If you took Econ 101, you may recall that competition is the cornerstone of our capitalist economy. It keeps prices low and quality high, sparks innovation, brings down the cost of doing business and ensures workers a decent paycheck.
Despite that truism, competition has somehow gone missing from the American marketplace. Recent revelations of Silicon Valley’s alleged wage cartel, in which Intel, Adobe, Google and Apple supposedly colluded on employee salaries to defraud them of billions of dollars, is but the latest of numerous examples that demonstrate the nasty results of renewed concentrations of economic power destroying open and fair markets.
Quicker than you can say “monopoly,” the United States is heading back to the era of gigantic corporations that threaten our economic prosperity and undermine democracy. Old-school robber-baron-style ownership was supposed to be a relic. But monopoly, along with its close cousin oligopoly, is back — bigger and badder than ever.
In the last half of the 19th century, Americans got a painful lesson on monopolies when men named Rockefeller, Carnegie, Vanderbilt and Morgan were allowed to create enormous corporations and build huge fortunes in oil, steel, railroads and banking. These monopolists used every possible trick to amass power, from spying on their rivals and snapping up all the businesses in their production chain (vertical integration) to buying off key politicians who might win them some favors. The goal was to snuff out competition, which would allow the monopolist to dictate prices and wages at will and control the marketplace from top to bottom.
For the consumer, the result was often prices that bore little relation to value, erratic supply and inferior quality. And workers had nowhere to turn if their employer treated them poorly.
In response, Congress passed the Sherman Antitrust Act of 1890, which was vigorously used by Theodore Roosevelt when he became president in 1901. This law served to limit the growth of monopolies, though it did not do enough to curb oligopolies, or near-monopolies, and the public remained wary of Big Business. In 1904, Quaker activist Elizabeth Magie decided to make a game that would demonstrate the destructive nature of monopolies by showing how greedy property owners snatch land to enrich themselves at everyone else’s expense. Magie, an acolyte of the progressive economist Henry George, wanted The Landlord’s Game to imprint America’s children with a horror of monopolists. In 1935 she sold the patent to Parker Brothers, which took elements of the game to create Monopoly, the most popular board game in modern history.
Today monopoly madness is everywhere.
Fast-forward to 2014: Parker Brothers is owned by the giant Hasbro corporation, which, after gobbling up competition in the 1980s and ’90s, exerts control over the toy and board game industry in a duopoly with Mattel— a situation absurd enough to prompt a spoof in The Onion with a prosecutor from Milton Bradley warning of “a company so dominant, it has leveraged its board game success into a multitentacled Goliath with holdings in railroads, real estate, electric utilities and water works.”
Today monopoly madness is everywhere. Companies with outsize market shares dominate telecom, airlines, banking, health care, book publishing, beer, wireless carriers, clothing, pet food, you name it. Oftentimes, consumers don’t realize that monopolistic conditions exist because they get fooled by multiple retail outlets and branding. For example, they can shop for eyeglasses at the Sunglass Hut or Pearle Vision or Sears Optical, thinking that they are participating in a competitive market. Yet behind the scenes, Italian eyewear behemoth Luxottica owns all these chains and has control over manufacturing and retail sales of glasses. The seemingly varied shopping experience is merely a mirage.
Is Luxottica the only maker of eyewear? No. Is it the best or cheapest? Probably not. But it is by far the dominant player and keeps the industry in a chokehold. In the United States you usually don’t find marketplaces in which a single company has 100 percent control but one or two or maybe three large players call the shots in that industry. In other words, you find oligopolies.
How did this happen? Basically, Americans let go of their suspicion of Big Business. By the 1980s, a fever for deregulation seized the country, which led to the shredding of laws that had kept monopolies in check. That, combined with a war against unions, a flurry of mergers and acquisitions and a growing use of patents among big corporations to thwart entrepreneurs and startups, has let loose some of the most monopolistic practices since Roosevelt’s trust busting. And the result is that fair competition has been squashed.
In the 1980s and ’90s, Silicon Valley was teeming with whiz kids, venture capitalists and angel investors who dazzled the country with the ingenuity and speed with which they brought new products and services to life. Steeped in the culture of innovation, companies frowned upon noncompete agreements that companies elsewhere often used to control their employees. The market for goods and services was, for all intents and purposes, free.
Firms grew swiftly, wowed consumers and then, over time, they began to use their power to protect their newly acquired riches. Power was consolidated, and companies such as Google and Apple began gobbling up their competitors. Apple took over NeXT. Google snatched up YouTube and Android. Since 2010, Google alone has swallowed an average of one company a week, including Motorola Mobility, Zagat and Nest Labs. All this has occurred despite the fact that these very Silicon Valley companies benefited greatly when the U.S. government went after Microsoft for monopolistic activities in the personal computer operating systems industry in the 1990s.
As journalist Barry Lynn, author of “Cornered: The New Monopoly Capitalism and the Economics of Destruction,” has explained, Google and Apple would not exist but for the industry space opened up by the curbing of Microsoft’s abusive practices. Yet today these companies are using some of the same strategies used by Microsoft to control markets. Appalling court documents show Apple’s Steve Jobs going robber baron on Palm CEO Edward Colligan, threatening Palm with patent lawsuits if the company did not join a Big Tech cartel designed to suppress wages for high-tech employees by restricting their ability to switch firms. (Colligan refused.)
On Aug. 8, 2014, Judge Lucy Koh slammed Apple and the other companies alleged to be involved in this cartel by rejecting a proposed $324 million settlement, stating that it was too low to make amends for the tens of thousands of employees whose career prospects and incomes had been damaged. (Apple, Google, Intel and Adobe are appealing the decision.)
The formation of wage-fixing cartels shortchanges high-tech employees. It also sends a signal through the rest of the economy about the value of labor. If engineers cannot command top salaries, then a climate is created in which their colleagues can be underpaid too. This in turn distorts prices for the consumer, because the value of labor has not been properly reflected in the cost of the product or service. A cheaper product riding on the backs of abused employees is ultimately an economic and social evil.
The disease of monopoly spreads and sickens everyone, and the invisible hand of the market has no grip whatever on the multitentacled Goliath. In corporate America, the only remedy is to bring these monsters down to size through laws and regulations that break their stranglehold. Otherwise, we all pay.