Time for the Next Era of Trust Busting

As economic power – from power generation, financial aggregation, railroads and control of commodities – grew in the latter part of the 19th and early 20th centuries, concentrated individual wealth exploded. The modern-day equivalents of mega-billionaires, conspired to squeeze out competition, fought hard (often with well-armed goons and even local police) to restrain attempts at organizing labor, and used mega-wealth to aggregate commodities, banking, transportation, natural resources (especially coal and oil) and manufacturing to the exclusion of others. 

The houses of Vanderbilt, Mellon and Morgan, to name a few, literally controlled the American economy, and each of their major endeavors prospered and grew as they knowingly crushed any possible competition. They consolidated power, forced competition to sell out at fire-sale prices and literally dictated our political future. The result was a nascent plutocracy that threatened the American democratic experiment. These mega-economic powers, labeled “trusts,” were threatening our entire political system.

The turn of the century champion against this distorted “bigness” was Teddy Roosevelt. U.S. History.org summarizes: “Teddy Roosevelt was one American who believed a revolution was coming… He believed WALL STREET FINANCIERS and powerful trust titans to be acting foolishly. While they were eating off fancy china on mahogany tables in marble dining rooms, the masses were roughing it. There seemed to be no limit to greed. If docking wages would increase profits, it was done. If higher railroad rates put more gold in their coffers, it was done. How much was enough, Roosevelt wondered?

“Although he himself was a man of means, he criticized the wealthy class of Americans on two counts. First, continued exploitation of the public could result in a violent uprising that could destroy the whole system. Second, the captains of industry were arrogant enough to believe themselves superior to the elected government. Now that he was President, Roosevelt went on the attack.

“The President's weapon was the SHERMAN ANTITRUST ACT, passed by Congress in 1890. This law declared illegal all combinations ‘in restraint of trade.’ For the first twelve years of its existence, the Sherman Act was a paper tiger. United States courts routinely sided with business when any enforcement of the Act was attempted.

“For example, the AMERICAN SUGAR REFINING COMPANY controlled 98 percent of the sugar industry. Despite this virtual monopoly, the Supreme Court refused to dissolve the corporation in an 1895 ruling. The only time an organization was deemed in restraint of trade was when the court ruled against a labor union… Roosevelt knew that no new legislation was necessary. When he sensed that he had a sympathetic Court, he sprung into action.” His principal target was the acquisition/financial king, J.P. Morgan (reflected in the above political cartoon). The courts began the big break up, and Morgan was only one of the monopoly moguls to face court-ordered divestiture.

American antitrust laws have been focused on economy-manipulating mergers, agreements among large players to impose parallel economic realities thus avoiding price competition and out-and-out conspiracies to restrain competition. What U.S. antitrust laws did not emphasize was simple organic growth, such as what the modern world is experiencing with Facebook, Google and Amazon. If bigness stemmed from simple organic internal growth, the application of antitrust laws was sparse. 

This “spareness” actually grew into a modern era lackadaisical U.S. enforcement of American antitrust laws in general. The European Union implemented a series of statutory and regulatory provisions that targeted not just intentional conspiratorial market distortion and anticompetitive mergers; their antitrust laws addressed sheer “bigness” as well. Given the multinational nature of mega-corporations, the biggest antitrust efforts against U.S.-based seeming monopolies comes from Europe. 

Addressing the current level of American income inequality (the worst in the developed world), the incredible concentration of staggering wealth at the top (literally the top 1% of American wealth is greater than the aggregation of the entire bottom 60% of American wealth), the rise of companies that so dominate the marketplace that any competition is almost laughably inconsequential, and the fact that modern tectonic technology shifts have enabled massive wealth to be generated more rapidly and to a much larger level is very short spans of time, suggest it just might be time for a new antitrust awakening. 

In an interview with Yale Insights (June 23rd), Fiona M. Scott Morton, the Theodore Nierenberg Professor of Economics at Yale University, tells us that if Congress can rise above its current gridlock, there is both the necessity and the possibility for the United States to right this ship, restoring balance and competition to the marketplace, and that proposed legislation could actually implement this needed fix: 

“The interoperability bill (sponsored in the Senate by one of my senators, Richard Blumenthal) would transform competition in markets with a monopoly (or near monopoly) platform where the network effects keep out rivals, and instead those network effects would become inclusive and an entrant would gain from them also. We are familiar with this from contexts like email, where an entering ISP [Internet Service Provider] offers the service of sending email to any other email address on the internet. It’s great, and a user’s ISP does not affect who she can communicate with. But Facebook and other social networks don’t work like this—a Facebook user can only message other Facebook users. An entering social network must attract a user’s friends before she wants to join. Under interoperability of the type imagined in this bill, the entering social network can attract consumers by being a great home network (with good content moderation, for example), and the user can message all her friends regardless of their home network.

“[On expanding scrutiny of pending mergers, she says:] Clearly, being able to block future mergers isn’t a direct solution to problematic past mergers. But I do think a higher standard for all mergers is a good idea, and the advantage of this bill is that shifting the burden to the merging parties is very valuable in digital platform markets, where we now realize the past mistakes of enforcers. Because technology trends move quickly and products change over time, the nature of competition changes too, and courts can find it difficult to understand what the market is or was at any point in time. Putting the burden on to firms to show that their merger is not harming competition makes a lot of sense.”

What is clear, however, is that the damage from “too big” is three-fold: the threat to democracy is rising, income inequality is destructive and plants massive seeds of anger and unrest and the current polarization in Congress is an act of political self-destruction. Remember those “too big to fail” financial institutions immediately before the 2007 market crash? There is also the potential for such rapid economic collapse stemming from too much concentrated power in the hands of so few.

I’m Peter Dekom, and I sincerely hope that we have finally come to the obvious realization that relying on corporate America to do the right thing on its own has never, never, never ever worked.