The game of Monopoly was originally quite different when it was first patented in 1904 by a progressive woman named Lizzie Magie. Magie’s game, called “The Landlord’s Game,” was like the version you grew up playing, in that it could be won by accruing as many land lots, properties, and cash as possible. But her version came with a twist. At any time, the players could choose a more egalitarian future by voting in the Single Tax rules.
Once activated, the Single Tax required players to redirect all fines and rents on empty lots into the Public Treasury’s coffers. For any player to erect properties or collect a fine on an existing property, the Treasury first had to receive rent on the land. These public funds paid for public utilities, transportation, and college, which then became available to everyone for free. Residual funds were redistributed as higher wages for everyone. No individual could really win the Single Tax game, other than by collaborating to break up all monopolies.
Magie admired the radical philosopher Henry George, and hoped the Single Tax rules would educate players of all ages about his proposal for common land ownership. These calls for bold reforms emerged from anxieties of the first Gilded Age. Magie and George had lived through an era marked by rapid economic growth, deep inequality, political corruption, and sprawling industry trusts controlled by a few men. The status quo seemed unsustainable. If this sounds familiar, it’s because our own Gilded Age has all the symptoms of the first.
In Capital in the Twenty-First Century, the economist Thomas Piketty attributes the spike in American inequality to an imbalanced distribution of the national income. By national income, Piketty means the sum of labor income (the wages earned by workers) and capital income (the earnings from physical assets like houses and factories, and financial assets like investment accounts and corporate profits). Much like the first Gilded Age, advances in technology have magnified American productivity. We become better at creating and selling more stuff and in turn, our pie of national income grows larger. The problem is that since the 1970s, the slice of income going to workers has not kept up with their share of contribution.
The statistics are depressingly familiar. Today, the richest one percent controls 40 percent of the country’s wealth and about 90 percent of all income gains. Inheritances and other intra-familial transfers of assets explain some of this phenomenon. That so few families have so much to pass on certainly contributes to inequality. But patrimony alone cannot account for how aggressively the owners of capital have been able to commandeer more than their fair share. To understand this rapid concentration of wealth and income, we must also consider the metastasis of corporations into colossal trusts, happening at the same time as the government shirks its duty to protect consumers and workers.
The year 2015 alone saw a reported 4.7 trillion dollars’ worth of merger and acquisition deals. Chemical companies Dow Chemical merged with DuPont and on the food side, Kraft and Heinz became one. Two years later, Amazon purchased the Whole Foods chain, while the CVS pharmacy brand acquired the insurer Aetna. In 2018, the pharmaceutical firm Bayer is taking over the agricultural giant Monsanto in a 62 billion dollar deal. Year after year, thousands of firms across the economy swallow their competitors or other businesses in the supply chain to control more of their market.
But should we actually care about the unions of these corporate leviathans any more than we do about royal weddings? With our economy controlled by tangles of subsidiaries and shell companies anchored in exotic locales, keeping score of who owns whom seems like a futile effort. Corporate names and logos blur together in a sea of deals reported only in the most boring articles for only the most boring lawyers. For at least a while, our food tastes the same; our prescriptions cost the same; our quality of service seems the same. So we sit like frogs in a pot of simmering water, undisturbed by the aggressive consolidations of corporate power around us. By the time we notice the changes, it’s often too late.
The common wisdom is that, in a fair economy, market competition fosters innovation as firms attempt to build on each other’s advances. It also leads to higher quality, lower prices, and better deals for consumers, workers, and other producers in the supply chain. Firms that wish to thrive and grow are supposed to cultivate their relations with all these stakeholders, or risk losing them to competitors. An economy where firms possess too much market power breeds opposite conditions.
In a series of papers on this subject, the economist Marshall Steinbaum describes market power as a “concentration and substantial power” that allows firms to “skew market outcomes in [their] interest, without creating value or serving the public good.” In other words: The more powerful a firm becomes, the more it can crush stakeholders and competitors without consequences. This is true of monopolies—when a producer has exclusive control over the supply of a product or service—but it really extends to any firm with concentrated market power.
The menu of “crushing” options at their disposal is quite diverse. Generally though, they fall in the categories of consolidation, barriers to entry, and a broader set of anticompetitive behavior. The larger that firms become, the easier they can increase their control of the market. The recent deals illustrate just how frequently corporations with a lot of market power consolidate with their competitors. After the purchase is complete, firms can integrate the new acquisition into their brand. Sometimes, they simply maintain the purchase as a separate subsidiary though the consolidation gives them much less reason to vigorously compete with each other. In other cases yet, the firm might shut down the new purchase forever.
Consolidation can double as a barrier to entry when the absorbed company is a startup that could have or supported or even become another competitor. But there are other types of barriers. Patents give the holder an exclusive and enforceable right to supply a product for many years, even if this monopoly of use could hurt society at large. Then there are refusals-to-deal agreements—where firms conspire to do business with an exclusive list of companies—which more subtly cripple young businesses trying to enter a market.
Firms will even compete with their own customers if it advantages their bottom line. Amazon, for example, is an online platform that hosts vendors but doubles as a manufacturer. Amazon has been known to copycat their vendors’ successful products, promote the replicas aggressively, and sell them at a much lower price than the vendor ever could (in part because the economies of scale allow Amazon to make things more cheaply). Discounting a product so deeply—sometimes at a loss!—that no competitor can match them and stay in business is called predatory pricing. A sibling of this practice is the more common price-fixing scheme, in which firms illegally arrange to supply the market at an agreed-upon price.
Despite their many shapes and forms, these different anticompetitive plots have one thing in common: a commitment to strengthen the firm’s hold over market, consumers, and workers. Consumers pay for this concentration of power at the checkout line. This is because firms tend to decrease production numbers after merging. Having few to no competitors gives them even less reason to lower their prices. Market power also stymies innovation and quality, as competitors are thwarted from supplying better, affordable products. Sometimes, the outcome is mere inconvenience. In others, it’s the difference between life and death. Consider the case of the EpiPen, an anaphylactic drug patented through 2025. In just six years, the hedge fund that owns this drug raised its price by 500 percent, to $600. But we know that 60 percent of all American households do not have the means to cover a $500 emergency. This monopolist’s accrual of market power means that thousands of adults and children with severe allergies probably went without this lifesaving drug.
Concentrated market power hurts workers just as much. Steinbaum explains that monopsony occurs when firm consolidations give workers fewer places to work. He explains that mergers routinely trigger layoffs and decreased production. This helps sustain a pool of involuntarily unemployed workers. Firms leverage this pool’s lack of work options to offer temporary contracts, irregular hours, lower pay, inadequate benefits, and less-than-safe labor conditions. When fewer firms dominate the market, precariousness can spread to workers in their supply chain. A firm that is virtually the only buyer in the market can force businesses in its supply chain to provide goods and services at a lower cost. The supplier may compensate for the resulting higher production costs, paying its own workers less.
Firms also rely on anticompetitive contracts to maximize their control over workers’ skill and income. Non-compete agreements forbid workers from quitting for a competitor, while no-poaching agreements memorialize promises between competitors to not hire each other’s workers. The firm with a tight grip around the labor market can abuse and discriminate against segments of its workforce—all too often women and people of color. To add insult to injury, powerful companies routinely gag workers from airing their grievances in court by sneaking arbitration clauses into the employment contracts. Arbitration provisions force disputes—including civil rights violations—before a private arbitrator of the firm’s choice.
Law professor and podcast host Ian Samuel recently drew attention to the fact that, despite the #MeToo movement, many white-shoe law firms forced summer associates to agree to arbitrate any sexual harassment claims. The ensuing outrage caused several prominent firms to rescind the clauses, and top law schools also began requiring law firms that recruit on campus to disclose their use of arbitration clauses. This unexpected outcome was refreshing. But it was also rare. Overcoming these contract clauses remains nearly impossible. No corporation is going to change its practices when it has a financial interest in retaining them.
When capital consolidates, local communities isolated from the halls of power suffer, too. Steinbaum puts it like this:
Market power redistributes wealth and opportunity away from disadvantaged communities, be they poor, minority, or physically isolated … In Hanover, Illinois, for example, the purchase of machine part manufacturer Invensys spelled the end of a 50-year-old factory, despite its 18 percent profit margin. The jobs were sent to Mexico, and the profits were shifted to Sun Capital in New York City . . . To make matters worse, weak local economies are self-reinforcing: Less economic activity means less tax revenue for schools, public transportation, and other basic needs … As geographic segregation becomes more entrenched, it has become easier and easier for firms to identify and prey on vulnerable populations.
But within the halls of power, concentrated market power thrives. Enormous firms throw their weight in donations and perks to extract political favors. They secure more power for themselves through business-friendly bills, tax breaks, exemptions from regulations, building permits and approvals for expansion. Like Acting Director of the Bureau of Financial Consumer Protection and former U.S. Representative Mick Mulvaney once told a room of bank lobbyists: “We had a hierarchy in my office in Congress. If you’re a lobbyist who never gave us money, I didn’t talk to you. If you’re a lobbyist who gave us money, I might talk to you.” That’s the heart of what the market power game does: allow its winners to reap the benefits of a game rigged in their favor. (Mulvaney’s quote is useful as an explicit admission of what we all know to be true, namely that political access is on sale to the highest bidder and that we live in an oligarchy in which ordinary people’s influence on policy pales next to that of the wealthy.)
The authors of Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Eric Posner and Glen Weyl, like to split the baby. “Like those on the Right,” they write, “we think markets must be strengthened, expanded, and purified.” Like those on the Left, they believe “existing social arrangements generate unfair inequality and undermine collective action.” Where they deviate from the Right is in their belief that market fundamentalism is outdated, and from the Left, by their skepticism that sprawling government bureaucracies can save us all. I picked up Radical Markets shortly after reading Posner and Weyl’s op-ed arguing that “the real villain in our gilded age” is market power. Their book proposes “Radical” solutions to deconcentrate market power in five distinct areas: private land property, voting, migrant labor, concentrated industries, and digital consumer data.
But before we dive into their chapter on concentrated industries: a couple of housekeeping items. The title of this book almost feels like a slight of hand to lure the reader of leftist persuasion into thinking this will be a Chomskyesque read (e.g., me). In reality, the “Radical” in the book title does not mean what you probably think it means. Early on, Posner and Weyl define Market Radicalism and Radical Markets as “institutional arrangements that allow the fundamental principles of market allocation—free exchange disciplined by competition and open to all comers—to play out fully.” You could say that the authors advocate for the fair economy in which, as we previously discussed, competition flourishes to our collective benefit. In their view, auction mechanisms are the ultimate embodiment of the Radical market. So bidding appears in many of their proposed solutions. Posner and Weyl do not merely entertain capitalism with begrudging resolve. They actually love it all. This is why you will find approving quotes and theory from economists like Adam Smith and Milton Friedman throughout the book.
When they are at their second worst, they erase the left for convenience. Political context is flattened from historical events where it suits them (e.g., describing the coup in which Brazil’s corrupt right-wing removed the progressive president Dilma Rousseff as an ejection “for abusing her power”). The intervention of government is disappeared (describing the grain market as “the classic example of a perfectly competitive market,” without mentioning the billions of dollars that the federal government provides in subsidies to support grain). And the left’s push for egalitarian forms of governance is ignored (claiming that “capitalism is blamed for increased inequality and slowing growth, yet no alternative has presented itself”).
At their absolute worst, their libertarian streak leads them to propose a revamped indentured servitude program in which people would import personal servants from developing countries and pay them less than minimum wage. (Libertarians delight in offering new justifications for old forms of exploitation.) Their idea is terrible, as many other writers have noted, and nobody should ever consider introducing it or anything like it.
But it is also important to understand that Posner and Weyl are a throw-ideas-at-the-wall type. Inevitably, some of their proposals are interesting and should be given serious thought. The book chapters on land monopolies and voting, for example, raise problems and suggest solutions that the left could build upon for more radical (little “r”) outcomes.
Their chapter on corporate market power raises interesting questions. Posner and Weyl recognize that labor market power harms workers and consumers but focus almost exclusively on the problem of institutional investors. Firms like BlackRock passively manage assets through mutual funds and pension funds. These are pools that aggregate the savings of all types of people, and invest them by either buying shares of a company (stocks) or lending money to the government (bonds). An investor is passive when it rarely ever sells these assets, based on the theory that holding onto them is more profitable in the long term than active trading. Posner and Weyl argue that we should not be fooled by their passiveness. In the shadows, these institutional investors are titans so large that together they control almost a fifth of the American stock market.
What really alarms the authors of Radical Markets is that a surprising number of powerful brands we think of as independent, and even as competitors, actually share the same institutional investor as their largest shareholder. Think of two major airlines or general retail stores. The research in this area shows that when this occurs—particularly between competitors in the same industry—consumer prices rise while the investment in innovation falls. Posner and Weyl believe this may not be coincidental. To guarantee profits, institutional investors may be covertly pressuring competing CEOs into not competing against each other.
Their fears may be warranted. Indeed, some institutional investors have become open about their wish to influence the companies in which they hold a large stake. Not long ago, the CEO of BlackRock told an Australian paper: “We can’t sell the shares, which means we have to be more active than an active manager … You have two choices: sell the shares if you don’t like it, or really force public change. So, what we have become is highly active.”
The solution that Posner and Weyl propose is two-fold. First, institutional investors should be banned from owning significant shares of firms that are competing in the same industry. This scenario would still allow them to diversify their holdings across different industries, and to own as much of one company in any industry. This proposal would make an exception for smaller investors. Institutional investors could own stakes in competing firms, but only up to 1 percent. Second, the authors would prohibit mergers that concentrate political power. Per their calculations, these changes “would transfer about 2% of national income from the owners of capital to the broader public,” while decreasing “the share of income captured by the top 1% by a percentage point.”
Posner’s and Weyl’s proposal is perfectly reasonable, and any dent into our gaping inequality gap is helpful at this stage. But breaking up the power of institutional investors would hardly uproot capitalism or “dismember the octopus” of concentrated markets as the book title suggests—especially considering how completely fucked our antitrust landscape is.
The last Gilded Age spurred the passage of a number of laws designed to break up the dominant trusts of the time (hence the name “antitrust”). The responsibility of preventing anticompetitive behavior in the markets is technically spread between several federal agencies. But the strongest antitrust statutes—the Sherman Act and the Clayton Act—are enforced by the antitrust divisions in the Department of Justice and Federal Trade Commission (DOJ and FTC). A third law, the Glass-Steagall Act, regulated market power in the financial sector but was repealed at the end of President Clinton’s second term. The Sherman and Clayton Acts require the government to investigate anticompetitive tactics like predatory pricing and barriers to entry. It must also review mergers and acquisitions that would consolidate market power horizontally, along with factors like the merger’s effect on consumers. In the process of approving or challenging a merger, the government can seek to break up companies at risk of becoming a trust.
The antitrust laws do not ask the government to consider the effect of corporate consolidations on workers. That’s because unions held much more sway when the Sherman and Clayton Acts were passed in the early part of last century. The drafters expected this would remain the case. On the Senate floor and in the statute, they made clear their expectation that bargaining power would complement the antitrust scheme. They made it even clearer that the laws were not to prosecute labor organizing. Even if enforcement was lax, workers would at least be cared for. In an ideal world, Big Labor’s activities might even trickle down some additional protections to consumers.
Unfortunately, the drafters grossly underestimated the incoming assault on labor from the private sector and every single branch of the government. Congress would severely weaken Big Labor with the passage of the Taft-Hartley Act in 1947, which spurred states to adopt right-to-work laws. And as the lawyer Sandeep Vaheesan explains in a forthcoming law review article, what labor protections remain for workers do not extend to individual contractors. Meanwhile, the federal regulators and courts continue to pervert the antitrust laws to attack workers, while letting corporations swell into the monsters they’ve become today.
Chronicling the government’s history of enforcement and lack thereof, Vaheesan describes an important shift in the government’s approach. Though it routinely targets small fish engaged in price-fixing schemes, it has shown much less enthusiasm towards big players. When the regulators are not shutting down their investigations into sketchy practices by the likes of Monsanto and Google, they are settling out of court for weak penalties and prosecution agreements that require neither names nor admissions of guilt. When a unique occasion arose to break some of the concentrated market power in the financial industry—a byproduct of repealing Glass-Steagall—government punted again. Indeed, Congress could have leveraged its multibillion-dollar corporate relief package to force the largest financial firms to break up in order to receive public money, or risk failing. Instead, the government shrugged and concluded that some firms were simply too big to fail.
It also used to be that the DOJ assumed corporate consolidations were illegal. This is how it helped break up the Standard Oil and American Tobacco trusts. Now mergers proceed unless the regulators can show that they have any of the anticompetitive effects outlined in a set of self-imposed guidelines (which, coincidentally, Eric Posner helped write). These days, all firms have to do to get the government to sign off is sell a few assets and pinky-swear to not apply certain anticompetitive tactics. The government’s disinterest in an aggressive approach to antitrust is working out as well as you would expect.
When Live Nation asked for permission to buy Ticketmaster in 2010, DOJ recognized that Ticketmaster was the largest concert promoter in the industry and charged consumers high ticket fees as a result. Live Nation controlled 80 percent of the concert promotion market. Merging these giants into Live Nation Entertainment (LVE) would concentrate a lot of market power. From day one, LVE would be a powerful brand that possessed long-term exclusive contracts with concert venues, managed major artists, and owned major music festivals along with hundreds of concert venues. The industry’s high startup costs would make it even harder for newcomers to break in. Nonetheless, the government gave its stamp of approval. All LVE had to do was “license [Ticketmaster’s] primary ticketing software to a competitor, sell off one ticketing unit, and agree to [not punish] venue owners who use [competitors].” Today, LVE continues to dominate the industry, and also faces serious allegations of anticompetitive violations.
The antitrust regulators have shown little appetite for adapting the old antitrust guard to the modern economy. In one such example, Steinbaum makes the salient point that by price-fixing what independent contractors can charge for various services, the gig economy might actually be creating cartels. On the flipside, the government has proved much braver when it comes to suppressing bargaining activity. Vaheesan explains that the FTC frequently uses its enforcement power to punish work stoppages and what it calls “collective action that did not produce offsetting consumer benefits.” The FTC does this across many professions, ranging from public defenders and doctors to truck drivers and organists, in addition to lobbying states and local governments interested in improving collective bargaining rights.
The courts have been worse. Vaheesan writes that in the early days of the statutes, the Supreme Court ruled that Congress could not regulate goods at the production stage. This helped trigger the first mass wave of mergers and acquisitions, which helped create giants like General Electric and DuPont. The Court also undermined the legislative exemption for labor so egregiously that Congress actually amended the Clayton Act to overrule the bad Court precedent.
Though the Supreme Court somewhat straightened up after that slap on the wrist, district court judges were hardly deterred from their mission to erode workers’ rights. Some rogue judges applied the antitrust laws to forbid secondary boycotts—enforcing their rulings with jail—while others reached the extreme conclusion that antitrust laws bar collective bargaining altogether. Just this term, the Supreme Court ruled that employers could use arbitration to prevent their employees from suing them in a class action.
In this context, breaking up institutional investors feels like a drop in the ocean (albeit a helpful drop). The economists and lawyers cited through this piece, and other leftists who write in this field, offer a litany of other common sense solutions that would help: ways to measure the impact of a merger on labor market power, overturning precedent and rules that allow regulators and courts to use the antitrust statutes against labor, and a return to the original purpose of the antitrust laws and the vigorous enforcement that its drafters envisioned, among other solutions.
But to uproot capitalism, as Posner and Weyl suggest, we may need to think even further outside the box. Over at the People’s Policy Project, Matt Bruenig proposes a social wealth fund that would allow the government to become an institutional investor. The difference is that the shares and proceeds would go to the public. From the Open Markets Institute, Vaheesan wants us to rethink our emphasis on competition altogether. “While the United States needs vigorous antitrust enforcement to stop and undo corporate consolidation and monopolization,” he tells me, “we don’t need a general competition promotion program. Whether it is cities and states scrambling to attract mobile capital or workers vying for ‘gigs’ on online platforms, we see the real limits of competition as an organizing principle. In many areas, we need cooperation and solidarity, not competition.”
Maybe it’s time we upend the rules of the game.
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