The world has grown remarkably tolerant of global monopolies over the last thirty years. As a result, the world’s largest and most powerful firms have gained significant political influence. According to Tim Wu’s book, The Curse of Bigness, this produces a climate that threatens our democracy and has nasty parallels from history.
Wu takes us back to pre-World-War-2 Germany. Industrial cartels in steel, rubber, coal and chemicals supported the Nazis, believing in the economic the stability they promised. Once in power, it was easy for the Nazi’s to control the dominant industry players in return for political protection and favouritism.
By comparison at the time, America was anti-monopoly, wary of the robber barons who had manipulated markets and destroyed competition in the late 19th century. In America, monopolies were a “a system of robbery and fraud”, while in Germany they were considered “a system of justice and equity”.
A similar monopolistic pattern occurred in Japan in the pre-war. The majority of industry was controlled by the zaibatsu – conglomerates run by powerful family dynasties. The largest were Sumitomo, Mitsui, Mitsubishi and Yasuda. Their reach included the Japanese banking and finance system and political parties. Once again, this concentrated structure made it easier for the military to direct industry leading up to and during the war.
The history of the legal treatment of monopolies goes back to 1624 when the English Parliament enacted the “Statute of Monopolies” in response to Elizabeth I handing out royal monopolies to her friends and allies. In America the famous Boston Tea Party took place in reaction to the monopolistic British Tea Act of 1773.
Perhaps the most famed anti-monopoly laws were conceived in America in response to the massive agglomeration of small firms into dominant ‘trusts”. Standard Oil, controlled by John D. Rockefeller was one example. Another was U.S. Steel formed by the merger of 220 steel companies. Similar Trusts were formed in the tobacco, rubber, rail and film industries.
One of the key figures of the anti-monopoly movement in America was Louis Brandeis, who found his voice campaigning against a proposal by J.P. Morgan to combine 336 railway firms into one giant monopoly. In 1911 he concluded:
“we are in a position, after the experience of the last twenty years, to state two things: In the first place, that a corporation may be too large to be the most efficient instrument of production and distribution, and in the second place, whether it has exceeded the point of greatest economic efficiency or not, it may be too large to be tolerated among the people who desire to be free”
In Europe what became known as the Ordoliberal movement wanted a state that was strong enough to break private power, but not so strong as take over society. A state to guarantee certain economic securities, but to leave the provisioning of most goods to the market process.
Key anti-monopoly laws were passed in America and Europe after WW2 and active enforcement proceeded through to the 1990s. Some key outcomes included the breaking up of the telecom provider AT&T (split into eight separate entities), and actions against IBM (separating hardware and software services) and Microsoft (MS lost in court but won a reprieve after George W. Bush’s election in 2000).
By the late 1990’s, with the advocacy of University of Chicago alum Robert Bork, a new mantra arose in America which came to be known as neoliberalism. The theory was simple: the only goal of American laws should be lower prices. In the eight years of the Bush administration there was zero anti-monopoly enforcement and no major mergers were blocked. The idea of preventing the concentration of private power was dying both in America and Europe.
As a result, in the space of one generation, there have been massive consolidations of industries both national and international, that “make a mockery of the ideals of competition and economic freedom.”
A little-known example of a global monopoly is Luxottica, the world’s eyeglass monopolist which owns well-known fashion brands and keeps prices exorbitantly above cost. Another example is the concentration of ownership in the global beer industry between two monoliths in AB InBev (Miller, Budweiser, Stella Artois, Corona) and Heineken (Tiger, Amstel, Dos Equis, Kingfisher). The two firms control 75% of US beer sales.
After Germany’s defeat in 1945, the chemical giant IG Farben was broken into six entities including Bayer, Hoechst and BASF all of which it had acquired in the 1920s. Bayer has since acquired Monsanto to create the world’s largest combined seed, fertilizer and chemical company.
The concentration of firms and reduced competition is evident in the USA with airlines and telecom carriers each down to three major competitors.
In the tech era, the trajectories of Big Five tech firms illustrate how concerns over monopoly power have fallen by the wayside. Take Facebook. After taking off and making competitor Myspace redundant, it faced a new competitor – one that combined photos and videos with a social network on mobile phones – Instagram. Facebook’s reaction – buy it. No regulator blinked. The next challenger was WhatsApp. Again, Facebook bought it without challenge. In all, Facebook strung together more than 90 unchallenged acquisitions.
That sounds like a lot until you compare it with Google who got away with at least 270 acquisitions including YouTube, Waze (a competitor to Google Maps guidance) and AdMob. Where buyouts were impractical, the Big Five resorted to “cloning” its competitors features.
Wu argues that history and economics suggest that we do much better trusting that fierce competition actually makes companies better, both technologically and in their offer to customers. The leaders of the big tech firms play on nationalism by arguing that if they are broken up it will mean handing over the future to China. History doesn’t support that contention.
Wu finishes with suggestions for reducing monopolistic power. These include better merger control, a market investigations law along the UK model, breakups of the bigger players – Facebook being a prime candidate, applying a “protection of competition” test, and minimising tax avoidance by the biggest companies.
Wu warns that while people have been wary of giving governments too much power, they have missed the danger of concentrated private power. A rethink is necessary if we want to heed the lessons of history and avoid global, consolidated corporations with more power than nation states.
The reviewer is a co-author of Court of the Grandchildren, a novel set in 2050s America.
Main image credit: royharryman via Pixabay
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