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Mega Giant Corporations Are Very Bad for America

Wal-Mart delivers at least 30% and sometimes more than 50% of the entire U.S. consumption of products. Why the monopolization of our economy should scare you.
 
 
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The following is an excerpt from the first chapter of Cornered: The New Monopoly Capitalism and the Economics of Destruction, published by Wiley Press.

Even with a GPS and a good map, I have a hard time finding Diane Cochrane’s home, which is tucked in the crease of a hill a few miles east of Prescott, Arizona. The one-story green frame building sits at the bottom of a steep driveway that drops from a rocky road that cuts off a maze of streets that, as I drive along in my rented Pontiac, seem more like a mad Motocross track than the arteries of a neighborhood.

Yet it is easy to understand why Diane settled here with her husband after they fled the monotony of a Ford assembly line in Ohio. The landscape is a testament to the creativity of both humanity and God. Every one of the hundred or so houses in the community is unique. There are ramblers, chalets, A-frames, ranches, and log cabins. The terrain, meanwhile, seems to change in character almost inch by inch as the roadway drops and twists vertiginously into deep and scrubby ravines, only to crest a moment later to stunning views of a far shimmering horizon.

A few miles down Highway 69, the Wal-Mart Supercenter at the edge of Prescott is a different world. The parking lot alone is the grandest swath of flat space I’ve seen in the last hour of driving. Then there’s the store itself. To fit the big box into the undulating land, the builders had to cut deep into the side of a hill, carving away as much as six or seven stories worth of dirt and rock.

Once I am inside Wal-Mart’s door, it takes me nearly two minutes, striding swiftly, to walk from one end of the store to the other. Along the way I pass twenty-seven checkout lines and what seems like a whole town -- a savings bank, a McDonald’s, a portrait gallery -- tucked under this one roof. I almost wish I’d brought along some music to entertain myself, because there isn’t much new to look at on my stroll. Other than having a rack of cowboy hats, this Supercenter is filled with the exact same collection of products as every other Wal-Mart Supercenter in the United States, be it in Ohio, California, or Virginia. It also has the same empty feeling. When I arrive, it’s early evening and the parking lot is full. Yet the store seems almost vacant, and the few shoppers I do see wander listlessly and almost silently through the aisles.

Diane, who is sixty and has cut her gray hair short, wears a salmon-colored cotton shirt on this ninety-seven-degree April day. She tells me that until recently, she shopped in this Wal-Mart almost every day, often on her way home from her job managing a party store. She doesn’t anymore, though, and that’s not because filling a basket at the Supercenter can be more exhausting than a trip to the gym. Diane has tried to avoid all Wal-Marts everywhere ever since her two kittens, Bones and Moses, died of kidney failure on the same day in 2007. Diane believes that the food she purchased here -- Wal-Mart private label Special Kitty Gourmet Blend foil pouches filled with whitefish and tuna in sauce -- is what killed them.

My intent is not to blame any one person at Wal-Mart for the deaths of Diane’s kittens, nor to blame the rather abstract entity that is Wal-Mart taken as a whole. It is to reinforce the idea that monopoly exists just about everywhere in America today. It is also to add two new facts. First, today’s monopolies increasingly appear in the shape of giant trading firms like Wal-Mart, which are designed to govern entire production systems, even entire swaths, of our economy. Second, monopoly does not eliminate competition, nor does it automatically result in a rational and efficient governance of the production and service systems under its sway.

On the contrary, monopolization merely shifts competition from a horizontal plane to a vertical plane. That is, rather than having a winner-take-all battle among automobile makers or between Wal-Mart and Target, for example, we have competition between the monopoly and all the people under its power. In the case of Wal-Mart, this includes its workers and its suppliers as well as its customers. The real competition, in other words, is between the billionaires who make and wield monopolies like Wal-Mart and people like you, me, and Diane.

I could have started this with dozens of stories about the deaths of dogs and cats just before and after the great pet food recall of 2007. I chose Diane’s story not because we have absolute proof that Wal-Mart cat food killed Bones and Moses -- the kittens were cremated days before the first recall was announced. Rather, it was because the circumstantial evidence is so strong. Bones and Moses were healthy kittens. There were two of them, and they died at the same time. During their whole lives Diane fed them only Special Kitty pouches. Diane’s veterinarian told Diane that the kittens’ blood-urea- nitrogen measurement was the highest she had ever seen. Diane also owned other animals at the time, including a seven-year-old cat named Little Bit and a seven-year-old collie named Sailor, both of whom ate food that was not included in the recall; both of them, she tells me, remain quite healthy.

I chose to focus on the pet food fiasco in general because it was one of those stories that comes along every so often that rips away the veil to reveal how the mechanisms of our economy really work. That’s what happened in March 2007, when an Ontario-based company named Menu Foods announced a recall of cans and pouches of wet pet food that had been packed at plants in Kansas and New Jersey. At first, the story seemed simple enough: another case in which poor food-handling techniques resulted in contamination that resulted in sickness and, in a few cases, death, just as we have seen in such other products as spinach and peanut butter.

That’s why the initial reports on the recall focused on empty store shelves and terrified pet owners. Within a week, however, the Menu Foods story began to morph into something entirely different: a horror tale about the dangers of food, drugs, toys, and tires made in China. The turning point came on March 23, when three things happened.

First, the Food and Drug Administration (FDA) announced that it suspected that some toxin had been mixed into the wheat gluten that was used to thicken the canned meats. Second, an independent lab reported that it had found rat poison in the recalled cans. Third, Menu Foods pointed a finger at a shipment of wheat gluten that had been purchased from a supplier in China. Although rat poison was later replaced as the main culprit by a chemical named melamine, the story line had now taken shape: cheap and adulterated Chinese products were poisoning Americans, their children, and their pets.

Throughout the coming months, journalists and officials would drag vast piles of horrifying facts into the light. Some Chinese toothpaste makers had used diethylene glycol, a component of brake fluid and antifreeze, as a sweetener. Some Chinese toy makers had coated their products with lead-based paints. Some Chinese farmers had fed unapproved drugs to catfish that were bound for U.S. dinner plates. Some Chinese slaughterhouses had mixed “oversulfated chondroitin sulfate” into the pig intestines that were used as the raw material for the blood thinner heparin.

The details were so nauseating and so terrifying that two of the most important revelations of the Menu Foods meltdown were all but lost. The first was that the corporations we rely on to stock our shelves with food had allowed the production of wheat gluten -- which is used to thicken wet foods, bind dry foods, and condition dough -- to be captured by a single foreign nation, China. Similarly, these corporations had allowed the production of numerous other vital inputs -- like most of the ingredients in our drugs -- to be captured by that one nation.

The second overlooked revelation was that almost the entire U.S. pet food industry had come to depend, to various degrees, on a single supplier of canned and pouched pet food. In this case, five of the top six independent brands -- including those marketed by Colgate-Palmolive, Mars, and Procter & Gamble -- had hired Menu Foods to stuff meat into at least some of the cans and pouches that as of early 2007 bore their labels. So had seventeen of the top twenty food retailers in the United States that sell “private label” wet pet foods under their store brands, including Safeway, Kroger’ s, and Wal- Mart. In total, the Menu Foods recall covered products that had been retailed under a phenomenal 150 different names.

Perhaps even more disturbing, especially for those pet owners who had been spending their dollars on a premium product, was that the recall revealed that high-end, expensive brands like Iams and Hill’s Pet Nutrition Science Diet rolled off the exact same Menu Foods packing lines as the cans that were wrapped in labels bearing such names as Supervalu and Price Chopper.

Without access to internal documents from all of these companies, it is almost impossible to know exactly what percentage of wet pet food in the United States came from Menu Foods factories in the months before the recall. The last thing an established brand wants to advertise is how much of its product it buys from outside suppliers. My own figures indicate that Menu Foods accounted for somewhat less than a quarter of the total pet food sold in the United States, by weight.

Even so, Menu Foods' octopuslike reach throughout the pet food industry resulted in disruptions that were far greater than would have been the case a decade earlier. Back then, the big pet food brands largely operated their own factories and packed their own cans, and they also actively managed their supply bases to avoid concentration. This means that they would have been able to isolate any supply problem far more swiftly and with far less disruption at the point of sale.

In 2007, the sheer number of brands affected by the Menu Foods recall meant that, as the Wall Street Journal noted, it was now much “harder for consumers to find a safe substitute.” 10 In some instances, confused store managers pulled all pet food off their store shelves. In other cases, confused consumers did not trust what was still for sale.

For those Americans who believe in what we were taught in civics class and Econ 101, the most disturbing revelation was not even the fragility of our food systems, but that some of our most cherished beliefs about how the U.S. economy works appear no longer to be true. We are told that companies are engaged in a mad scramble to discover exactly what we the U.S. consumers want and to devise perfectly tailored systems to supply those want as efficiently as possible. We are told that our economy is characterized by constantly chaotic yet always constructive competition and that any American with a better product and bit of gumption can bring that product to market and beat the big guys.

Yet the reality, as Menu Foods now taught us, could not be more different -- at least not in the pet food aisle in Wal-Mart or Kroger’s. Instead of having infinite choice, as we thought, we are really presented with a wall of standard-issue cans and pouches that are distinguished only by the words and colors on their labels. The secret ingredient of U.S. capitalism, at least in this corner of the industrial kitchen, could have been cooked up in the Soviet Union.

More disturbing yet is that such concentration is not the exception in the United States but increasingly the rule. A quick tour of almost any grocery store reveals degrees of concentration that make Menu Foods look like a novice. Let’s take a quick walk around the average U.S. grocery or big-box store.

Over in the health-care aisle we find that Colgate-Palmolive and Procter & Gamble split more than 80 percent of the U.S. market for toothpaste, including such seemingly independent brands as Tom’s of Maine.

In the cold case we find that almost every beer is manufactured or distributed by either Anheuser-Busch InBev or MillerCoors, including imports like Corona, Beck’s, and Tsingtao; regional beers like Rolling Rock; once independent microbrews like Redhook and Old Dominion; and even “organic” beers like Stone Mill Pale Ale.

Perhaps Americans are comfortable with the fact that Campbell’s controls more than 70 percent of the shelf space devoted to canned soups. After all, the firm grew to prominence after its launch in 1869, thanks to its pioneering successes in integrating advanced chemistry, mass manufacturing, and modern advertising.

But what are we to make of the modern snack aisle, where Frito-Lay in recent years has captured half the business of selling salty corn chips and potato chips?

And what about the business of selling tap water in plastic bottles? Here, if anywhere, is an activity that any enterprising young American should be able to master. All you would seem to need to enter the local market for water is a spigot, some bottles, and a cool label. Yet nine of the top ten brands of bottled tap water in the United States are sold by PepsiCo (Aquafina), Coca-Cola (Dasani and Evian), or Nestlé (Poland Spring, Arrowhead, Deer Park, Ozarka, Zephyrhills, and Ice Mountain).

Furthermore, what can we learn from the size of the corporation in whose store we now stand? Until we elected Ronald Reagan president, both Democrats and Republicans made sure that no chain store ever came to dominate more than a small fraction of sales in the United States as a whole, or even in any one region of the country. Between 1917 and 1979, for instance, administrations from both parties repeatedly charged the Great Atlantic and Pacific Tea Company, the chain store behemoth of the mid-twentieth century that is better known as A & P, with violations of antitrust law, even threatening to break the firm into pieces.

Then in 1981 we stopped enforcing that law. Thus, today Wal-Mart is at least five times bigger, relative to the overall size of the U.S. economy, than A & P was at the very height of its power. 13 Indeed, Wal- Mart exercises a de facto complete monopoly in many smaller cities, and it sells as much as half of all the groceries in many big metropolitan markets. Wal-Mart delivers at least 30 percent and sometimes more than 50 percent of the entire U.S. consumption of products ranging from soaps and detergents to compact discs and pet food.

For that matter, what can we learn about our twenty-first- century consumer arcadia by looking at how the Supercenter in which we shop was constructed? The price of the steel in the frame reflects the nearly complete roll-up of the world’s main sources of iron ore by three firms (two of which recently tried to merge). The price of the store shelves reflects the nearly complete roll-up by these same three firms of the capacity to process bauxite into aluminum. The price of the concrete in the foundation reflects the recent roll-up of the world cement industry by a few immense firms like Mexico’s Cemex. The price of the crushed rock in the parking lot reflects the roll-up of control by a few corporations over many of the biggest quarries in the United States.

Big corporations have played a big role in this country for a long time. Companies of men began to build big interstate railroads even before the Civil War, and they began to assemble giant industrial combines soon after. Big companies began to centralize control over the butchery of cattle and hogs, the milling of grains, and the canning of fruit and vegetables and soups in the late nineteenth century.

By the early twentieth century, men had enclosed in the walls of a few corporations the capacity to make automobiles, chemicals, and farm machinery. For much of the last century, however, the American people took steps to disrupt the efforts to completely dominate these businesses, and, as we saw with A & P, we took special pains to restrict the reach of pure trading companies.

That’s why we have never before seen such power to govern our industries concentrated in so few hands. That’s why we have never before seen such physical concentration of production -- be it of vitamin C, wheat gluten, heparin, or aspirin in China, of semiconductors in Taiwan, or of package- sorting capacity in Memphis. That’s why we have never before seen such a lack of compartmentalization of our systems and therefore such a socialization of the risk in these systems. That’s why we have never before seen such top-down competition and thus the destruction of so many of the real assets, skills, and products enclosed within the fences of these corporations. That’s why we have never before faced such a lack of real options.

I know that this last point --  that the U.S. consumer faces fewer and fewer options -- is, on the face of it, hard to believe. The world we shop in every day appears to be full of choices. Yet in real life, our political economy is filled with hidden monopolies almost everywhere, and these monopolies increasingly control, restrict, and determine what we buy, with little or no regard for any real market forces.

Just ask Diane Cochrane. As much as she wanted to cut Wal-Mart out of her life, she quickly found that she could not. Although Diane was eventually able to find a new -- much more expensive -- source of pet food for her surviving cat and dog, there are certain items she just can’t find in Prescott outside Wal-Mart, which now runs two Supercenters in this community of forty-one thousand people.

“It’s getting to where for a lot of things you have to go to Wal-Mart,” Diane says. This is true even when she knows that the quality is bad. There is, she tells me, “no other choice.”