Capitalism is supposed to create competition between businesses, which results in lower prices for consumers. It may also encourage businesses to provide a higher quality of goods and services in order to attract customers. When a business is a monopoly, it is the only seller of a particular product or service in its market; without competition from other businesses, it is often able to charge consumers higher prices while offering less service or lower quality.
The purpose of antitrust laws was to foster competition. Antitrust laws also were designed to prevent competing companies from working together to set prices, especially when the consolidation of companies creates oligopolies. When a few companies work together—or collude—they may be able to restrict output and/or raise prices without fear of a competitor offering the same type of item or service at a lower price.
why aren’t we seeing more antitrust cases in this era of consolidation?"
But, if this is what the antitrust laws were designed to prevent, why aren’t we seeing more antitrust cases in this era of consolidation?
My only conclusion is that this new form of free-market capitalism doesn’t play by the old capitalist rules. Since the big corporations have been very successful in buying favors from Congress, getting rid of most unions and reducing the cost of labor, why shouldn’t they see the next opportunity as consolidating to control markets. The government has shown little interest in pushing antitrust cases, and labor is weak and disorganized. There is simply nobody to stop them.
In the beginning, Madison and Jefferson envisioned “a democratic republic in which every citizen would have property, every citizen would have a vote, every citizen would be roughly equal, and every citizen would have a stake in running the economy."
But after the Civil War, the robber barons gained control of huge industries like oil, steel, railroads and the telegraph, creating monopolies where the average citizen or even the government had no input. This continued until the Sherman Antitrust Act broke up the monopolies, but the control of the few over the many continued until the crash of 1929.
This led to the depression and then the New Deal, which was a second American Revolution that took power and money from the wealthy and redistributed it to the people. The government used antitrust laws to prevent large corporations from becoming monopolies or oligopolies that could control markets. It worked well from 1930 to 1980, and the average worker shared in the prosperity of the country.
In the 1960s, Robert Bork was a conservative judge who believed that socialism might take over the country through the antitrust laws. In 1978, he wrote a book, The Antitrust Paradox, in which he wrote the following famous sentence: “The Congress enacted the Sherman Act as a consumer welfare prescription.” One year later, the Supreme Court adopted the sentence, which shifted the entire argument away from efforts by corporations to create monopolies and oligopolies, and toward protecting consumer welfare.
At about the same time, economists at the Chicago School of Economics began to publish studies claiming that the enforcement of our anti-monopoly laws was harming that defenseless figure—the American Consumer—by promoting wasteful competition.
The Chicago economists saw monopolies as a move toward efficiencies and argued that “a monopoly was thus naturally fleeting and rapidly turned into competition, so it could be ignored.”
Abandonment of antitrust by the government began during President Reagan’s term. After he took office in 1981, his new head of the antitrust enforcement, William F. Baxter, swiftly abandoned efforts to promote competition and promised instead a policy based on efficiency considerations. According to an article in Harper’s magazine, Baxter said the goal was to promote the welfare of the consumer, theoretically by increasing his or her access to cheap goods.
So began the subtle changes that used the consumer welfare argument as a cover to justify more consolidation and the formation of oligopolies.
So began the subtle changes that used the consumer welfare argument as a cover to justify more consolidation of firms to form oligopolies. There was no populist uprising and few protests; nobody challenged the new policy. The free-market capitalists had hit another home run, giving corporations a free pass to merge and legally form oligopolies, as well as the ability to control output and raise prices at the expense of the consumer.
Today the control of large markets and industries is not an exception, it is the rule. There was no challenge to the abandonment of antitrust, from the Reagan and Bush administrations through the Clinton and Obama administrations.
The Twisted Consumer Welfare Argument
The efficient markets argument, which asserts that monopolies are simply efficient and thus protect the consumer, is a fairy tale created by the free-market capitalists to eliminate antitrust laws. The concepts used in the publicity campaign to change the public’s perception of antitrust reminds me of the Ministry of Truth In Orwell’s 1984, where the meaning of a statement is really the opposite. For example, market efficiency means market control... being concerned about consumer welfare means higher prices... A decent return on investment means redistribution of income... And free markets means corporate monopolies.
The most obvious problem is that, contrary to the claim of consumer welfare theorists, consumer prices have been rising fast, even though the middle-class share of total income has declined from 53% to 45% since 1968. They might be buying cheap goods from China, but living expenses like insurance, gasoline, poultry and beef and healthcare, which have to be purchased in the U.S., are making it harder for the average worker to make it from paycheck to paycheck.
Some facts:
- The top 1% of all households who are the shareholders or managers of the oligopolies have been on a roll. Before 1929, the top 1% enjoyed 23.9% of total pre-tax income. The New Deal laws lowered this to about 7% by 1978. After 1980, with the help of lower labor costs and the tax law changes, they began forming oligopolies and their pre-tax income rose again to 23.5% by 2005.
- Oligopolies and monopolies have undermined competitiveness, ignored antitrust laws and are the prime driver of inequality.
- The concentration of economic power has led to the concentration of political power. This has led to a slow (yet continuous) erosion of the Democratic Republic as defined by Madison and Jefferson. If we can’t reduce this new power, the decline of the middle class will continue along with the decline of living standards and wages.
- To show how little threat antitrust laws have become, oligopolies are now considered good investments. Goldman Sachs published a research memo that advised their investors to seek out "oligopolistic market structures in which a smaller set of relevant peers faces lower competitive intensity, greater stickiness, and pricing power with customers due to reduced choice, scale cost benefits, including leverage over suppliers and higher barriers to new entrants all at once.”
Company consolidation and oligopolies are only good for the wealthy and the large corporations. They have not been good for working people, taxpayers, the middle class, and supplier manufacturers. People have deluded themselves by thinking that oligopolies are simply the natural outcome of free-market capitalism, globalization, or other mysterious economic forces.
It is time to accept the fact that this consolidation contributes to equality and redistribution of income. The answer is to pursue antitrust laws. We did it in the 1930s and can do it again.
Yes antitrust litigation can be expensive and messy, but the alternative is grim.
