Marshall Auerback: In Antitrust, Size Isn’t Everything

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute

When it comes to businesses in need of reform, the saying “size isn’t everything” should apply. Unfortunately, this isn’t the thinking in the realm of antitrust, where size is seen as inextricably linked to questions of competitiveness, political corruption, the stifling of innovation and distortions of economic power. At least that’s the case made by Professor Tim Wu, in his new work, The Curse of Bigness: Antitrust in the New Gilded Age. Reviewing the book, New York Times correspondent David Leonhardt accepts Wu’s central premise:

“The new corporate behemoths have been very good for their executives and largest shareholders—and bad for almost everyone else. Sooner or later, the companies tend to raise prices. They hold down wages, because where else are workers going to go? They use their resources to sway government policy. Many of our economic ills—like income stagnation and a decline in entrepreneurship—stem partly from corporate gigantism.”

If every corporate behemoth is seen as a problematic nail, then a resort to the antitrust hammer is understandable. But it is questionable whether or not the ills outlined above by Wu and Leonhardt are a product of economic gigantism per se. A better reason why these pathologies exist is the following: a sustained multi-decade attack on unionization, the concomitant growing imbalance between capital and labor, the ascendancy of the doctrine of “shareholder capitalism” (which has induced corporations to prioritize share price performance over R&D and investment), global labor arbitrage, and the existence of America’s “pay to play” system of politics (entrenched and exacerbated by recent Supreme Court decisions, such as Citizens United).

To address these problems, we need solutions that go well beyond breaking up a big corporation just because it happens to be big, or simply embracing the neoliberal faith that “letting markets be markets” will do the job. Or, for that matter, relying on an archaic regulatory framework that sits uneasily with our 21st-century version of capitalism. While it is understandable why antitrust proponents such as Wu evoke early examples of trust-busters such as Theodore Roosevelt to garner support and provide historical legitimacy for their arguments, it’s hard to see how rules promulgated in the context of an early 20th-century economy are germane to a 21st-century global economy dominated by very different kinds of industries and market structures.

Ironically, a fitting lesson to be drawn from our nation’s past is the one that today’s antitrust enthusiasts generally ignore. As the economists Robert Atkinson and Michael Lind illustrate, one of the earliest trust-busters, President Theodore Roosevelt, argued that “the remedy for abuse was not mindlessly breaking up big firms, but preventing specific abuses by means of a strong national regulation of interstate corporations.” Likewise, his cousin Franklin Delano Roosevelt ultimately concluded that optimal outcomes were more likely to be achieved via “prudent government oversight and using antitrust laws to police abuses—not to break up every big company simply because it’s big.”

Atkinson and Lind expand these ideas in their book Big Is Beautiful: Debunking the Myth of Small Business. On the size metric, they make the following observation: “On virtually every meaningful indicator, including wages, productivity, environmental protection, exporting, innovation, employment diversity and tax compliance, large firms as a group significantly outperform small firms.” Echoing the Roosevelts, the authors argue that the remedy for abuse is not mindlessly breaking up big firms, but preventing specific abuses by means of a strong national regulation of businesses, regardless of size. They also point out that the corollary—namely, that small is good—is often wrong as well, in spite of many Americans’ long-standing belief that small business is the main engine of job growth and economic opportunity:

“In 2015, small enterprises were four times more likely to lay off their workers than large ones. Workers employed by large firms also earned more—on average, 54 percent more than workers at small companies. Companies with more than 500 employees offer 2.5 times more paid leave and insurance benefits and 3.9 times more in retirement benefits than workers at firms with fewer than 100 employees. Large firms are also more likely to be unionized, and they employ a greater share of women and minorities than small firms do, making Big Business an unlikely enemy of progressives.”

Even if small companies do not constitute the engine of growth, are they not the main avatars of entrepreneurialism and American innovation? While the image of Steve Jobs and Steve Wozniak beavering away in a garage to create Apple has done much to legitimize this myth, in reality, as Atkinson and Lind document, “the tech revolution owes far more to teams of scientists and engineers working in well-funded corporate labs than to college dropouts tinkering at home.” In support of this proposition, the authors cite the study of professors Anne Marie Knott and Carl Vieregger, which shows that “large firms not only invest more in R&D than small firms, they get more innovation output per dollar invested.”

To the extent that American innovation and entrepreneurialism have dissipated in the last few decades, the cause is less “economic gigantism,” and more financialization, especially post the establishment of SEC Rule 10b-18, which engendered an explosion in share buybacks (until the rule was introduced, companies buying back their own shares was considered a form of stock manipulation). The impact of this rule cannot be overstated: Instead of spending needed dollars on R&D or investment, billions of dollars of corporate cash flow have been deployed toward stock repurchases to fatten executive compensation. An additional contributing factor has been the diminishment of government involvement in the economy. This is a salient consideration given the state’s historic contributing role in “transformational technologies from the internet to GPS,” as venture capitalist William Janeway has noted in his book Doing Capitalism in the Innovation Economy.

What about the notion that economic size has contributed to the problem of income stagnation and non-existent wage growth? Here again, the evidence suggests that other factors are more important. In fact, as the economists Lance Taylor and Özlem Ömer illustrate in a recent study, the “stagnant” low-wage sectors—nursing homes, fast food, construction, education and health, business services, transportation and warehousing, maids—are the least concentrated with the lowest profit margins. Concentration per se can’t explain low wages in these industries. Companies in these sectors are usually the ones that complain the most about a $15/hour minimum wage, or the unionization of their work forces, claiming they don’t have the economic resources to pay the kinds of wages and benefits often secured in union-negotiated deals.

An inflation-eroded minimum wage, the absence of unions, replacement of full-time employees by contractors and mass low-wage immigration are better explanations for wage stagnation, and non-enforcement of antitrust remedies is irrelevant to those causes. Wage and labor laws matter. The decades-long sustained attacks on unions have given corporations, both large and small, the power to break the traditional nexus between worker productivity and wage gains. This development has generated a massive shift in income from labor to capitalover the past 35 years. To avert this problem, policy should therefore be fighting against worker exploitation, irrespective of whether workers are employed by Amazon or mom-and-pop sweatshops. Targeting based on size alone won’t get rid of all of the abuses.

In fact, Amazon implicitly proved that big is not always bad and sometimes can be better. Recall how quickly the company recently introduced the $15/hour minimum wage in response to vast public pressure. Ideally, a robust competing private power center—i.e., organized labor—means corporations, in the most feral analysis, have to fight a two-front war. How to get there from here is a problem the Democrats might be spending more time thinking about, assuming they can take their single-minded focus away from the evils of economic gigantism.

For fragmented “sweatshop” industries where a “big three tripartite” model among government, unions and big business doesn’t apply, governments can substitute unionized wage boards that were created in the early 20th century in the UK and copied in the United States. New York Governor Andrew Cuomo, for example, has used a state wage board to raise the fast-food wage. Wage boards with tripartite government-employer-worker representation can be used by U.S. states in low-wage sectors that can’t be removed to another state or country (construction, health care, nursing, restaurants). They should have power over hours and working conditions, not just wages.

As far as high-tech industries go, the question of regulation vs. breaking up may miss the main worries, especially in regard to some of our newer 21st-century behemoths, such as Google or Facebook. Facebook, for example, may have some features of being a broadcaster (which would suggest FCC-style oversight), but that is still a relatively small part of its business. Similarly, it would be difficult to call Google a broadcaster in the traditional sense of an FCC-regulated company, although it should be subject to the 21st-century equivalent of fair broadcast rules.

Whether the FCC is fully equipped to promulgate and enforce those rules is another question. Communications have changed a lot over the last half-century, and media have taken on a multiplicity of functions that were not in existence when the FCC was established. Using a “horse and carriage” model for an internet superhighway is problematic.

Both Facebook and Google collect massive amounts of private data (which makes them different from broadcasters), sell heavily targeted advertising, offer tech solutions to the larger social media world, and provide forms of services (search and personal networking). The regulation would need to come to grips with the interrelationship of the four or the nature of the vertical integration. Creating eight “mini-Facebooks” doesn’t seem like a good way to do this, especially if the problem of how the company handles your data isn’t adequately addressed. Rather, the European Union’s General Data Protection Regulation represents a good starting basis for a new regulatory framework, because it regulates function, regardless of size.

What about our “pay to play” political system? Doesn’t corporate size play a role here? Yes, but this is because companies scale up in size in order to maximize their abilities to “pay to play,” as Professor Thomas Ferguson asserts in his seminal work, Golden Rule; The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems: “With enough money, candidates can pole vault over the whole rotting structure of party politics in America.”

The scale up, however, is a function of inadequate restrictions on private campaign finance. Ferguson’s book demonstrates that powerful blocs of business elites, large and small, with durable (largely economic) interests are a constant feature of American politics. Smaller businesses do it as well. They too have an incentive to “scale up” via a trade association to maximize the impact of their “political investment.” Change the incentives in “pay to play,” and size becomes less of a polluting impact on the American polity. The corollary also applies: If the government were suddenly to embrace an antitrust agenda, and aggressively break up the big corporate behemoths, absent campaign finance reform, he who has the gold would still rule.

More generally, it is worth considering the whole underlying premise that market considerations on their own deliver optimal social outcomes. Consider that in times of grave national emergency, such as war, market mechanisms are generally subjugated to broader strategic objectives. We didn’t use “the market” to help us win World War II, during which the U.S. rationed raw materials, established wage and price controls, capped profits, organized cartels of manufacturers, set production targets and directed labor into war munitions. Civilians were exhorted to put their savings into wartime bonds, and the economy was largely controlled by federal bureaucrats like Simon Kuznets and generals like Brehon Somervell and Bill Knudsen. By no means am I suggesting a comparable scale of government involvement today; I am simply questioning the optimistic premise underlying traditional market-oriented antitrust remedies. Some national development/government-led industrial policy must play a role in shaping market mechanisms to broader public purpose.

Above all else, the implicit assumption of the antitrusters seems to be that America is not capitalist enough, and that more market competition will raise wages and lower prices and reduce inequality. They posit a minimal role for a state involvement, even though the state has historically played a large role in national development, innovation and entrepreneurialism. The monomaniacal focus on antitrust ironically sounds more like something from the Cato Institute or the Koch brothers, rather than a progressive plan to improve the aggregate quality of life for the majority of Americans. Antitrust is an instrument that has its place, but simply placing faith in benign outcomes by “letting markets be markets,” or assuming that “big is bad,” are theological doctrines, not real solutions.


Print Friendly, PDF & Email


  1. one problem

    how about both: regulation of large and small and also breaking up monopoly corporate situations.
    one problem with going all in on an argument is that you miss nuances or neglect or distort facts. that amazon raised their pay level was offset by their dropping other benefits.

    1. Bugs Bunny

      Without laws and enforcement to cut back financialization, broken up monopolies are likely to gravitate back into one entity. See, e.g. AT&T.

    2. Carla

      When Auerback uses Amazon as an example of how corporate bigness can benefit society, he is so off-base that it undermines everything else he has to say. Government-defying Amazon is inescapable, and as such, is a rogue corporation that represents a threat to human civilization perhaps only matched by climate change. Google is another one. Auerback better learn this, and learn it quick.

      1. Marshall Auerback

        The point about Amazon was not to extol its working practices in general, but merely to point out how easily a larger corporation can accommodate a $15/hr minimum wage. The arguments against it are bogus in light of the fact that a modicum of public pressure from Bernie Sanders was all that was needed to get the wage brought in. I also pointed out that unionisation (which Amazon strongly resist) is probably the biggest factor in terms of wage stagnation, as opposed to economic bigness per se. I think if you’ve read my other stuff, you would see that I have learned this. Placing this discussion in the same category as climate change shows precisely the lack of perspective that most have on this subject.

  2. Ignacio

    I wouldn’t take my argument too far to say that the only problem of big corporations is that they happen to be big. Imagine one city is dominated by one big corp. with unionized powerful workers. Can you imagine what will happen to the rest of sectors in the city? Monopsony, monopoly, dutch disease, etc…

  3. bruce wilder

    The intellectual poverty of neoclassical economics is undoubtedly at its worst in macroeconomics, the subdiscipline that attempts to study the overall management of the economy mostly thru monetary policy without understanding, you know, money. But, a close second is the nearly moribund subdiscipline called industrial organization that studies market structure and business strategy and came up with the notion of market “concentration” as a way of measuring the degree of monopoly. One of the founding fathers of industrial organization as a subdiscipline was George Stigler, a leading light at the University of Chicago — which may explain a lot about why basic notions of antitrust and “monopoly” are so market friendly in a neoliberal way.

    Be that as it may, “monopoly” is at the core of antitrust law, just as corporate size and political power are at the core of antitrust political history. When it comes to thinking thru the problems posed by the the large-scale organization of business enterprise, economics as conventionally taught in colleges and business schools does not equip any of us with much of a conceptual apparatus. We are left with handwaving at vague notions, railing at “big” without much in the way of fine analysis of what we are fighting against or for.

    The very term, “monopoly”, as filtered thru economics, becomes everything and nothing. The word means “one seller”. (One buyer, its mirror image, is “monopsony” for those playing trivial pursuit.) Neoclassical economics at its most elementary level treats “monopoly” and “perfect competition” as polar opposites in bootstrapping its analysis of allocation of resources by market price. That elementary analysis is too elementary, however, as well as fundamentally irrelevant to the actual cases — does not matter, economists went with elementary anyway.

    One problem with the elementary notions of “monopoly” and “perfect competition” is that they, by assumption, reduce a firm’s strategic awareness and behavior to a single lever and no lever respectively. “Perfect competition” is defined as a firm behaving as a price taker, with no awareness that its choice of output affects market price; “monopoly” at this elementary level is defined as how the firm behaves when it becomes aware that its choice of output quantity affects market price (the strategically aware “monopolist” restricts output to raise price, in case you did not know). As allegedly useful this pedagogy may be in introducing fundamental concepts of allocation by market price, it is misleading as a description. There can be no actual firm with so little awareness of its many strategic options. Generations of teachers have intimated that a “market” with “many” sellers approaches “perfect competition”, because (it is argued with a wave of the hand) a small firm in an industry with many firms must see its strategic power diminished by its being such a small fraction of the whole. Faulty logic as it turns out.

    Well, really no logic at all and much of industrial organization as a subdiscipline was built up from early days thru the 1950s and 1960s on handwaving and storytelling with little more foundation than the ur-story of monopoly and perfect competition laid out in the textbook on day one. Tim Wu continues this tradition with great earnestness, complaining of rising “concentration” in industry with the correlate rise in vaguely defined “market power”.

    Not wrong or at least not entirely wrong, but also not precisely right enough to enable either effective politics or policy remedies.

    The economics of industrial organization does not offer much in the way of an intellectual apparatus. Its concepts and arguments are vague handwaving and storytelling mostly. It does not take an economist to see that the political power of corporate business and the domination of major sectors of the economy by a handful of companies run as criminal conspiracies is bad for the country and the world. But, we might hope for an economic expertise that could treat the problems, well, more expertly. With great attention to where and how to intervene and restructure industry in ways that allow the public to continue to benefit from the very real efficiencies that sometimes arise from enterprise of great size and scope.

    I cannot say that I am entirely sympathetic to Marshall Auerbach’s contrarian rhetoric in this essay. But, it is certainly true that vague notions that reduce to little more than romantic affection for “small” business and undiscriminating hostility to “big” business is neither good politics nor effective policy.

    1. cnchal

      > Well, really no logic at all and much of industrial organization as a subdiscipline was built up from early days thru the 1950s and 1960s on handwaving and storytelling . . .

      Industrial organizations were built around getting a product out the door. Today’s organizations, such as Google, Amazon, Facebook, all the tech bro stuff have quite a different factory floor. Mostly sitting at a desk creating code to improve the organization’s ability to exploit the information taken from everybody. Is any of it ripe for unionization?

      Both Facebook and Google collect massive amounts of private data (which makes them different from broadcasters), sell heavily targeted advertising, offer tech solutions to the larger social media world, and provide forms of services (search and personal networking).

      I am curious why Amazon always seems to be omitted from that list, when it should be the first name. Remember the “Gazelle Project? To Amazon, everything is a Gazelle, and to think that Amazon isn’t collecting everything possible to use to it’s advantage is delusional. For phucks sake, they have about half of all Americans in their Rolodex to start with.

      1. tegnost

        yeah, amazon is the worst of the worst, and their wage increase that wasn’t is just throwing crumbs at the hoi polloi. They are well on their way to being joined at the hip with the us gov. and neither this article or wu’s deals with that, and as b wilder states

        it does not take an economist to see that the political power of corporate business and the domination of major sectors of the economy by a handful of companies run as criminal conspiracies is bad for the country and the world.

        If I glean anything from this, it’s that monopoly is less bad than the above statement, which describes the world as it is generally. Of course breaking up facebook couldn’t fix anything but making it illegal to siphon all that data might work, not to single out auerbach, but the concern about their high payed employees is similar to the lanny breuers of the world. It’s fits into the story of ok we stole everything, and sure we might be inclined to give some back, how little can we get away with giving back? Our right to privacy is lost to us, is anyone looking at giving it back? Facebook, a company I have never signed into or posted at has a file on me. I recall back at the time of the patriot act and later with snowdon, the tech behemoths were kinda p.o’d at the NSA because the behemoths were shipping all the data to an offshore hub, gleaning it, then sending it back where it’s subject to protection. The NSA re snowden revealed that the nsa just wanted what the tech world already had, could you keep quiet about it please? Which of course has led the gov to be in league with the enemies of the state. Globalists are extra state actors, and the ISDS was intended to discipline countries who defy their wishes. So the post by Auerbach does observe that the problem of too big v too small is a misdirection, and I agree with that but probably for different reasons. It’s a rational attempt to give up a little of the status quo to allow the broken system to go on ( I would like to know who these people are who have a “monomaniacal focus on antitrust”. Not seeing it in my news feed.) when the weight of inequality is sure to bring the whole thing down in a most spectacular fashion. Since it’s sunday, go check any basket of major metropolitan newspapers and each one will have a “what are we going to do with all these homeless people? article and everything you see will be a stop gap temporary solution. The basic meanness of our society is what people can’t seem to get their heads around.

      2. bruce wilder

        bw (me):

        . . . industrial organization as a subdiscipline . . . economics of industrial organization does not offer much in the way of an intellectual apparatus.


        Industrial organizations were built around getting a product out the door.

        If you are not going to read my comment, why reply to it?

        I do not mean to be churlish, because you make a good point, but you make your point while trampling over my possibly not-so-good point and to no effect.

        I will tell you why Auerback omits Amazon. Because he inserts the part you quote in a chain of reasoning that a couple of paragraphs earlier features “Amazon implicitly proved that big is not always bad and sometimes can be better” and leads immediately to an implicit “natural monopoly” argument: “Creating eight “mini-Facebooks” doesn’t seem like a good way to do this” where “this” is referring to the logic of the so-called “vertical integration” (and implicitly the exploitation of network effects in social media platforming at the core of a business model for creating its own huge size) in the Facebook business architecture.

        I think the problem with Google, Facebook and Amazon is “the platform” problem: they create “platforms” that invite and/or force other “small business” to use them, and then drain the economic rents out of the revenue streams, destroying or undermining many of those businesses. In the NC phrase, if your business depends on a platform, you do not have a business.

        To return to my boring comment, the intellectual apparatus of Econ 101, with its storytelling mostly about the 1950s New Deal economy, does not help to understand the economics of platforming, founded on exploiting network effects and the economic rents from controlling gateways. That economics of a non-existent “market economy” (which did not exist in the 1950s either by the way). Auerback makes the auxiliary point that the New Deal economy of regulatory agencies like the FCC is ill-matched to the problem, but then argues that the EU approach (privacy regulation) is a good beginning.

        Contrary to Auerback, I think the EU approach is silly and irrelevant. My having to click on an acknowledgement that I know cookies are used on thousands of websites as a I surf the web is just a wasteful annoyance. In the same vein, I think macro prudential regulation of “systemically important” players in the financial sector is a foolish concession to persistent power that cannot be contained as long as it exists. Urging enormously powerful organizations to behave better is a futile approach to the politics and the economics. Structural reforms as well as some bright-line rules that limit the power of businesses to reassemble that power are required. But, to figure that stuff out, requires an economics qua intellectual apparatus that is at least minimally realistic in its assessment of the economy as it is.

        In the meantime, the structure of important sectors of the economy is collapsing. As Matt Stoller points out in his Twitter feeds, draining advertising revenues out of the Media ecology is killing both business enterprise we need for news and political discourse and the political independence of the firms that remain. It is a crisis! And big is bad! But, yes, we need an analysis that goes deeper than simple slogans of hostility to “big”.

        1. Lambert Strether

          On five Facebooks: We could have any number of Facebooks in a federated system if their content was in an interchangeable data format (say, HTML). Of course, that’s anathema to the platforms (and also to programmers, who collect their own rents).

          On “bigness”: I had occasion to attempt to export data from a Googledocs document the other day, because that’s the software all the kids these days are using (insane if you’re a putatively revolutionary or even reformist organization, but never mind that). Naturally, export was impossible; the HTML seems to have been deliberately obfuscated. But it occurred to me that, GoogleDocs, like Microsoft Word after version, oh, 1.05, is essentially done. From the UI/UX perspective, there was very little that can be done to improve it, and much that could make it worse (which happened with Word’s bizarre “new” interface, a few versions back). It is complete, finished. No more development needed except maintenance. So why not take that line of business away from Google entirely, and turn it into a public utility?

    2. Ignacio

      I think that the main problem with monopoly is that it is what you get when you do’t have regulatory strength.
      Mr. Auerback is rigth to say that identifying “monopoly” as the problem is bad policy. Monopoly is one of the things you obtain, is an externality or a symptom, of lacking, unproper or old-fashioned regulation. Monopoly is not the cause. In this sense I am 100% with the author. You have to search for whatever regulations or regulatory absence lead to monopolistic results.

      1. Susan the Other

        It isn’t necessarily size that causes problems, but size and abuse do coincide often. I agree on one point, that we have one big rotting structure for politics. We lack regulation for a reason.

  4. The Rev Kev

    With what corporations do, it is not a matter of size but how they use it. Look, as far as regulation is concerned of major corporations, that horse has long bolted and is currently three counties over. People are talking about breaking up corporations precisely because they know that the regulatory agencies have long been captured by them. An example. There was a speech given to a crowd of execs by I think the head of the SEC and not only was he spruiking for a job for himself after leaving office but also his son as well. It has gotten that bad. Regulation is not an option anymore. It is over.
    Where the article says ‘An inflation-eroded minimum wage, the absence of unions, replacement of full-time employees by contractors and mass low-wage immigration are better explanations for wage stagnation’ the final step of the sequence has not been taken where it was the major corporations, in conjunction with government, that caused all this to happen. They are beneficiaries of what they have created. Imagine an America where wages had kept pace with GDP since the 1970s instead. It would be a radically different country but nobody thinks about that or what it would be like.
    As for well-funded corporate labs doing the heavy lifting rather than individuals, I would counter that government research and funding plays a far greater role than acknowledged. Ask where would Google and Amazon and a host of other tech companies would be now without government support. All those grants, subsidies, etc. I remember where the Government research labs developed an important drug, GAVE the research to a Big Pharma company to do minor work on dosages, and they then proceeded to make a mint selling that drug they now had a patent for. Tough luck for the American tax-payer though.
    And large and small companies are not equal as giant corporations do not usually have colossal workforces but there are a lot more smaller companies that when totaled up have more workers than all the major corporations added up from what I understand. You what to know the worse of it? With all this corporate control it is not worth it for what people are getting in their lives. From what I see, all we are getting is more poverty, more slave jobs and much more crapification. I hope that Marshall Auerback is not offended by this all but it is my take on the situation.

  5. bruce wilder

    Several major and fundamental things would have to change in textbook economics and op-ed economics (and Twitter economics — Matt Stoller I am looking at you!) as well to get to a place where politics began to get some real policy traction on these issues.

    I feel like a crank when I repeat this, but, really, people, stop saying, “market economy”. We have a money economy with money prices, but actual markets have very little role in organizing the economy or even forming prices. The entire Chicago School project is to contrast the actual economy with an idealized and wholly counterfactual notion of how a economic system of markets could work and imply the actual economy is like the ideal and could be improved by being made more like the ideal. The thing is, the actual economy is organized by bureaucracy and is, as a consequence, wholly unlike that imaginary market system. Joining Chicago School economists in their shared delusion is like following Alice down the rabbithole — nothing is as it seems. Not going down the rabbit hole or thru the lookingglass is one step toward overcoming illusion.

    In a bureaucratic economy, what matters is control, especially strategic control. Achieved by the exercise of political power in structuring the economic game and its rules. Preventing control frauds and criminogenic environments from forming is imperative. Somethings NC readers may already be familiar with.

    Effective antitrust in a bureaucratic economy is exemplified by, for example, constraining resale price maintenance. Rules that limit the power of big companies over other companies.

    And, the concern with “big” corporations is not exemplified by market concentration ratios, but with conglomerates uniting strategic control where integrity requires separation. Media corporations that subsume production and distribution or banks that buy up brokers and insurance companies and property appraisers.

    Politics thrives on conflict of interest not purity of motives. If a giant universal bank of a giant media conglomerate can eliminate conflicts of economic and political interest, it undermines the ability of politicians and regulators to maintain their independence in arbitrating those conflicts by playing one off against another. The problem is not that there is only one seller of widgets or a few sellers of widgets, but that one maker of widgets also owns the platform where all sellers of widgets must sell and also owns the newspaper that does consumer reviews of widgets and reporting on widget regulation.

    1. whine country

      “An economist is someone who sees something happen in the real world and then sets out to prove that it is theoretically impossible” — Ronald Reagan

      “If all the economists were laid end to end, they would never reach a conclusion” — George Bernard Shaw

      “We have met the enemy and he is us” — Walt Kelly

      As NN Teleb has said, we can see the future by looking at the past. In this connection, particular attention should be paid to his discussions on the subject of “experts”

    2. Brooklin Bridge

      Excellent clear comment, particularly that last paragraph! Regulation simply will not happen as long these giant behemoths maintain their power to prevent it. That is exactly what the article is missing and why it seems to talk about much needed government regulation as if it didn’t require agency.

      1. Marshall Auerback

        I did specifically state that a strong system of NATIONAL regulation was (is) required. My point is that this should be the case whether the business is small or large. And in many cases, the solution would be more ideally found via the old 1970s style tripartite bargaining system we used to have before the neoliberals took over and said we need “more markets” (much like the Open Market Institute alleges today, which is neoliberalism on steroids). Something along the lines of the Treaty of Detroit would be a good starting point.
        Or look at this another way: what do you think is a more systemically dangerous institution: Japan’s Post Office Savings Bank, or Goldman Sachs. Is size the determining factor here for regulation, or function?

    3. Marshall Auerback

      “And, the concern with “big” corporations is not exemplified by market concentration ratios, but with conglomerates uniting strategic control where integrity requires separation. Media corporations that subsume production and distribution or banks that buy up brokers and insurance companies and property appraisers.”


  6. Brooklin Bridge

    I don’t see the shipping of vast numbers of jobs to countries with brutally cheap labor and miserable labor rights attributed more to small rather than large corporations. Shifting production facilities abroad and all that goes with it requires large amounts of capital for the initial transition. Also, I don’t see the power to influence government and control media to move the economy and the mindset into the very criminal behavior of business and finance today -that Mr. Auerback himself describes- being attributed by him more to small business than large ones. That the media alone is owned by what, 6 business or corporate entities?, is significant. We don’t even have a situation to compare it against because the media monopoly we have is the only mass media we have; we have nothing to compare it with EXCEPT historical examples and it’s fighting tooth and nail to keep it that way. And then, Auerback doesn’t attribute to small banks more illegal and criminal foreclosures than the big ones. I’m sure I’m missing a lot here.

    While I don’t challenge that small business may have obtained advantages in this set up that a lawyer like focus on their willingness to exploit might use to manipulate the readers vantage, it doesn’t mean small business has done more than corporate behemoths for getting us to the distopia of inequality and the destruction of our democracy that we are currently living in.

    It is also poignant that he makes no suggestion that Large Business, the ones who do “more” things right, will relinquish their hold over our institutions of government and jurisprudence more than small business. How does he hope that we will get our democracy, “of the people, by the people, and for the people,” back? Who controls the reins, small business?

  7. Quanka

    This is a fantastic multi book review and thesis. My takeaway is that breaking up big business is not the panacea – e.g. don’t be fooled by this simple policy when its taken up en masse by the DNC. Using regulation to target specific abuses should be one prong in a multi-prong approach. There are perhaps more important prongs to think about – arguably campaign finance reform or increasing the power of labor vs. capital.

    I am still stuck with the question of what’s the best thing, politically speaking, to go for. Are there specific policies that check more of these boxes than others? I am left with the conclusion that the DNC is too corrupted to be trusted with adhering to these policies. Any policy they support will be trojan-horsed and designed to fail.

  8. lyman alpha blob

    In a capitalist economy, money is power and the bigger the company, the more it has.

    A generation ago it used to be that the rich people would buy a city’s football team, as memorialized in Pink Floyd’s famous song on economics. Now the squillionaires have designs on the whole city.

    Nobody should have the much power. Get back to the days of robust unions for sure, but it’s also time to break the big companies up. It doesn’t have to be one or the other.

  9. Susan the Other

    I like Auerbach’s point that “We didn’t use “the market” to help us win WW2.” I certainly agree with him that we do not need to create more faux-capitalist competition, implying by deregulation. We do need more government involvement to promote the direction and quality of our progress. I wish he had said we need industrial/environmental policy and it should be construed by experts and parties without special interest. He skirted the whole point by saying that shareholder interest is not capitalism. Nor is financialized profiteering. Nor externalizing and socializing costs. Those are just three egregious symptoms of irrational competition masquerading as a free capitalist market.

    1. Brooklin Bridge

      We do need more government involvement to promote the direction and quality of our progress.

      Agree, but since politicians are utterly captured by monolithic corporate interests what other way is there, other than breaking up the monopolies that keep the politicians captured by revolving doors, contributions, near bribery, and so on? The ability of the corporate world and finance (the giant ones) to dominate all three branches of government as well as the media has been remarkably resistant to democratic efforts. This power doesn’t come from small business much as it may exploit some of the advantages such as cheap labor. Breaking up the big guys may be the only way to create space for politicians to see through the fog of their lust for money and power and start a serious effort towards comprehensive regulatory policy, never mind restraints on government itself to prevent in the future such an anti democratic culture in the first place..

  10. allan

    The post has lots of interesting information, but Auerbach’s thesis seems a red herring.
    I don’t know of anybody who’s saying that anti-trust is the silver bullet that will solve all of our problems.
    An article by Lina Khan and Zephyr Teachout from 2014 has a useful discussion
    of the various relationships between concentration and governance:


    … The goal of this Article is to create a way of seeing how market
    structure is innately political. It provides a taxonomy of ways in which
    large companies frequently exercise powers that possess the character
    of governance. Broadly, these exercises of power map onto three
    bodies of activity we generally assign to government: to set policy, to
    regulate markets, and to tax. We add a fourth category—which we call
    “dominance,” after Brandeis—as a kind of catchall describing the
    other political impacts.3 The activities we outline will not always fit
    neatly into these categories, nor do all companies engage in all of
    these levels of power—that is not the point. The point is that Bank of
    America and Exxon govern our lives in a way that, say, the local ice
    cream store in your hometown does not. Explicitly understanding the
    power these companies wield as a form of political power expands the
    range of legal tools we should consider when setting policy around
    them. …

  11. Pookah Harvey

    Auerbach seems to have a reasoning flaw:

    companies scale up in size in order to maximize their abilities to “pay to play,”… The scale up, however, is a function of inadequate restrictions on private campaign finance.

    But “inadequate restrictions on private campaign finance” helps ” maximize their abilities to “pay to play,” and around and around it goes.
    Smaller concentrations of wealth couldn’t provide $500,000 for 20 minute speeches from ex-politicians.

  12. JimTan

    I’m not sure that regulation vs breakup is the right way to frame this argument. I think monopolies, rising inequality, and lack of innovation, are all symptoms of a more fundamental problem which is pervasive economic rents, that allow too many businesses to profit without taking risk, and without improving their products or services. In the past, robber barons created monopolies by innovating, or bullying, or buying their competition out of business, and then used this status to create economic rents. We now have a different situation where companies use rents to achieve monopoly status. Because opportunities for rent extraction are now systemic, and its rewards are risk free, this idea is crowding out all other innovative, productive profit strategies and leading to many negative societal outcomes.

    Many large firms use economic rents in the form of legal protections not available to their competitors to both attain and maintain their competitive advantage. These protections include ignoring existing laws, profiting from illegal businesses where profits exceed fines, and profiting from exclusive U.S. government subsidies not available to competitors. The banking and drug industry are notorious for routinely engaging in illegal practices that generate profits which far exceed the fines that regulators impose when these firms are caught. Preferential government subsidies that benefit a single company in an industry are now also acceptable business strategy as companies like Amazon can obtain confidential agreements with the U.S. Post office to ship packages for at least half of what UPS and FedEx would charge for the same deliveries.
    A subsidy like this contributes to the many reasons that its competitors are driven into bankruptcy, and probably explains why Amazon’s retail business loses money everywhere except in the U.S.

    Many small firms, especially tech unicorns in their early days, use economic rents in the same way. Amazon started as a small company that would sell mail-order books in a way that allowed it to avid sales tax. Early Uber investors were probably attracted by a belief that government will look the other way while Uber makes luxury sedan cab rides cheaper by tricking poor cab drivers into paying most of each trips expenses. AirBnB started as a small company whose rent would also ignore local hotel regulations, zoning laws, health laws to prevent public health hazards, and fire safety codes. Small drug companies like Turing Pharmaceuticals could acquire widely used drug patents then raise prices by 5,456%.

    So nowadays the big strategy for profits is rent extraction, and this is crowding out innovation. And since these rents are used to create monopolies, this means that without the rent, there is no monopoly. The greater discussion I think we should therefore be having is do we want to create an economy filled with large monopolies, and smaller companies that monopolize specialized markets, which all require economic rents to survive. Also worth considering is at what concentration does a prevalence of economic rents become truly distractive to a healthy economy.

    1. bruce wilder

      “Economic rents” are indeed a key concept to master, imho.

      The economy has a structure and business enterprises that survive, survive because they secure economic rents on something, some resource, some position and use those economic rents as a foundation for political power and a means of insuring their own survival and further building their power.

      I think it is unfamiliar territory for most people and I am not sure how to explain it. The Chicago School — particularly that branch known as Public Choice — uses “economic rent” as an all-purpose pejorative for business seeking political power at the seat of government. They have a morality tale built around “rent-seeking” which can be persuasive, but has this important fault: all business is “rent-seeking”. There can be no economic structure without “economic rents” and no business enterprise can persist without successfully securing “economic rents” of some sort, because business enterprise is making sunk-cost capital investments and any non-ephemeral return on those investments is a kind of economic rent. There is no morally pure economy of perfect competition possible where economic rents are completely absent.

      A policy program of de-regulation that seeks an economic nirvana of rent-less “market” competition is futile and self-destructive. Business enterprises, bureaucratic enterprises, large or small, are by nature a nexus of political power. Business firms are built on securing sources of economic rent as a foundation for their own persistence as economic structures.

      There can be no economic structure without “economic rents” and no business enterprise can persist without successfully securing “economic rents” of some sorts, because business enterprise is making sunk-cost capital investments and any non-ephemeral return on those investments is a kind of economic rent. There is no morally pure economy of perfect competition where economic rents are completely absent. All business is “rent-seeking” in the sense that businesses are built strategically around “owning” or controlling certain resources the income to which can vary with the vicissitudes of the business without the firm having to give them up to other uses (e.g. the firm does not have to liquidate to meet its obligations).

      As an example, the New Deal policy of financial sector regulation was built on assigning small, defensible sources of economic rent to many different types of banks and financial institutions and keeping strategic control of each separate from the other. Savings & Loans had certain privileges vis a vis commercial banks which faced constraints vis a vis stock brokers or insurance companies or investment banks. Banks faced restrictions on their geographical scope. Knocking down that forest of obstacles and small sources of economic rent opened the door to creating giant universal bank holding companies that we have today, based on rent extraction that crosses the line into usury and money-laundering.

      We really need to think carefully about how economic structures work in a world of giant bureaucratic firms. The loose rhetoric of market competition is not our friend in this task.

      1. JimTan

        Does this mean you believe that businesses should always choose to secure a riskless state subsidy ( economic rent ), instead of inventing or improving something ( rewarding innovation ), as long as there are enough economic rents to go around?

        1. flora

          an aside: Is there a difference between economic rents and economic profits? I’m not clear on the difference, or if there is a difference, or if it’s only a matter of degree. Because I’m not sure of how these 2 terms are related, I get lost when reading about economic rents. (Sorry I’m not more up to speed on this topic).

          1. JimTan

            I think economic profits are revenues minus an opportunity cost, or the benefits a company misses out on when choosing one business alternative over another. Economic rents refer to something different. My main issue with economic rents is they allows companies to benefit without novel invention, or meaningfully improvement of their products or services. And that ‘benefit’ has to come from somewhere, like ignoring labor laws, gaining some exclusive government subsidy.

        2. bruce wilder

          my position is that almost all business enterprise is founded on making commitments to sunk-cost investments and fixed-cost overhead and the ability of a firm to recover those investments and earn a return on those investments depends on the ability of the firm to exercise the essentially political power earn an economic rent.

          the ability to earn a return on a virtuous innovation does not depend in any causal way on the virtue of the innovation. an innovation could be a truly wonderful thing, but its wonderfulness does not guarantee a return to the innovating entrepreneur. the ability to earn a return is entirely a matter of devising out of customary business practices and property rights and institutional creation the political power to earn a return. And, that return — because it is a return on sunk-cost investments — will be an economic rent of some kind.

          To illustrate, take the 19th century example of building a railroad. It is difficult to conceive of an innovation of greater “virtue”: the reduction of transportation costs from railroads was huge. But, a railroad entails enormous sunk-cost investments in right-of-way, track, rolling stock, organizational development as well as a fixed-cost commitment to managing the operation. The marginal cost of shipping goods on the railroad is very low. Shippers know that the marginal cost is low and will bargain for rates that reflect those low costs. But, if the railroad can only get rates proportional to marginal cost (which contributes nothing to a return on sunk-cost and little to fixed overhead, the railroad will soon be bankrupt.

          The first railroad from London to Manchester is also likely to be for some time the only railroad, a monopoly. Will it constrain output to raise rates, as the textbooks say?

          No, that is not what happens. Still, the railroad will need to find the political power to earn an economic rent. A couple of solutions were found historically. One was ad valorem rate-setting, a scheme of price discrimination. Some high-value merchandise paid high rates and some low-value bulk commodities paid low rates; overall, railroads pushed freight volumes higher to achieve high utilization of their fixed-cost systems and sunk-cost assets. Another solution was that railroads acquired or were given a lot of real property along their routes. As cheaper, better transportation raised the value of the real estate, the railroads earned a return from increases in actual land rents or the sale price of the property, and from this prospective real property claims, railroads were able to finance the costs of construction, costs that returns from operations could often never cover.

          My point is that there is no neat dichotomy where virtuous innovation magically earns a profit from its virtue while grubby lobbyists devise property rights and business practice schemes in dark corners on behalf only of extractive horrors. That is not how it works at all. Returns for the best innovations can be problematic, because returns on any sunk-cost investment are problematic. There are plenty of examples of investments — in primary education, for example — where the social benefits are great, but organizing for a private return makes no sense. So we use the political power of the state to finance provision as public goods.

          1. flora

            earn a return on those investments depends on the ability of the firm to exercise the essentially political power earn an economic rent.

            I read the wiki entry on economic rents Jim Tan linked above. I’ll try fumbling my way thru my understanding about this.

            Companies use the extra privileged position granted by govt power to increase or insure its profits? For instance, taxi companies and drivers medallions. Those govt grants of market ‘privilege’ come with govt requirements for licensing, bonding, and insurance, and local taxes. It is a regulated privilege that encourages spending on expensive fixed cost capital and accountable drivers.

            Then there are ‘pirate ride’ companies like Uber that grant themselves market ‘privilege’ by breaking local taxi laws and regulations, and have little fixed cost beyond servers and programing. They have a platform, not much in the way of fixed cost capital compared to a taxi company. If they have any govt ‘privilege’ it’s only in the sense that govt may turn a blind eye and not prosecute illegal activities, leaving the legal taxi companies at a disadvantage.

            Both look to economic rents; one can be positive for public safely and good order, the other negative for public safety and good order.

            So, as you say, there is no neat dichotomy about economic rents vs no economic rents. They can be a useful public tool or a negative and destructive burden.

            I think the question comes to what, how much, where, and to what ends. But I’m still trying to get my mind around the whole idea.
            Thanks very much for these comments.

            1. flora

              adding: another example of useful vs destructive rents from the banking world.

              Small community banks with a national charter have a govt privilege to be a bank, and are regulated under the same rules as the bigs; they must follow these rules or they will have their charter pulled and transferred. They accept good regulation in exchange for a right to perform a publicly useful function and realize a good/reasonble profit stream.

              However, the huge tbtf banks with a national charter, having the same govt privilege, gave themselves the privilege to lie, cheat, and steal, and the govt turned a blind eye as millions of homes were essentially stolen, imo. This was and is a disaster, destructive to communities and society, and a burden on the public.

            2. flora

              Shorter (but with lots of supporting quotes) :

              Our current national politicians seem to be wholly captured by neoclassical/neoliberal/laissez-faire ideology (or at least by tbtf business money) – even to the point of destroying what they claim to support, imo. Politician lean almost exclusively to the neoliberal arguments. How do we change this?

              ( hat tip to Amfortas)

              “In Polanyi’s view, these liberal [laissez-faire] reformers seek to subordinate society to the market economy, which is taken by these reformers to be self-regulating. To Polanyi, this is a utopian project, as economies are always embedded in societies.

              “[Polanyi] argued the self-contradiction of market society is that itself cannot be a basis for social order, rather, the government action is needed for production and maintenance of social order. Polanyi’s analysis reforms the field where social struggles happen and provides less class-deterministic explanation. These two innovations are intimately connected.’’

              “The dependence of Laissez-faire on global hegemony is a complicated problem because this is the field where political leaders need negotiation to keep their political power for two main purposes. They need to maintain both protection on position of the nation within the international state system and effective function of domestic economy. Political leaders should pursue balance between these two goals. If policies are weighted one-side for example, tilting to the Laissez-faire, it undermines the domestic economy and the economy becomes to rely too much on global stream.”

              I think currently there is no balance; govt action is all geared toward achieving neoliberal goals. Thanks for letting me go on much to long about a subject I know too little about. Just trying to work my way thru understanding this, and maybe others are as well and can find these ramblings a point of departure for their own study. (…or not. ;) )

            3. bruce wilder

              A classic, small-scale and prosaic case of economic rents is present in the efficiency wage argument. A firm employs people in its managed hierarchy with a contract that says something like, “do as the manager directs, and you will be paid a fixed, promised wage, regardless of the vicissitudes of the business, but fail to do as management directs, or behave irresponsibly with regard to the interests of the firm, and you are fired.”

              For that contingency to work, being fired has to be costly to the employee. If the employee can simply get another job at very close to the same wage as in this job, there is not much of a threat. On the other hand, if the firm can make the employee highly productive within the scheme of managed production, the firm can pay a wage that includes a margin of economic rent: in other words, the firm can pay the employee more than the employee could get in their “next, best” opportunity aka the going market-wage.

              An efficiency wage can be a positive-sum bargain for the employer, whose scheme of process control becomes more effective as the employer invests in training the employee and offsets the training cost by reducing turnover as well as inducing effort and compliant behavior.

              One solution to make being fired costly is to manage the macro-economy so that unemployment rates are usually high and a fired employee may fear, even if all they are being paid is the market wage, since there may be a long wait to get another market wage job. Or, if you want to construct a really mean society, you can do credit checks on prospective employees, so that people who experience a prolonged period of unemployment are made unemployable even at the market wage. That’s a wasteful solution, but the costs of the waste are externalized onto the reserve army of the unemployed.

              There’s a controversy over whether raising the minimum wage could conceivably both raise incomes among low-wage workers and expand employment opportunities.

              In the imaginary of neoclassical economics, where units of labor services are metered into the production function at the wage rate, the firm will hire additional units of labor right up to the point at which the marginal (revenue) product of labor equals the wage. Raise the wage and it follows that restaurants will reduce rates of employment. Filtered thru the reactionary mind, some low-productivity people become completely unemployable at a higher wage, because productivity is a property of the person’s character. But, that imaginary is a world of certainty and no management.

              In a world of uncertainty, the firm does not know as a given fact of the labor market what the marginal product of labor is. The marginal product of labor is a matter of what the firm’s management chooses to make it. Productivity is a property of the firm’s managed production process, not a possession of the particular people who staff it. If there’s a minimum wage, the management of the firm will get busy to make the marginal product of their minimum-wage workers equal the wage. If the wage is low enough, managers may choose to manage loosely, to have ill-trained workers present just-in-case. Managers can slack. If the wage is higher, management has to make employees more productive.

              In general, I think the concept of economic profit only makes sense in an imagined “certain” world, where you really know absolutely what all the costs are, as they are given to you. I do not think a decision-maker in an uncertain world can meaningfully “maximize” profit, because she cannot know what the “maximum” is.

              In an uncertain world, I think choice comes down to chasing economic rents, because those are knowable contingencies. If you are running a bakery, you can keep trying to increase sales with advertising and promotion, increase utilization of your ovens, make your employees more productive, in the expectation that making the factors of production you control — which are sunk-costs or fixed-costs — more productive than similar factors could earn in similar applications serves your economic interest. The margin of economic rent you can earn is a cushion against the vicissitudes of business results. You cannot know if you are maximizing profit in some global sense, but you can know whether you are keeping it together from day-to-day.

              Defending an economic rent can be the incentive to “good behavior” whether in a firm defending its sunk-cost investment in reputational good will or an employee who wants to make an effort and act responsibly, to stay employed.

  13. EoH

    Thanks for highlighting the broad role the state once played in policing business excesses – and could play in countering the movement to impose business-only priorities on society at large. It needs more coverage.

    One criticism is that size and profits did play a considerable role in harnessing the US economy for war in WWII. Planes, tanks, Jeeps, guns and ships were made in abundance, but not many were made without assuring the GMs and other large companies that their profits would be taken care of on a deal-by-deal basis. They did not have to wait, as did labor, for post-war success.

    Then there was the post-war reimbursement of such companies, IBM and GM in particular, for Axis-based resources that were destroyed during the war. That ignored the standard allocation of business and political risks to the firm, not the government.

    And it elided the history of those firms’ European operations willingly working for Axis governments. IBM’s Tom Watson, for example, received his personal five percent on every machine, whether it kept track of “throughput” in a German-run concentration camp or at the Pentagon.

  14. marku52

    On what planet dwell these Democrats that have a “single-minded focus away from the evils of economic gigantism?”

    Dismantling anti-trust has been, like most bad ideas we live with now, totally bipartisan.

    Bruce, when are you writing a book? I’d stand in line to buy it…….

  15. Lynne

    Antitrust and regulation is not an either or proposition. Antitrust is one facet of regulation. Frankly, this article lost me when the author asserted that “health, business services, transportation and warehousing, maids—are the least concentrated with the lowest profit margins.“. “Healthcare” in my state is controlled by two “healthcare” behemoths, one of which a few years ago purchased the largest insurer in the state and immediately sought to further restrict care, and which dictates government policy. If that is the least concentrated, things are more dire than I realized, and certainly more horrible than this article implies.

    1. flora

      Indeed. The ‘real world’ never neatly fits into academic theorizing. (I say this as an academic.) Academic theorizing is always one remove from what’s happening on the ground, and is therefore likely to miss important aspects of real-world implementation of any theoretical economic analysis. imo.

      Shorter: academic analysis is excellent for meta, but only where meta (properly referenced and in the instance is correctly variable confined (where variable confined means how people actually respond to accepted financial behaviors)) corresponds to real-world implementation. Meta without same is too often only hopeful hand waving, imo. (As in “if only ‘they would’, etc.) As an academic I’m very aware of the difference between academic-hoped-for and real-world implementation.

Comments are closed.