A half-to-three-quarters-baked idea to fix capitalism.
America has a monopoly problem. The list of heavily concentrated industries grows longer by the day, even as the number of companies operating in each sector shrinks: pharmaceuticals, pharmaceutical benefit managers, health insurance, appliances, athletic shoes, books, alcohol, drug stores, office supplies, eyeglasses, TV ads, internet ads, internet search, semiconductors, enterprise software, LCDs, vitamin C, auto parts, glass bottles, bottle caps, pharmaceutical bottles, airlines, railroads, travel search, railroads, mattresses, lab equipment, lasik lasers, offshore oil services, onshore oil services, contract manufacturing, food services, Champagne, cowboy boots, home improvement stores, and candy.
Monopolists Declared War on America
Once an industry is concentrated, everyone suffers. Highly concentrated industries can abuse their workers with impunity, because there’s nowhere else for them to go. Once an industry is sufficiently concentrated, its workplaces become literal slaughterhouses where workers risk their lives every day, while their bosses place bets on which workers will die first.
It’s not just workers: highly concentrated industries are bad for the whole country. Concentrated industries are created by finance bros who prize short-term profits over long-term resilience. They goose profits by selling off plants, emptying buffer stocks, and offshoring production. They put the nation’s eggs in one basket, so a single misstep or accident quickly snowballs into a catastrophe.
And of course, concentrated industries gouge us on prices. Since the start of the year, a succession of CEOs have been caught boasting to their shareholders about how the public’s expectation of inflation can be capitalized on, allowing companies to hike prices, rake in windfall profits, and blame it all on covid relief programs.
Making Money Without Making Stuff
The winner-take-all economy wasn’t an accident. America didn’t trip over a loose shoelace and fall into a pit where a tiny number of very rich executives and their shareholders get to strip-mine every industry, and then rule over the rubble like post-apocalyptic warlords.
The handful of companies that rule the nation didn’t drive their rivals into bankruptcy by selling better products and services. They didn’t compete their way to the top.
They bought their victories.
The top companies in every sector secured access to vast amounts of cash through the capital markets and/or debt instruments, then bought out their rivals, large and small, merging them into their operations. Our corporate behemoths aren’t the champions at making great things, they’re gold medalists in buying other companies.
Think of Google, a company that’s made one and a half successful products: a great search-engine and a Hotmail clone. Every other success was bought from someone else. From YouTube to Android to the entire ad-tech stack, all of Google’s success stories are acquisition stories. The products Google made in-house —Google Glass, Google Video, G+, etc — failed. “Successful” in-house products, like Google Photos, are add-ons to successful products the company bought from someone else (Android).
Google is actually the best case scenario for this model. The worst is Yahoo, a company that used its access to the capital markets to buy and destroy the majority of successful, brilliant technologies for a decade, before finally collapsing, taking most of those companies with it to the bottom of the sea.
These acquisitions were nakedly anticompetitive — and they were illegal, banned under the plain language of the Sherman Act and Clayton Act. Unfortunately for all of us, we’ve just lived through a forty-year period in which the outlandish fabrications of would-be monopolists were treated as credible reasons not to enforce either law.
The Worm Has Turned
There’s a new sheriff in town. Three new sheriffs, actually: Lina Khan, chair of the FTC; Jonathan Kanter, head of the DoJ Antitrust Division; and Tim Wu, the White House’s tech antitrust czar. These three have announced an end to the era of antitrust inaction, and promised vigorous enforcement of America’s antitrust laws, starting with much stricter standards for mergers. This is no idle threat: already, the US antitrust apparatus is making bolder moves than we’ve seen in a generation.
But even if future mergers are successfully blocked, we’re still in a lot of trouble. Remember that long list of highly concentrated industries? Ending anticompetitive mergers won’t make those industries less concentrated, or the economy less fucked. Indeed, if we stop at blocking mergers, we could end up making things worse.
Healthcare Has End-Stage Monopolitis
In his book Monopolized, David Dayen offers a terrifying, easy-to-understand parable about the way that monopolies spread through the economy, using the US health-care system as an example. It starts with mergers in the pharma industry, which allowed drug makers to put the screws to hospitals. Once a single company made all the cancer meds a hospital needed, they could hike prices and the hospitals had to pay.
So the hospitals all started merging with one another. Once all the hospitals in a 200 mile range were part of a single chain, they could push back against the pharma companies, because no drug company could to give up on selling cancer meds to all the hospitals in a 200 mile range.
Once the hospitals had merged into regional monopolies and cartels, they were able to turn on the health insurers, jacking up prices. What were the insurers going to do, refuse to cover treatment at any hospital in a 200 mile radius?
So naturally, the insurers all started to merge with one another, and they turned the tables on the hospitals. Who would they treat, if none of the insurers for a 200 mile radius would cover their services?
The contagion of monopoly burned through the whole health-care sector: pharmacy benefit managers, electronic health record companies, ambulance services, implant manufacturers, medical appliances, beds, and wheelchairs. Monopoly begat monopoly.
There’s only two parts of the health-care system that are free from monopoly: patients, and health-care workers. Patients pay more than ever for worse health-care outcomes than ever. Health-care workers put in longer hours under worse conditions for lower pay than ever.
The Grandfather Paradox
Disorganized and diffused, patients and carers are easy pickings for monopolies.
That is the risk of only intervening to prevent new mergers: by denying smaller companies the protection of monopoly, we make them vulnerable to the monopolists we grandfather in, who can use below-cost, predatory pricing, exclusive deals, and other monopolistic tactics to destroy competitors before they can get a toe-hold.
Without competitors, our present-day monopolists will continue to extract monopoly profits from workers and customers, and use those profits to buy off legislators and regulators and pervert our legal system.
Full Employment
The right time to break up a monopoly is before it can form. Once a monopoly is established, it can literally outspend the federal agencies charged with keeping it in check. When the DoJ tried to break up IBM, DoJ lawyers dragged the tech giant into court for 12 years. IBM’s bill for outside lawyers was greater than the entire DoJ antitrust division wage-bill for 12 consecutive years.
In the end, IBM won, with the DoJ walked away from the suit in 1982. Now, the DoJ did score a major victory that year: it broke up AT&T. The breakup of AT&T took a lot longer than 12 years, though: between the first antitrust enforcement action against Ma Bell to the last day of its monopoly, 69 years went by.
What’s more, the AT&T breakup was the last gasp of the dying US antitrust system, and as enforcement was gutted and budgets slashed, AT&T was able to re-merge, with the “Baby Bells” buying each other up in a series of mergers that the DoJ waved through with nary a peep.
Today, nearly every US industry is dominated by between one and five companies, each as breakup-worthy as AT&T or IBM ever was. Despite their obvious criminality, and despite great new government leadership, it’s hard to imagine how the DoJ and FTC will manage to bring and win dozens of cases against dozens of monopolists.
This isn’t just full employment for antitrust lawyers (a great deal of whom would rather work for monopolists, not against them) —all the antitrust lawyers alive today combined are probably not up to the task.
Autoimmune Disorder to the Rescue
Which brings me to my semi-shovel-ready idea for resolving this antitrust paradox (no, not that antitrust paradox).
Remember the Reagan years? Remember when corporate raiders staged a series of leveraged buyouts of big conglomerates and then split them into separate companies and sold off their parts?
In this age of corporate rollups — where private equity firms buy up a bunch of competing firms and then merge them into one big one — it’s hard to remember that the finance industry was once obsessed with breaking corporations up, not squishing them together.
What if we brought those breakup artists out of retirement for one more big heist?
Here’s how that could work:
Offer a capital gains tax holiday on profits from corporations that sell off the businesses they acquired.
Provided that the original merger:
- produced a company with a present-day market cap of over $100 billion; and
- took place since 2000.
The tax holiday would be contingent on spun-out division remaining independent for at least a decade, otherwise full capital gains would apply.
The idea is to pit rapacious would-be monopolists playing a long rollup game against rapacious corporate raiders playing a short breakup game. It’s a bet on capitalism’s short-termism and lack of executive function. It’s a way to harness the pathologies that created the climate emergency, which has seen the finance sector grow rich by destroying the only planet capable of sustaining the lives of its key decision-makers.
I want to give capitalism an autoimmune disorder, and cause one group of finance bros to devour another group of finance bros.
How It Could Go Horribly Wrong
It’s a deliciously simple idea.
The world is not simple. It’s very, very complicated.
There are lots of ways this could go wrong.
For one thing, people might (rightly) balk at the idea of buying off corporate raiders, making them even richer for their role in dismantling the monopolies they created.
It’s the anti-monopoly equivalent of the plan to save the climate by buying all the oil in the ground from the fossil fuel industry and then leaving it buried.
These fuckers got rich destroying the world, and now we’re going to pay them to stop wrecking shit? Ugh.
But even if we can sell the idea of a tax holiday for voluntary corporate breakups (don’t think of it bribing carbon barons, think of it as a cash-for-guns policy, but for monopolies), it could still go wrong.
For a year now, Propublica has been reporting on the IRS Files, the leaked tax-records of the richest people in America, who pay a lot less tax than you do. As the IRS Files have shown us, rich people are really good at figuring out how to hijack policies meant to benefit working people. They have armies of consultants, lawyers and strategists who work out strategies to pervert every law, policy and rule.
It would suck to create an anti-monopoly tax-holiday, make billionaires even richer, and still leave the monopolies intact.
Asset Manager Capitalism is Weird Capitalism
What if we threw a corporate raider party and no one showed up?
An ever-increasing proportion of the world’s capital is in the hands of index funds, which track the performance of the S&P 500 or other indexes of blue-chip stocks.
The managers of these funds are paid to ensure that they make the same returns as the overall market. If the market grows by five percent and they make six percent, they’re doing it wrong.
Which is why asset managers don’t participate in corporate governance — they don’t care if a company does well or badly. From 2008–2017, the Russell 3000 Index tracked 4,000 shareholder proposals. None of them came from a Big Three asset manager fund.
These bloated King Logs are such a drag on dramatic corporate change that it’s possible they’ll serve as a brake on voluntary divestitures.
The Curse of Bigness
But despite the risks, this could work.
Monopolies are successful because they don’t have to compete (that’s why Peter Thiel says “competition is for losers”). That lack of competition leads to stagnation, strangling cool ideas and new products in their cradles. When you don’t have to worry about competitors, it makes a twisted kind of sense to bury new ideas that rock the boat.
That’s why when big, monopolistic companies divest of their acquisitions, the two new companies usually do better on their own than they did when they were lashed to each other.
That was true when the US government broke up Standard Oil in 1911, creating 34 companies whose collective market cap and profits quickly grew, dwarfing Standard Oil.
It’s true today. When franken-companies like The Gap or Kellogg’s sell off the companies they gorged themselves on, the resulting standalone businesses outperform the ungainly conglomerates the were once lashed to.
It’s true that the potential gains from breakups haven’t lured a majority of investors into demanding corporate sell-offs. But what if we sweeten the pot? Would knocking out the 20 percent capital gains tip the balance?
What if we made it a limited-time policy — say, only available for five years. Maybe that could spark a stampede as investors’ FOMO drove them to demand breakups?
The bear market has made investors desperate. Maybe a tax holiday for monopolies that break themselves up will drive a sell-off?