and 2015, yet average wages rose only 12%. All the rest of the money went to owners, executives and shareholders, exploding economic equality. According to the recent Roosevelt Institute report, Powerless: How Lax Antitrust and Concentrated Market Power Rig the Economy…
huge firms with “monopsony power” hurt workers and consumers by suppressing wages, raising prices, stifling investment, innovation, research and development, job creation, crushing labor unions and restricting labor mobility through practices like “no poaching” agreements and “non compete” clauses.
Rising mergers and acquisitions (from less than 2,000 per year in 1980 to 15,000 annually after 2000) rig the economy “against the many for the benefit of the few.” Normally occurring in major metropolitan areas, they decimate rural communities and small businesses, whose survivors then vote for “populist” phonies like Trump who promise to “bring your jobs back.” This can’t happen, however, because concentrated wealth perverts the political system to over-respond to the demands of individual companies and industry trade associations, who benefit from the very policies they’re protesting in the first place.
When I was in college I read (or was supposed to) a book called Small is Beautiful: Economics as if People Mattered, by E.F. Shumacher. I’d like to pick it up again, but you get the gist by the title. It’s probably too late to return to the early capitalism Adam Smith described in The Wealth of Nations, 1776, based on the “perfect competition” of many small businesses producing fairly uniform products with complete information about the local market. This seems to work well for the numerous pizza and hoagie shops in my neighborhood, but maybe not for globally traded goods and services. Yet constantly placing “efficiency” over “equity” in our scheme of values is a formula for emptiness and oppression.
A growing number of economists are calling for reviving antitrust policy, breaking up huge, monopolistic firms and better regulating competition and market structure to serve the needs of workers, consumers and citizens, not just owners, executives and shareholders. This is one more strand of the web of inequality that is choking us and it deserves serious consideration.