The cost of failing to focus on the bottom line will, if repeated by enough corporations, lead to far more damage to the American economy and those who work in ...
Though popular on the left and parts of the right, the narrative of increasing American monopolization is a myth.
A House Small Business Committee staff report released by Representative Nydia Velázquez (D., N.Y.) late last year alleged that powerful corporations are concentrating markets to crush small businesses across the land. Dominant firms, the Democrats’ report claims, “manipulate markets, exploit loopholes, and leverage their immense power to squeeze their smaller competitors. As a result, the American economy has seen decades of growing income and wealth inequality during a period of dwindling dynamism.”
The report offers a nice catchall for anything that disgruntles you about our times. If you’re on the left, it plays well into the Marxist belief that capitalism is fatally flawed. If you’re on the right, perhaps a “Khanservative” admirer of FTC Chair Lina Khan — such as J. D. Vance, the senator and vice-presidential candidate who said Khan “is doing a pretty good job,” or Senator Josh Hawley, who wants to ban all large mergers and acquisitions and vastly expand the FTC and its powers — you will also find this paper alluring.
It plays perfectly to conservatives who see the corporate focus on the bottom line as the reason for the declining wealth and health of working Americans. No matter that the cost of failing to focus on the bottom line will, if repeated by enough corporations, likely lead to far more damage to the American economy and those who work in it.
The Velázquez vision is a mirage sure to draw policy-makers in the wrong direction. Conservatives, moderates, and non-progressive liberals should know that the intellectual underpinning of this paper is based on “facts” that are not facts and which can be shown up for the myths that they are by sound analysis. This is demonstrated by Trelysa Long, a policy analyst with the Schumpeter Project on Competition Policy at the Information Technology & Innovation Foundation (ITIF). Long recently released a painstaking analysis of the core of the report’s argument.
Long demonstrates that the study, which includes only publicly traded firms, relies on market definitions that are too broad to “constitute a relevant market in any meaningful antitrust sense.” The paper’s drafters relied on a broad-gauge definition of related but disparate industries (the three-digit subsector NAICS level) instead of the narrower, apples-to-apples comparison of competitors (the tighter six-digit industry level).
When one corrects to direct industry comparisons, from 2002 to 2017, “Analysis concludes that only 35 of 851 industries were considered ‘highly concentrated,’ meaning only in rare cases does a rise in concentration result in an increase in market power.” This is in keeping with the findings of economists Robert Kulick and Andrew Card that “in both the U.S. manufacturing sector and the broader economy, industrial concentration has been declining since 2007.”
What about the contention of the Velázquez paper that “large companies are using their market power to harm small businesses”? Long reports that “from 2002 to 2017, while the market share of the four largest firms only increased about 1 percentage point, start-ups increased about 16 percent from 1997 to 2016.” That’s not a portrait of an economy on its way to being increasingly choked by monopolies. As for monopoly profits, Long finds that an uptick in profits and prices during the pandemic was due to firms — large and small — that benefited from massive government assistance.
The evidence from one study shows that mergers and acquisitions increase economic output by about 14 percent, “9 percentage points of which result from improved productivity distribution of firms,” Long writes. The bottom line comes from a Competitive Enterprise Institute study that said if the United States adopted more stringent Canadian competition policies, the country’s GDP would be $134 billion lower while consumer prices would be as much as 0.98 percent higher. Similarly, the adoption of France’s more stringent antitrust policies would lower U.S. real GDP by 0.22 percent while raising prices 0.43 percent.
In short, accepting the arguments set out in the Velázquez report would result in the Europeanization of the American economy. Europe is far behind in its ability to match the United States in sustaining innovative digital world-leaders. If conservatives want a better explanation for the social and economic breakdown of American jobs and communities, a better place to look is a paper by economists Justin R. Pierce and Peter K. Schott.
They report that granting China permanent normal trade relations status in 2000 caused Chinese exports to the United States to balloon by one-third just between 2000 and 2005. Studies showed the obvious results: rising joblessness, reductions in income, and greater reliance on social-welfare programs in the U.S. regions most heavily affected by Chinese imports. Pierce and Schott took this analysis one step further.
They examined CDC data to map counties with high rates of “deaths of despair,” early deaths due to suicide, drug overdose, and diseases of the liver. When a map of these counties is overlaid on a map of the counties hardest hit by trade liberalization, the match is almost perfect.
Now there’s a narrative worth an elegy.