Capitalism is an economic system in which private enterprise competes in a free market. Competition is vital to maintaining a free market. Capitalism without competition isn't capitalism---it's an oligarchy. Competitive capitalism enables economic freedom. As Milton Friedman famously declared, “economic freedom is a necessary condition for political freedom.” In other words, without economic freedom, political freedom cannot exist. But capitalism that we see today is a far cry from the competitive capitalism that Milton Friedman defended.
Since the 1980s, antitrust enforcement has been virtually nonexistent and, as a result, market concentration has sharply increased. Today, many industries are controlled by, at most, a few large players. Consider these examples:
- Two corporations control 90% of beer Americans drink.
- Four airlines dominate air travel---and have monopolies or oligopolies in their regional hubs. At 40 of the 100 largest US airports, one airline controls a majority of the market. For example, Delta has 80% market share in Atlanta.
- Five banks control half of the nation's banking assets.
- One or two insurance companies have 80-90% market share in many states. For example, Blue Cross Blue Shield has 84% market share in Alabama and 65% market share in Hawaii.
- High-speed Internet access is run by local monopolies---75% of Americans have no choice but to use one Internet service provider.
- Four companies control the entire US beef market with each enjoying a regional monopoly.
- After two mergers couple of years ago, three companies control 70% of the world's pesticide market and 80% of the US corn-seed market.
- Google dominates Internet search with over 90% market share. It also owns YouTube, Android and its App Store, the Chrome web browser, and other technologies that allow it to act as gatekeeper to the Internet.
- Facebook has over 80% market share of social networks with almost 3 billion monthly active users.
- Amazon faces a conflict of interest as it is both the largest retailer in the world and the largest online platform for third party sellers. Amazon is also the largest provider of cloud computing services---with its Amazon Web Services division.
- Apple's iPhone and Google's Android are a duopoly in mobile apps. They determine what apps the public has access to, and whether businesses can reach their customers and on what terms.
The economic and political consequences of this market concentration of power are profound: less investment; lower productivity; less innovation; higher prices for consumers; lower revenues for suppliers and small businesses; lower wages and more wealth inequality; fewer jobs, higher unemployment, and lower labor force participation; withering of American towns and the American Dream; less localism and more centralization; and low economic growth.
On the political side, the concentration of market power has fostered a culture of "regulatory capture," whereby a few dominant players cozy up to government regulators in an effort to rig the system and the rules---including lax antitrust enforcement that lowers competition and enactment of regulations that keep out new entrants---in their favor, and donate to politicians who then turn around and pass legislation favorable to them. We don't live in a democracy. We live in an oligarchy. For example, 78 former government officials worked as lobbyists for Comcast when it merged with NBC Universal. Even more disturbing, FCC commissioner, Meredith Attwell Baker, who approved the deal was then hired by Comcast. That's how the revolving door of the oligarchy works. You scratch by back, I'll scratch yours---while the American people get the short end of the stick.
Other political consequences of monopolies and oligopolies is increased corporate wokeness and crony capitalism. When you don't have to compete for customers and workers, you can afford the luxury of being woke---consumers and employees have no choice but to buy from and work for you. Corporate America has partly embraced wokeness to appease the liberal elites---bureaucrats, technocrats, and the cultural Left. Monopolies and oligopolies enable cancel culture.
Despite record corporate profits---except for during the Trump administration---most workers haven't seen their real wages rise in decades, shifting more and more economic power to employers and out of hands of labor. The undistorted, competitive free market that the political Right cherishes no longer exists today. The political Left no longer cherishes the dignity and the rights of workers. In fact, the Right has now become the champions of working people as corporate America has embraced the pieties of the Left. Big Business is now in bed with the Left. There seems to be a symbiotic relationship between the Left and monopolists. The monopolists do the bidding of the Left and, in return, the Left doesn't enforce antitrust and leaves their monopoly power intact. That's how the game is played. Each side in this arranged marriage scratches each other's backs and gets richer and more powerful in the process.
On the other hand, if you are an investor or entrepreneur, monopolies and oligopolies are a gold mine. Warren Buffett famously invests only in monopolies and oligopolies. As Peter Thiel says in his book, Zero to One, the company you want to build is a monopoly.
Since the 1980s, we've seen a boom in mergers and acquisitions that surpasses even the market concentration of robber barons during the Gilded Age. According to research done by the Economist, from 1997 to 2012, 67% of American industries were controlled by a few large firms. As large companies acquire small ones, we've seen a sharp decline in initial public offerings (IPOs). In the 1990s, there were, on average, 436 IPOs per year. By 2016, the number of IPOs shrunk to 74. And over half of all public companies have disappeared in the last 20 years. According to a study by Credit Suisse, between 1996 and 2016, the number of US stocks fell by more than 50%---from more than 7,300 to fewer than 3,600. It's not lower economic growth or the global financial crisis---the precipitous decline in the number of publicly-traded stocks is occurring in nations with high market concentration. Not only are there fewer, older companies, but they aggregate more and more profits. In 1995, top 100 publicly trades firms accounted for 53% of total income---by 2015 they controlled 84%. All the mergers and acquisitions have stifled competition. Recently, the software maker Adobe acquired Figma, a tech design company; Albertsons and Kroger are looking to merge, which will likely increase food prices even higher from where they are due to inflation.
Almost all industries have become more concentrated. One research study concluded that 75% of American industries have increased concentration levels---and the top four firms in almost all industries have significantly increased their market share---in the last 20 years. The paradox, of course, is that what's good for one company isn't good for the economy as a whole. The pursuit of monopoly power violates Immanuel Kant's principle of universalism. America no longer has principled, patriotic business leaders---like Henry Ford---who understood that what's good for their companies is what's good for America. The lack of moral business leadership is the failure of liberalism writ large. And market concentration has gotten exponentially higher since the COVID lockdowns that shut down and put out of business many small and independent businesses while allowing multinational corporations like Walmart and Amazon to stay open and dominant the market.
Oligopolies act like cartels---they collude---to control the market. They dirty little secret is that corporate collusion is at an all-time high because of market concentration. Cartels collude to fix prices, reduce supply, and control employee mobility and wages. According to research, cartels occur in industries in which top four firms control over 75% market share. For example, in 2006, airlines were caught fixing prices, and were forced to pay $3 billion in fines. Infamously, in 2014, it was discovered that Google, Apple, Facebook, Adobe, and many others, colluded not to hire each other's employees, thereby distorting labor markets. Big Tech companies are supposed to be competitors---but they act as a cartel as we found out after Jan 6 when many conservatives were banned from social media and cloud computing platforms including then sitting President Trump.
Known as the "oligopoly problem," tacit collusion among oligopolies creates an effective monopoly that lower wages, hikes prices, and reduces supply. For oligopolies, it's much easier to collude to guaranteed profits than to have to compete. Monopolies and oligopolies are like parasites---they cripple the economic vitality, diversity, and dynamism of the nation. Amid record corporate profits, instead of investment and increasing wages, corporate America prefers stock buybacks, and offshoring profits and labor.
Many industries now have a monopsony---one buyer---of labor. Workers have no choice where to work and, consequently, have very little power when it comes to negotiating wages, health care, and other benefits. Monopolies and monopsonies have shifted power dynamics dramatically in employers' favor who use that leverage to limit worker wages, rights, and mobility via noncompetes and forced arbitration. The monopsony of labor has hit small town America especially hard. Local small businesses are being taken out and put out of business by large, distant monopolists.
In many small towns, there's no choice where to buy basic necessities like food and health care, or where to work. You might only have one insurer and one big box store like Walmart in your town. For example, in Ohio, Amazon is the state's largest employer with 10% of its workforce on food stamps. Ditto for employees of monopolists like Walmart and McDonald's. Another way monopolists and oligopolists suppress wages and benefits is via temporary workers---such as contractors freelancers, foreign workers, and other cheap, no-strings-attached workers. We all know that Uber drivers aren't employees but contractors. In fact, Uber lobbied hard and went to court to prevent their drivers from being classified as employees. An overwhelming majority of people who work for Big Tech monopolists are contractors. For example, out of more than 2 million people that work for Apple, only 80,000 of them are employees---that's just 4% of its workforce, despite $900 billion in market capitalization. That's not even counting H-1B visa holders and other foreign workers who further depress wages and benefits. Contractors are often hourly employees---without health care, retirement, unemployment insurance, worker's compensation, company provided training, and other benefits. This makes it impossible to buy a house, raise a family, and get ahead. And workers aren't likely to be loyal to the employer---creating national instability and stress. These monopolists love to virtual-signal about how woke they are while mistreating their workers, consumers, and fellow Americans.
As licensing regulations have sharply increased, occupational licensing boards have become de facto monopolies that control who gets to work and where. In the 1950s, 1 in 20 workers needed an occupational license---today 1 in 4 do. This increased bureaucracy left workers alone to navigate complex rules, regulations, and laws. Today, workers are squeezed from all fronts---licensing requirements, noncompetes, forced arbitration, decline of unions, stagnating wages and benefits, temporary positions, foreign labor, and offshoring. Without countervailing power, corporations have tilted the field dramatically in their favor and have left many Americans worse off.
Big Tech behemoths---such as Google, Facebook, Apple, Microsoft, and Amazon---use ruthless business practices to crush competition. Google is infamous for demoting competitors in search results or ripping off competitors outright, if it cannot acquire them. Google abuses its market power in search to "bundle" up more market power in other verticals. Google now has over 90% market share in search, over 85% market share in mobile apps with its Android mobile operating system and app store, and over 60% market share in web browsers with Chrome. Google also owns YouTube, with close to 80% market share in online video. Google and Facebook have a duopoly in digital advertising---with Google controlling over 90% market share in search advertising and Facebook has over 80% market share in display advertising. Google bought its main competitor DoubleClick and online ad exchanges to consolidate its position in advertising. Nearly everything on the Internet touches Google in some way---from Google Docs and Google Drive to Google Maps and Google Cloud. Amazon has acquired dozens of e-commerce competitors and online booksellers to entrench its position as a monopsony in books. Facebook bought rivals like social media platform Instagram and the messaging app WhatsApp with no regulatory or antitrust challenges. Microsoft, Amazon, and Google have a triopoly in cloud computing with Azure, AWS, and Google Cloud, respectively. And all of these companies surveil their users and violate their privacy---all in the service of monetizing their traffic and data.
These Big Tech robber barons don't face any regulatory and antitrust scrutiny because they are highly engaged in politics and spend tremendous amounts of money on lobbying and political donations. These monopolists capture regulators via a revolving door of insiders, and buy off think tanks, academics, and universities. Every think tank in Washington---across the political spectrum---is funded by Big Tech. Even the ostensibly conservative New America Foundation fired its lead researcher because he wrote a piece critical of Google. Turns out, the NAF received over $21 million from Google’s Executive Chairman Eric Schmidt---you can imagine how much progressive think tanks and nonprofits get from him and other billionaires like Bill Gates and George Soros.
In 2012, the Federal Trade Commission investigated Google for its anticompetitive practices. Three years later, in 2015, after it was revealed via the Freedom of Information Act request, in its 160 page report, FTC concluded that Google engaged in anticompetitive tactics and abused its monopoly power, going so far as threatening companies with extinction, if they didn't along with its demands, and to "use its monopoly power over search to extract the fruits of its rivals' innovations." Even after this report became public, the Obama administration refused to charge Google. Why? The answer is simple: Google was the second-largest donor to the Obama campaign; Google espouses progressive woke, values; many former Google employees worked for the Obama campaign and the Obama administration; and many former Obama consultants and administration officials went to work for Google. Google's Executive Chairman Eric Schmidt was a big Obama donor and booster, going so far as recruiting tech talent for Obama's reelection campaign and funding progressive nonprofits and tech companies such as Blue Labs and Civis Analytics founded by Obama campaign alums. That's how the game is played---monopolists and oligopolists corrupt our political system to curry favor and obtain favorable treatment with regulators and politicians.
As one expert noted, Big Tech is essentially functioning as governments now. They are no longer market participants. They are market makers who can exert regulatory control over what news others see, what books they read, what people they interact with, what apps they use, and what goods they can sell and buy. Big Tech monopolists aspire to displace more government roles over time. That's a scary proposition---as we found out during COVID---to have corporations control our lives and who can act outside the constraints of the Constitution and the Bill of Rights. No wonder, Senator Josh Hawley of Missouri wrote a book called The Tyranny of Big Tech. Just look at what happened to Parler and conservatives after Jan 6. Big Tech effectively took away their First Amendment rights.
Google, Facebook, Apple, Microsoft, and Amazon have together acquired over 500 companies and start-ups in the last 15 years. In 2017 alone, they spent over $30 billion on acquisitions. Start-ups either sell out to Big Tech monopolists or get crushed. Upstarts that don't accept the offer from Big Tech are destroyed: their innovations are stolen, their products are suppressed, they face patent lawsuits, and their top talent is poached.
Big Tech monopolists also enable The Great Reset and the rise of the 21st century fascism. China is the epicenter of this merger of Big Data and Big Brother, facial recognition technology, artificial intelligence, surveillance, and social credit systems. The COVID lockdowns were a test run. Dictators of the past---such as Hitler, Lenin, Stalin, and Mao---only dreamed of having access to modern technology in order to control the population and achieve a centrally-controlled and planned economies. Big Tech monopolists are taking over the world and will use us as their serfs. Monopolistic capitalism is no different from fascism or communism.
Monopolies, duopolies, and oligopolies control almost all industries without the consumer even realizing it: cereal, soft drinks, beer, meat and poultry, drugstores, grocery stores, cable and high speed internet, computer operating systems, social networks, search, milk, railroads, seeds, microprocessors, funeral homes, payment systems, mobile operating systems, online advertising, kidney dialysis, glasses, credit reporting bureaus, tax preparation software, phone companies, airlines, banks, health insurance, hospitals and medical care, agriculture, media, title insurance---are all controlled by monopolies, duopolies, or oligopolies. And all of these big business chieftains lobby the government, capture regulators, and contribute to political campaigns in order to prevent antitrust enforcement, pass favorable legislation, lower wages, offshore production, destroy unionization efforts, and forestall new entrants into their markets. It's a rigged system that enriches those in power, bureaucrats, technocrats, and the managerial elite---while shafting the American people. Everything you do in your daily life---eating, sleeping, working, walking, driving, reading, talking on the phone, browsing the web, etc.---likely enriches robber barons and monopolists.
Totalitarian governments love monopolies and oligopolies because it's easier to control a few big corporations than millions of small, independent businesses. Remember, economic freedom is a necessary condition for political freedom, and it's the responsibility of responsible government to prevent excessive concentration of economic power. Monopolies and cartels were instrumental in the rise of Germany's Third Reich, and to Hilter's totalitarianism and military rearmament. Concentration of economic power was crucial to the Nazis’ grip on power.
Competition is a check on power. By not enforcing antitrust laws, our leaders have failed the American people. Every administration, both Republican and Democrat, since the 1980s has failed to enforce antitrust. Even Obama, who talked tough about big business and Wall Street, raised an obscene amount of money from them, and was as pro-merger and against antitrust enforcement as any president in history. The industry capture of the Department of Justice and the FTC is complete---the revolving door is as regular as having coffee in the morning. Antitrust enforcement is dead. The FTC now serves as a highly paid employment agency for lawyers and economists as they move in and out of government.
The merger of big government and big business is a classic definition of fascism, increases wealth inequality, and undermines freedom. Lobbying (or "government relations" as the fat cats call it) and spending on political campaigns are crucial parts of the business strategy for monopolists and oligopolists. They know that favorable laws and regulations will be enacted that strengthen their market position, bar new entrants, and kill competitors. The return on investment is astounding. According to research, each dollar spent on lobbying for a tax break returns $220. That's a 22,000% ROI. Lobbying and political spending are correlated with increased profits. Since 2000, political activity and regulation account for most of the rise in valuations and profits. In the past, profits were correlated with increased investment, research and development, and innovation. Today, profits are increased with rent-seeking and influence peddling, and explains the conformity of today’s corporate America.
The amount of regulation within an industry is highly correlated with market concentration. The more regulated the industry the more highly concentrated it is because large corporations love regulations. They can hire an army of lawyers, accountants, lobbyists, and compliance personnel to continue doing business as usual. Smaller firms don't have the resources to spend on compliance, especially start-ups. Industry regulation is a big barrier to entry. Why do you think big corporations like Walmart and Amazon are for raising the minimum wage to $15 per hour? They can afford it, but their competitors can't. It's a cynical ploy to kill competition while being woke and getting applause from the Far-Left---the same Walmart that imports junk products from China, and the same Amazon that's fighting unionization that would help their workers. It's a game monopolists and oligopolists have perfected.
The concentration of economic power is a threat to our freedoms. If you control the economy, you could control government. It's worth remembering that when Adam Smith wrote of the "invisible hand" in The Wealth of Nations, he wasn't just praising the free market, he was condemning the government for enabling large merchants who were acting in their own self-interest. When the government gets involved in economic affairs, apart from being a neutral referee, bad things happen. Teddy Roosevelt understood the danger of monopolies well. That's why he was the trust buster that saved capitalism and the republic.
A symptom of market concentration is "horizontal shareholding," holding ownership in multiple companies that ostensibly compete with each other. For example, holding stock in United, Delta, and American Airlines---all three of them. With horizontal shareholding, firms can tacitly collude to increase corporate profits, depress wages, and increase stock buybacks. Horizontal shareholding has increased exponentially since the 1980s. In 1980, 75% of firm pairs had no common owner; today only 8% do. Studies show that horizontal shareholding is correlated with increased consumer prices and fees. The problem with horizontal shareholding has been exacerbated with Big 5 institutional investors---BlackRock, Vanguard, State Street, Fidelity, JP Morgan---now owning more than 80% of all stock in the S&P 500. It's like an oligopoly within an oligopoly. So only a few players control many American industries. That's not equality. That’s not freedom. That's oligarchy. The interesting thing is that the Clayton Antitrust Act of 1914 banned horizontal shareholding, but---like other antitrust provisions---hasn’t been enforced.
Antitrust regulation isn't about keeping consumer prices low, it isn't about "efficiency", nor is it about "consumer welfare"---it's about the dispersion of control and power, and preservation of democracy and freedom. What are the consequences of lack of antitrust enforcement? Dramatic increase in the share of income that goes to the top 1%, an exponential increase in CEO pay relative to workers, no real increase in wages, record corporate profits, dramatic increase in market concentration, political corruption and oligarchy that threatens the republic itself, and the bifurcation of society into the haves and the have nots. As the Nobel Prize-winning, archetype free market economist, Milton Friedman wrote in Free to Choose:
“Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised. In addition, by dispersing power, the free market provides an offset to whatever concentration of political power may arise. The combination of economic and political power in the same hands is a sure recipe for tyranny.”
Friedrich Hayek wrote, "I should prefer to have to put up with some inefficiency than have organized monopoly control my way of life." We need a new Teddy Roosevelt---a new trust buster---in the 21st century who can bring back competition to capitalism, restore economic freedom, and save the republic.
REFERENCES AND FUTHER READING:
Tepper, J. and Hearn. D. (2018). The Myth of Capitalism, Wiley.
Friedman, M. (1962). Capitalism and Freedom, The University of Chicago Press.
Friedman, M. and Friedman, R. (1980). Free to Choose, Harvest.
Smith, A. (1776). The Wealth of Nations. (Penguin classics edition, 1982).
Hayek, F. A. (1944). The Road to Serfdom. The University of Chicago Press.