Monopoly Capitalism Is the Root of All of America's Problems

Something is rotten in the state of American capitalism, and if you agree with Barry C. Lynn, almost all stinky paths lead to the monopolization of our economy. The rise of behemoths like Wal-Mart and Viacom are not only lowering the quality and safety of the products you use, but also undermining our so-called democracy.

I had a chance to speak to Lynn about just how bad things are -- and what we might be able to do about it. Lynn's new book, Cornered: The New Monopoly Capitalism and the Economics of Destruction, from Wiley Press, will be out in January.

Q: In the book you say we have no choice but to reverse the process of monopolization in our economy. How can we practically achieve that, at this stage of the game?

Barry C. Lynn: We can achieve it and there’s proof we can because we’ve done it in the past. In the late 19th century there was a really incredible process of monopolization. In the Guilded Age, you ended up with really tight concentration of control over finance in Wall Street. Think of Standard Oil, of U.S. Steel. There was some effort to break up those companies in the early 20th century but the real change took place after what people call the Second New Deal. The Roosevelt administration ended up breaking up a number of companies. What they did most successfully is stop the growth of massive companies and created space for new companies to grow.

In the middle of 20th century century, again there was a case in which we actually undid many of the powers and protected the entrepreneur. It was policy that at least three or four companies had to be competing with each other in each industry -- and preferably eight or ten. There’s the Alcoa case, for example. They had a 100 percent monopoly through the end of World War II. After the war, the government created opportunities for new companies and forced Alcoa to share its technology with new companies.

We have a lot of experience with this, we’ve done it on a whole-scale in the past, and doing so would be creating a lot of interest in these companies. There are lot of managers in Wal-Mart, for example, who won’t rise up in the ranks in such a large system, but if there’s 30 smaller Wal-Marts, lots of individuals can reach their full potential. Companies aren’t monolothic in nature. They’re made of people, and lots of these people have an interest in breaking them up.

Q: What about shareholders’ and board members’ interests? They surely wield more power and sway over these kinds of decisions than associates at a huge company like Wal-Mart.

BL: Right. Well, Alan Greenspan was one of the engineers of the roll-up of modern monopolization over the past 30 years. As a student, he studied the Standard Oil case, in which there was this argument that pretty much went: “Let’s not break up Standard Oil because it’s so much more efficient than the little pieces if they were separated.” The Supreme Court at the time said that didn’t matter, because we must have competition and broke Standard Oil up anyway.

Greenspan went on to use the flawed argument that big things are more efficient to aid in overturning antitrust law in 1981. After the near-collapse of the financial system in 2008, he woke up to see all these too-big-to-fail banks. Greenspan has since been one of the people to say we have to break up the banks. We shouldn’t be afraid of this because, as we found with Standard Oil, after we broke it up, all the constituent pieces were actually worth much more for the investors than what Standard Oil had been valued at when it was a single entity.

Q: So what happens if we don’t reverse the monopolization of our economy?

BL: There’s two main types of problems. One is that antimonopoly law is a political law -- not economic, as you might suspect. You prevent monopolies because you don’t want a concentration of economic power that gives beneficiaries political power. So monopolies are a huge political problem.

Look at things now. We essentially have a merger of Goldman Sachs and the Treasury Department. So we don’t actually know who’s running the Treasury. We have a political crisis, in which we’ve had a coup by the bankers. And the bankers don’t only control banks but also all the large corporations. The way governance has been changed, we give financiers direct control over our largest corporations.

In Europe, when people invest $1 billion in Airbus, they get new machinery, new plants, new skills, and create jobs. When we invest in Boeing, a huge portion of that money goes straight out the backdoor and into the financiers who run the company.

The second [problem] is that our systems become more and more fragile. What we saw on Sept. 15, 2008, after the failure of Lehman Brothers, was how the entire financial system was tied together in such a way that unless a major infusion of money came at once, basically everything was going to go down. If you’re not able to move money around, you can’t move product around -- potentially a lights-out event. It’s pretty amazing that we would run our financial system so poorly, really.

This systemic risk is a result of monopolists preaching efficiency because they want to take cash out of the system. For example, let’s say they have two machines, and sell one. They get money for the machine they sell, and then the one left over will be more expensive to use so they can charge more for its use. They pocket the money from the machine they sell and get more money off the one machine they have left. The problem, though, is they only have one machine left. If something goes wrong, we can have huge systemic failures, especially if, say, the product this machine makes is something like semiconductors or chemicals that go into many products. If all production of these keystone items is in one place, it looks efficient -- financiers and economists will tell you this, and do -- but they have created the potential for catastrophic failure if something happens that takes that one machine or one plant or one foundry out of operation.

If we don’t do anything we have a truly massive political challenge. We can pretend we’re living a democracy, in a republic, but if you look at Obama’s background he was adopted by and promoted by the ruling machine, which was set up at [the Brookings Institution’s] Hamilton Project. Those were the people who vetted this man and who’ve surrounded this man. Though I have huge admiration for him and retain faith in his potential to stand up these people, he is still essentially inside this circle.

The other problem is the longer we wait the greater the chance that we’ll have another event like what happened last year. And the next event could be much worse. We could see truly catastrophic crashes affect our system. We have no choice but to fix the concentration of power. It’s politically unacceptable and it’s unacceptable from an engineering perspective.

Q: The Obama administration has been cautious to aggressively confront too-big-to-fail banks. Do you observe the administration taking actions to address monopolies in other areas of our economy?

BL: Well, recently the FCC brought charges against Intel. That was a pretty easy move because against Intel you’ve already had the Japanese and South Korean government take action, as well as the the EC in Brussels, and even New York State. Even the Bush administration almost did. But now they actually pulled the trigger. And that’s a good thing.

I’m hearing very good things in agriculture. Part of the problem with the Obama administration, which is the same problem with the Clinton adminisration, is that even though you’d think they’d be more aggressive on antitrust issues, they buy into the basic framework of interpreting antitrust law as was put into place by Reagan. Before 1981, law ensured competition for the sake competition -- to protect the market system and to prevent the consolidation of control. Since 1981, they switch it to this consumer welfare test, which was defined basically as price. If the merger will bring a lower price, it’s approved. The Clinton people and now the Obama people -- who are largely the Clinton people -- accept the same framework. The idea to go after something like Wal-Mart in the near term is unlikely. We’re not likely to see a lot of action there because the framework they believe in doesn’t allow them to.

But as I was saying, the Department of Agriculture has not really been indoctrinated by the consumer welfare framework. The concentration of power over such activities as farming pigs or chickens, or growing corn, is so extreme it amounts to debt peonage. So extreme it’s hard to ignore. Some interesting work appears to be on the move there.

Generally though, this administration appears to be willing to accept any merger that will deliver a lower price to the consumer.

Q: You alluded to this, but what is the price of the mad rush for “lowest prices guaranteed?” In other words, what is the price of cheap?

BL: One price of cheap is that you end up with less safe products. If you get to cheap through real competition and an open market system, in which you have a bunch of different independent companies competing to find a better way to do something, and you have regulation that doesn’t allow you to cut quality in order to cut prices, then you’ll end up with both increasing quality and safety and lower cost over time. That was the old system.

What we have now is lower prices delivered by brute power forced downwards onto producers. A company like Wal-Mart exercises authoritiarian power. “Last year,” they tell producers, “we paid you $100 for that grill, this year we’re only going to pay $90 and it’s up to you to figure out what you cut.” So over time that grill is going to be less and less sturdy. The food will become more and more adulterated. T-shirts will become thinner and thinner and made by children somewhere.

The price that we pay for lower cost is less safe, cheaper quality products that end up wearing out sooner -- at best. At worst, even death. You saw the concentration in the spinach or peanut industries where people died.

The thing with [such power] being concentrated is you can give the monopoly a fine but you can’t shut them down because then you don’t have spinach anymore. The only way you can really have safety and higher quality is true competition.

Q: Could you address how monopolization plays into health care politics and the chances for reform?

BL: Congress seems to have unfortunately gone through this whole process without really focusing on the fact that they’re engineering competition. They have just bought this Wal-Mart idea that you concentrate power so you can manipulate the doctors, the nurses, and the aides top-down. They’re so fixated on lowering the price and extending protections as swiftly as possible that they have essentially rejected the public option. They’ve gone for something even worse which is private directorship of the system.

What we’re moving to is a government option of sorts -- but it’s a private government option. People have a really hard time understanding that a corporation is an institution we have licensed to govern a particularly economic activity. You create these institutions so you can govern a particular industry. In this sense, Wal-Mart is a goverment that is approaching the magnitude of the Soviet state in that it wields top-down authority. It tells every employee at each company under its sway what to do. That includes every company that delivers food, consumer products, media products. Wal-Mart is the Soviet system growing up right in the middle of the American system. It is top-down, authoritarian, non-democratic. It leads to the stripping out of all the systems, and it’s rationalization without thought, purpose, or understanding.

Q: Wal-Mart is aware of its historically bad name in the liberal sphere. It seems like they're trying to change that, aren't they?

BL: Oh, Wal-Mart has done an incredible job of buying off really well-intentioned people by advertising their power. For example, they’ve bought off enviros [by saying],  “We’re going to green the world together.” What do they actually do? Let me give an example.

Wal-Mart decreed compact fluorescent bulbs in every home in the U.S. They decreed to all lightbulb makers, “This is how many you’re going to make, at which price, and by this date.” Their decree was simply too much for these manufacturers so they shipped lots and lots of junk. The practical effect is Americans who’ve never seen these kinds of bulbs is they used them for the first time, but they were junk and died out after a few months. So now people don’t want to use them anymore. This created the exact opposite effect of what [Wal-Mart] was selling to the enviros.

Now it’s true that if you get Wal-Mart to get Procter & Gamble to use smaller cardboard boxes [for their products], that’s good for our environment but we have a better way to do this. We can use our local and federal governments. When you create a law it’s law, with Wal-Mart it’s just Wal-Mart’s whim. They can change their mind any time and they don’t even need to tell anyone if they start sourcing unsustainable fish or lightbulbs from China -- it just happens. Their only purpose is to make cash and they’re very honest about that. Managers of corporations are legally obliged to lie if it helps their shareholders. So they’ll tell enviromentalists anything they want to hear.

Q: You argue that free-market fundamentalists paved the way for the monopolization of the U.S. economy, and as a result, the current economic recession. Does the recession mark the end of such fundamentalism or are they reframing?

BL: This recession hasn’t ended this fundamentalism. What’s behind it is private governance of the political economy and eventually the politically system. That’s what free-market fundamentalism aims at. As a belief system, it was put out to trick people to allow this [bankers’] coup to take place, this privatization of governance and control. Among the elites especially, there are all of these beliefs in these different mechanistic forces people see out there. Some think of the free-market as a mechanical apparatus that yields certain outcomes and we can’t do much about what the market decides. Others see globalization as a natural force that leads us to an interconnected world where we will be increasingly tied to China or India.

None of these forces actually exist. What you actually see are people using human-created institutions to manipulate others. We need wake up to the fact that Tom Friedman’s view of globalization is a lie, that Milton Friedman’s vision of the free-market as a mechanical apparatus is a lie, that Robert Reich saying that technology will lead us to a land of milk and honey is a lie. They really patronize the little folks, it’s just disgusting.

The first step to emancipating ourselves is to emancipate ourselves from those metaphysical lies -- these ideas that outside forces are controlling us. Haven’t seen much of a move in that direction in our country, unfortunately.

The indoctrination is that we live in a market economy that determines globalization and everything else. I don’t know why this generation of Americans was more gullible. I can’t understand that. But it’s just a fact and we need to wake up.