By Zachary Brown
Antitrust law and its enforcement need a major overhaul. Mergers of large corporations across the country disastrously impacts our economy. And while the broad economic effect of monopolistic rule often hogs all of the attention, we can’t forget the strong impact these corporate behemoths have on American workers.
In a hearing last month, the House Judiciary Committee took up this very problem. Multiple antitrust experts were called to testify. They illustrated that effective antitrust protections benefit workers. Just in case you missed it, here are a few quick hits from the hearing to keep you in the loop.
More Competition, More Worker Empowerment
Throughout the hearing, it was repeatedly shown that the lack of competition in the economic landscape damages conditions for workers. As markets become more concentrated, income and wages decrease, Brian Callaci, chief economist of the Open Markets Institute, testified. Additionally, labor market concentration also has a positive correlation with the amount of labor rights violations. Callaci went on to explain that monopsony power, in which there is one dominant buyer (employer) with many sellers (employees), leads to an unfair power balance that leaves workers at a distinct disadvantage. Put simply, if there’s an overwhelmingly powerful boss in town, they can set the salary to whatever they want without fear of competition.
During the hearing, we also heard about the effects of consolidation on workers from Daniel Gross, a delivery driver for United Parcel Service. Citing Amazon’s growth over the years, Gross explained that Amazon’s last mile delivery network especially harms workers because Amazon occupies an increasing percentage of the delivery market yet pays its workers less than UPS. Amazon’s unique power to link its online retail business to its delivery and logistics business puts other delivery services such as USPS, UPS, FedEx, and DHL at a clear disadvantage. This allows Amazons to unduly influence the market for labor conditions.
A Gap in Antitrust Law
Speaking to the distinct impact that the enforcement of antitrust laws could have on the labor markets, Eric Posner, a professor from the University of Chicago Law School, detailed a “litigation gap” in antitrust law. While antitrust cases usually revolve around the harms done to other companies, very few decisions consider the effects that mergers and monopolies have on workers. Concerns about mergers leading to higher prices are usually central to the debate, while concerns about mergers’ effect on wages are often treated as an afterthought. But recent research shows that anticompetitive behaviors are just as prevalent in the labor market space as the product market space.
Posner explained that the Justice Department and the Federal Trade Commission have never challenged a merger because of its anticompetitive effects on labor markets, specifically. Workers deserve fair resources, wages, and conditions – encouraging and protecting competition between companies provides the everyday worker better options.
We can find some encouragement that both President Biden and Jonathan Kanter, Biden’s recent nominee to lead the Justice Department’s Antitrust Division, have expressed an understanding of market concentration’s impact on workers. But it is up to all of us to keep the pressure on our elected officials and government.
Revamping antitrust enforcement to address effects on labor would more equitably protect workers across the country.
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Miguel Montaner
The first episode of Capitalisn’t, a new economics podcast by Kate Waldock, of Georgetown University, and Luigi Zingales, of the University of Chicago, contemplates a future in which Facebook’s Mark Zuckerberg becomes president of the United States and revises antitrust law to make sure his company can never be broken up. Zingales, who was born in Italy, reminds listeners that the disgraced former Italian prime minister Silvio Berlusconi parlayed his ownership of dominant media assets into the country’s highest political office and notes that if Zuckerberg did the same, he would end up controlling both the U.S. government and what is arguably the world’s most important communications network—and would therefore wield “absolute power.”
But few of us need a Zuckerberg 2020 campaign to start worrying about the outsize influence that America’s largest companies and the people who lead them now have. A significant body of research suggests that the biggest organizations in most industries account for a larger percentage of revenues and profits in their markets than they did a decade or two ago and that their power has grown. Meanwhile, the public trusts them less: Roughly 40% of Americans say they have little or no confidence in big business, up from just 24% in 1985, and more people are suggesting that Google and Facebook be regulated like utilities, or even broken up.
Are these concerns justified? Robert Atkinson, a DC-based innovation expert, and Michael Lind, a visiting professor of public affairs at the University of Texas, think not. In their new book, Big Is Beautiful, they argue that large companies are more productive, innovative, and diverse than small ones. These companies also provide higher wages, more training, and broader benefits to employees and spend more money to limit pollution. When Americans lionize small mom-and-pop shops and lambaste big business, the authors conclude, they are getting it wrong.
As contrarian as this may sound, much of it is in fact conventional wisdom among economists and policy wonks. Research suggests that the only small enterprises truly driving the economy are the rare fast-growing, innovative new ones that hope to one day be big. However, Atkinson and Lind take the argument further than most, attacking the “antimonopoly tradition” set by U.S. Supreme Court Justice Louis Brandeis in the early 20th century and standing up for markets dominated by just a few companies.
At times they do overreach: Big Food is an environmental and nutritional disaster; big banks helped cause the financial crisis. But the authors are correct that many people overrate both the benefits of small business and the evils of bigness. And although antimonopolism is rightly getting renewed attention, it is not equipped to deal with most of what ails the economy.
If size itself isn’t the problem, what is? Perhaps, as Capitalisn’t suggests, it’s the troubling intersection of economic and political power. In The Captured Economy, Brink Lindsey and Steven Teles, of the libertarian Niskanen Center, argue that too many corporations—both large and small—now have undue influence over public policy. They offer the financial sector, real estate, intellectual property, and occupational licensing (the credentialing process for someone joining a profession) as case studies and warn that when the public isn’t looking, companies and industry organizations will shamelessly lobby for laws beneficial to themselves, often without opposition.
Although Lindsey and Teles come off as far more skeptical of big business than Atkinson and Lind (almost anyone would), there is overlap in their analyses. All four seem to agree that the problem with big business isn’t size but whether that size confers illegitimate power. And all four agree that small businesses, too, can corrupt policy making.
Lindsey and Teles suggest reforms that would give lawmakers better access to independent information and analysis, limiting their reliance on corporate lobbyists and the reports they push. But the antimonopolists whom Atkinson and Lind rebut will no doubt remain skeptical. If economic power stays concentrated, can it ever be kept from translating into political power?
Historically, one countervailing force to such dominance has been creative destruction, through which new companies disrupt old ones, and entire industries rise or disappear. Hemant Taneja, the author of Unscaled, thinks we’re living through such a wave. As a Silicon Valley venture capitalist, he says, he sees two trends—demand for hyperpersonalized products and entrepreneurs’ ability to “rent scale” in the cloud—that are putting incumbents at an increasing disadvantage. (Disclosure: Early in my career I worked for an organization Taneja cofounded and chaired. I edited his first piece on the economies of unscale for HBR.org.)
Stripe, one of Taneja’s VC investments, is emblematic of these new market dynamics. It offers smaller businesses the chance to rent payment-processing services and thereby compete cheaply against larger companies, and it has succeeded in part because existing financial services firms were unable to offer the same, despite their superior resources. Taneja doesn’t imagine an economy with no large companies—his book has a section on platforms and the risk of AI-powered monopolies—but he sees relatively smaller, more focused ones such as Warby Parker succeeding against giants such as Luxottica.
Again, however, anyone worried about big organizations wielding even bigger influence is likely to remain unconvinced. Sure, some early evidence exists that young companies are uniquely able to benefit from cloud computing and are more likely to survive as a result. But digital technology also seems to have helped the biggest players in each industry expand.
Whether the new cloud- and AI-enabled start-ups pose real threats to today’s giants or will be felled or acquired before they can supplant them is an open question. After all, Instagram and WhatsApp both illustrated the speed at which small, focused companies can quickly scale up and threaten larger rivals. But both ended up as part of Facebook—and that was without Zuckerberg in the White House.
A version of this article appeared in the May–June 2018 issue (pp.154–155) of Harvard Business Review.