“No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”
When considering whether the merger would create a monopoly, the shoemakers argued that this was impossible because “Kinney manufactured less than 0.5% and retailed less than 2% of the Nation’s shoes.” But the court was focused more on other things, like the growing trend of manufacturers acquiring (rather than just supplying) retail outlets and a (very strictly applied) mandate to prevent any substantial loss of competition.
In the period between FDR’s decision in 1933 to staff up the Antitrust Division of the Department of Justice (from a mere eighteen employees at the outset to nearly five hundred staffers by 1943) and the destruction of the Antitrust consensus under the Reagan administration, the country saw an explosion of independently owned businesses. Community hardware stores, auto repair shops, pharmacies, and retail shops of all kinds sprung up from coast to coast.
My brother Phil will be telling this story in the upcoming issue of the Washington Monthly, but suffice to say here that America’s mid-century small business explosion was good for competition and it was good for lenders, consumers, and economic growth. What’s important is that it wouldn’t have been possible if these folks hadn’t had the Antitrust Division looking out for them by making sure that no Wal-Mart or Amazon could form and destroy their businesses and their way of life.
After Hillary Clinton delivered a speech on antitrust in Toledo yesterday, I was planning to write about this history but Paul beat me to it. I am going to quote from his piece here because he went to the trouble to put together all the links:
This sudden focus on antitrust was, naturally, music to our ears here at the Washington Monthly. As longtime readers know, we’ve been hammering away at this issue for a decade and a half. Beginning in 2001 we started running stories by people like Karen Kornbluh, Nicholas Thompson and John Podesta about how telecom monopolies, with a major assist from the Bush administration, were crushing competition in the broadband market. In 2004, CNN founder Ted Turner explained how the broadcast and entertainment industries were also rapidly consolidating, making it impossible for a younger generation of media entrepreneurs to get a foothold.
In 2010, New America’s Barry Lynn, author of the book Cornered, and Phil Longman published a seminal Monthly cover story revealing that virtually every industry sector, from banking to beer to eyeglasses, had become similarly controlled by one or a few big corporations and that this locking up of markets is a major, under appreciated cause of the long-term slowdown in job growth. Lynn and Longman also made clear that consolidation was not some natural occurrence but the result of a deliberate strategy by the Reagan administration to all but end antitrust enforcement, a policy the next four administrations, to varying degrees, continued.
Subsequent pieces in the Washington Monthly by Lynn, Longman and others connected with New America’s Open Markets program filled out the picture. They showed how strong antitrust enforcement beginning in the latter New Deal years set the stage for four decades of strong economic growth. They explained how monopolized markets threaten unions; how growing monopoly power has warped the airline and hospital sectors; and how U.S. entrepreneurship, once thought to be America’s great competitive advantage, has in fact been in decline due to consolidation. Finally, they demonstrated how consolidation is driving the growing regional inequality of America, with half a dozen big metro areas, mostly on the coasts, gobbling up all the income growth and corporate headquarters while smaller metro areas sink into relative decline despite their best efforts to compete.
Throughout most of this time, the Monthly has been pretty much a voice in the wilderness on the consolidation issue. But in the last few years several leading economists, including Paul Krugman, Joseph Stiglitz, Jason Furman and Peter Orszag, have joined the crusade, as have other think tanks, including the Roosevelt Institute and the Washington Center for Equitable Growth. In recent months other thought-leader publications, including The Atlantic, The New Yorker, The New Republic, and Democracy, have picked up on the consolidation trend and published important pieces on its dangers.
Yet the issue has barely penetrated the mainstream press and has been virtually absent from the presidential campaign. During the primaries Bernie Sanders talked a lot about breaking up the big banks, but never expanded that idea to other sectors. Hillary Clinton wrote an interesting article last year about antitrust but never, as far as I know, talked about the issue on the stump. And of course none of the GOP contenders went near it. That includes Donald Trump, for whom, in some ways, the issue is a natural.
Then in June Elizabeth Warren gave a powerful, detailed speech on the dangers of consolidation and the need for stronger competition policies.
As Vox‘s Timothy B. Lee pointed out last night, Clinton is clearly listening to Sen. Warren and they are collectively harkening back to a period in the 1970s when “antitrust officials were suspicious of large companies in general, whether or not they were engaged in anticompetitive behavior” and “were particularly skeptical of national chains, fearing that their concentrated power could drive mom-and-pop stores out of business.”
This is actually classic progressive thinking that once had broad support even from Chicago School libertarians, but it went out of fashion on the left and became heresy under Reagan.
If you think our towns and cities have been hollowed out solely by free trade deals and globalization, you should ask yourself if you fly to Mexico to buy your lawnmower or to India to get your prescriptions filled. It’s more likely that you go to Lowe’s or Home Depot for that lawnmower and either CVS, Walgreens, Rite-Aid or Wal-Mart to fill those prescriptions. Maybe you stop off for lunch at Applebee’s or Olive Garden.
Market consolidation is so normal at this point that we don’t even notice it. And most people like Amazon and Wal-Mart. They like the prices and the convenience. So, there’s a lot of work to do. These are popular brands and even the left has been mostly absent on this over the last several decades. People don’t understand what’s happened to this country, how it got this way, and how to fix it. We’re beginning to break through on this; that’s clear now that our ideas have reached the very top. But it would help if more progressives would join us.
There is one good thing to note here, as Timothy Lee wrote:
[Clinton’s] proposals are significant because they don’t require passing legislation in Congress. Simply by choosing officials devoted to more vigorous enforcement of antitrust laws, Clinton can bring about a big shift in the way the nation’s antitrust laws are enforced.
She’s promising to take up that fight, but that doesn’t mean she won’t get her ass kicked for it if she gets no credit or encouragement and has only the backlash as thanks. Clinton’s ahead of the curve on this but since progressives have forgotten how to speak this language, they’re more apt to insult her as a “typical neoliberal” than to celebrate (or even notice) what she’s done here.