Return of the Oligarchs

Paul Krugman had a much-discussed column today that discussed record corporate profits and weighed the effects of technology and sheer corporate power in keeping those profits from benefitting workers via more jobs and higher pay.

On the latter subject, he touted a 2010 Washington Monthly article by Barry Lynn and Phillip Longman (“Who Broke America’s Jobs Machine”) as persuading him that growing business concentration “could be an important factor in stagnating demand for labor, as corporations use their growing monopoly power to raise prices without passing the gains on to their employees.”

Indeed. Here’s a key quote from that Lynn/Longmann piece:

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.

They attribute this baleful development largely to the virtual suspension of the enforcement of antitrust laws during the Reagan administration, a counterrevolution that was only marginally reversed by the Clinton and Obama administrations. If you haven’t heard much about that–well, you’ve gotten a taste for why so much economic debate in Washington revolves around a limited range of fiscal policies for creating jobs. Reducing the power of Big Business to distort and control markets remains the most direct path to ensuring that robust profits go hand in hand with broader gains in jobs and prosperity.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.