Two stories have come out in the last couple days that serve as a reminder that not every business actually desires a functioning free market economy.
Barry Lynn and Phillip Longman talk about the economic consequences of business consolidation, suggesting that the lack of domestic job growth over the last ten years is closely tied to anti-competitive behavior:
It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth. Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.
Over the next few years, we can use our government to do many things to promote the creation of new and better jobs in America. But even the most aggressive stimulus packages and tax cutting will do little to restore the sort of open market competition that, over the years, has proven to be such an important impetus to the creation of wealth, well-being, and work. Consolidation is certainly not the only factor at play. But any policymaker who is really serious about creating new jobs in America would be unwise to continue to ignore our new monopolies.
Their argument touches on manufacturing, where monopoly practices have caused stagnating product development (in many industries, a single manufacturer often produces the products for nearly every “competing” company in the field), to retail, where the market power of large chains causes de facto industry-wide price fixing even in the absence of collusion. The stifling of new inventions would seem to disproportionately impact a knowledge-industry state like Connecticut.
Monopoly power has also become a hot topic in healthcare coverage, as most states are dominated by a small number of providers; this was addressed in part by the creation of exchanges, but national exchanges (and a repeal of the anti-trust exemption for the insurance industry) don’t seem to be on the table at this point. A study cited in the article shows that in 80% of mergers, the new (larger and theoretically more efficient) company raises their prices when faced with less competition.
None of this, of course, is surprising, but somehow the national debate about job creation is hitched to a belief that what we should do what business wants, because what business wants is more and better competition. In a lot of cases, that’s exactly the opposite of what business wants. Competition cuts profits; new products create headaches and unpredictability.
The other story that came out is about our less-than-enlightened business lobbyists here in Connecticut, who see the economic suffering of the state’s residence as a great opportunity to weaken environmental regulations in the state. How lifting a regulation that you can’t dump battery acid in the river (or, as cited in the article, paint into the groundwater) is going to create jobs is beyond me — but it serves as a useful reminder of how cynical the politics around these issues can be.
There seems to be conflicting visions of what our economy is for – not that you’d be able to tell from watching C-SPAN. But the rise of Friedman/Reagan economics wasn’t so long ago that people don’t remember a time before it, and it wasn’t so long ago that we can’t contemplate a different model to follow it.
What’s the purpose of industry? To build useful things? To constantly improve the quality of life in our society? To be a strong component in the fabric of our communities? Too often, the answer is that the purpose is simply to generate capital, that this alone is sufficient to justify the human costs of profit-enhancing decisions; an ethic of ownership over work that trends naturally towards monopolies and rent-seeking over the (imo more desirable) elements of competitive, community-oriented businesses. From the excellent wikipedia description of “rent seeking” (wanted to check that I was describing the right phenomenon):
From a theoretical standpoint, the moral hazard of rent seeking can be considerable. If “buying” a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth.
That seems a pretty tidy description of the situation we find ourselves in right now. And the solution? The big-picture version from Lynn and Longman sounds pretty compelling:
When we get serious about this task, we will find that an entire political economic model lies ready for our use—the one shaped largely by the populists in Congress and the Roosevelt administration during the second New Deal. Before we can make use of this ready-made system for distributing power and opportunity, however, we will first have to break up the intellectual monopoly that has been forged over so much political economic policymaking in Washington today. The generation of political economists who understood the theory and practice of antitrust as devised by the late New Dealers are mostly retired or dead, and the academic economists who today dominate most discussions either have little understanding of the political nature of antimonopoly law or are openly hostile.
That’s why our first step must be to repopulate our discussions of political economics with the voices of the people who actually make our economy go. After all, real entrepreneurs and real scientists and real executives and real bankers and real farmers and real software engineers and real venture capitalists tend to understand quite well how real power is used against them. Just as it is they who know better than anyone else what freedoms they require to go about the task of putting their fellow Americans back to work.