This is the scariest book I’ve read since The Day of the Triffids. Back in the ‘70’s, when I worked on my dissertation, US business monopolization seemed bad, but not getting worse. Spinoffs and breakups balanced mergers. So I forgot about the problem. Since then, as documented in Cornered by financial journalist Barry Lynn, global monopolization has rapidly returned us to a new age of robber barons. A few items:
Some 30 years ago, one of my husband’s students landed a dream job at the DuPont labs in Delaware, doing cutting-edge research in his field of photosynthesis. Today, the DuPont labs have shrunk, and he’s reduced to applied research on sugarcane waste.
A medical equipment inventor has developed retractable needles and needleless syringes that greatly reduce blood-borne infections. But as told in the latest Washington Monthly, Dirty Medicine, he cannot sell to US hospitals–because the market is monopolized by a handful of giant group purchasing organizations, or GPO’s, which Congress exempted from antitrust in 1986. The GPO’s in turn have a comfortable kickback deal with medical supply giant Becton Dickinson, which controls 70% of the US syringe market.
Remember the great 2007 pet food recall? It turned out that most of the US pet food business depends on a single packager. That company purchased Chinese gluten, which had been doctored with melamine to increase the apparent protein content. Some 150 brands were contaminated, ranging from cheap Wal-Mart brands to luxury brands. Some 50% of pet food is sold through Wal-Mart.
If you buy eyeglasses, you may think you’re in a competitive market, with Lens Crafters, Pearl Vision and others. In fact, almost the entire worldwide optical business, from manufacturing to sales outlets, belongs to a single giant Italian firm, Luxottica.
Two giant distributors, InBev of Belgium and SAB of South Africa, control the world beer market—including famous brands like Budweiser, Michelob, Stella Artois, Kirin, Tsingtao and Corona.
And don’t forget those six TBTF banks (“too-big-to-fail”)—Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. These now control assets equivalent to over 60% of GDP. B of A, JP Morgan and Wells Fargo between them hold 33% of US bank deposits. The megabanks arose from a blizzard of mergers over the last 20 years—topped off, after the 2008 crisis, by mergers forced by the US Treasury and the Federal Reserve.
As Barry Lynn reports, not only the scale but the structure of monopoly has changed. Back in the 1970’s, big oligopolies like the auto and oil industries were vertically-integrated, meaning they produced their own inputs, and controlled their sales. Today’s giants take the form of horizontally integrated trading companies like Dell Computer, buying their inputs all over the world. The auto companies now operate as a virtual monopoly, sharing all their suppliers.
Worse—which is what Lynn means by “the economics of destruction”—monopolists are often sole buyers as well as sole sellers. In that position, they squeeze their workers and suppliers, often at the expense of quality and variety. They cut wages, jobs and benefits. Retail chains force small suppliers out of business, and tell larger ones how to make and price their product. For example, Wal-Mart has told Coca-Cola what artificial sweeteners to use in its diet sodas, and has told Levis what fabric to use in its Jeans. Manufacturers cut R&D and buy up patents—not to make new products but to suppress innovation and competition.
Monopolization creates instability. This is evident in agriculture, where once independent farmers now operate as subcontractors to Tyson or Cargill or ADM or (now Brazilian-owned) Swift, raising genetically uniform corn or pigs or chickens according to prescribed recipes. A new blight or growing resistance to antibiotics can wipe them out. The TBTF banks epitomize instability.
Monopolization threatens political freedom. A friend’s husband works for the B of A. We recently suggested that she might contribute to the campaign of a promising young Democratic congressional candidate. She shook her head. Just as English lords monitored their tenants’ votes for Parliament, the bank monitors employees’ contributions.
Lynn traces the rush of monopolization to the “free-market fundamentalism” ideology of the Reagan era. The prophet of this ideology, Milton Friedman, proclaimed that government regulation impedes “efficiency”. So out went anti-trust enforcement, slowly at first, but gaining momentum. Lynn views President Clinton as the worst offender, allowing and even encouraging mergers not only among the banks, but in the media, where about fifty big firms quickly consolidated into six giants.
Lynn, libertarian by inclination, offers little remedy outside renewed anti-trust enforcement and a serious attention to checks and balances. For a better appreciation of how the tax, subsidy and regulatory systems favor the top one percent, read David Cay Johnston’s Perfectly Legal and Free Lunch. Lynn also misses how monopoly depends on control of natural resources including prime locations—like bank corners and auto strips. What is Wal-Mart, after all, but great swaths of real estate at major highway intersections? But let’s hope Lynn’s alarm summons up a new generation of trust-busters.
Meanwhile, Lynn should make us all acutely monopoly-conscious in our personal lives. Toronto-Dominion (TD) Bank recently gobbled up our local Commerce Bank. So we’re moving to a surviving local bank, Apple Bank for Savings. And no more Heineken! We’re switching to Brooklyn Lager.
