It’s Complicated

The usual reason economists oppose monopolies is that when a business effectively dominates a particular market, it is able to raise prices. A monopoly has effectively eliminated the competition that keeps prices low. The higher prices harm consumers, and allow the company to rake in more profit than it would otherwise be able to generate.

One of the criticisms of the current administration (a criticism that tends to get lost among the mountain of others) is that enforcement of anti-trust laws has been somewhere between lax and non-existent.

Despite their almost-universal support for vigorous anti-trust enforcement, however, few economists identified a relationship between monopolies and the growth of  inequality. As a post from Inequality.org informs us, that may change.

Andrew Leigh is both a member of the Australian Parliament and an economist, and his recent research is making waves.

Working with a team of Australian, Canadian, and American analysts, he’s been studying how much the prices corporate monopolies charge impact inequality.

The conventional wisdom has a simple answer: not much. Yes, the reasoning goes, prices do go up when a few large corporations start to dominate an economic sector. But those same higher prices translate into higher returns for corporate shareholders.

Thanks to 401(k)s and the like, the argument continues, the ranks of these corporate shareholders include millions of average families. So we end up with a wash. As consumers, families pay more in prices. As shareholders, they pocket higher dividends.

But this nonchalance about the impact of monopolies, Andrew Leigh and his colleagues counter, obscures “the relative distribution of consumption and corporate equity ownership.” Average families do hold some shares of stock, but not many. In the United States, for instance, the most affluent 20 percent of households own 13 times more stock than the bottom 60 percent.

In other words, when prices rise, low- and middle-class families pay and wealthy families profit. According to Leigh and his fellow researchers, this redistribution from the less affluent to the wealthy via corporate concentration has shifted 3 percent of national income out of the pockets of poor and middle-class families and into the wallets of the affluent.

The research also shows that corporations grow large because there are incentives to growth to which their executives respond.

Indeed, firm size determines how much executives make more than any other factor, as research has shown repeatedly over the years. Executives don’t have to “perform”— make their enterprises more efficient and effective — to make bigger bucks. They just to need to make their enterprises bigger.

Executives, in short, have a powerful incentive to grow their companies, and that powerful incentive, as the latest research from Andrew Leigh and his colleagues shows, isn’t just making these executives richer. It’s leaving our societies much more unequal.

An obvious lesson from this research is that we need much more robust anti-trust enforcement. Another remedy, just now being tried, is a requirement that corporations publish the  pay ratio between their CEOs and their workers. (Portland, Oregon imposes an “inequality tax” on companies reporting too wide a disparity.)

Evidently, size does matter–at least, in corporate America.

17 thoughts on “It’s Complicated

  1. Mergers and Aquisitions have been the goal for a couple decades and it has increased astronomically in the past decade. Employees lose their jobs, executives are rewarded with huge multi-million dollar bonuses and stockholders win via the increased value of their investments.

    The workers lose and inequality increases.

  2. We are all aware that health care is now one of the largest and most profitable corporation systems in this country and it isn’t working…not for those who need health care but cannot afford it. Isn’t Medicare a government monopoly with restrictions against bargaining for reasonable prescription costs for those who pay for the coverage during working years and retirement years via Social Security deductions? Doesn’t that defeat the purpose of Medicare? I am truly asking questions here.

    To undo Nixon’s HMO bill of 1973; which brought about the current health care insurance companies corporation soaring profits…for CEOs and other executives, appears to be a monumental undertaking. Not the simple rallying cry for the one-payer health care system which is a major stalemate between Democrats and Republicans. I STRONGLY SUPPORT ONE-PAYER HEALTH CARE SYSTEM; but we need more facts regarding the process to undo Nixon’s dirty work for corporate Americans. The name “Health Maintenance Organization” lured those of us wanting and needing health care to support it while the fine-print allowing profits to be the ultimate goal and health care insurance companies became our primary roadblock to maintaining our health. “It’s Complicated” barely describes this problem regarding all major corporations.

    “…a requirement that corporations publish the pay ratio between their CEOs and their workers.” would be a good start; but would it carry over to the polls on election days without more information regarding the process to enact single-payer health care coverage? Is this government in a position to make the changeover on this one issue? NOT under Trump and McConnell is a foregone conclusion; but should we manage to return to safer and saner government what would it take to convince those CEOs to give up their millions in salaries and “Golden Parachute” retirement packages? They are all the owners of this current administration.

    “The research also shows that corporations grow large because there are incentives to growth to which their executives respond.”

    “In 1973 the then US President, Richard Nixon, passed the Health Maintenance Organization Act. The Act enabled medical centers, clinics, doctors, insurance companies and doctors to function as for-profit businesses, rather than operating solely as non-profit services.

    The passing of the Health Maintenance Organization Act represented a significant effect by the US government to, as the (1) NCBI writes, “experiment with organizational change in the structure of the health care delivery system.” By being provided with grants to either start-up or develop, the Act helped to cement Health Maintenance Organizations into the American health system.”

  3. And don’t forget, MBA students are taught that corporations have one primary goal and that is “maximize profits for its shareholders.”

    NO social responsibility.

    Nonprofits have even ventured away from their social responsibility intent.

    The problem is the teachers aren’t wrong.

    The problem is our government was designed to check corporate power. Antitrust and many other departments with the federal/state/local governments are meant to prevent the private sector from harming employees, vendors, etc.

    Indiana is a pro-employer state. The Koch’s and members of ALEC did a great job devising the “Right to Work” policies in the state’s they own. I’ve not done the research but I expect that Right to Work states also have the federal government’s minimum wage of $7.25.

    Portland, Oregon is one of the most progressive cities in the union and it’s growing ever larger because young people love the community.

    Our society was designed with checks and balances of power. Without checks on the powerful, they will abuse it. The same goes with the power inherent within the government. That’s why we have a free press. A strong press will hold the powerful in government accountable.

    In the USA, neither the press nor the government has worked properly for decades. If they did, Trump would have never gotten close to the people’s house unless to visit with a senior citizen tour.

    It’s also why the international community doesn’t rank our democracy in the Top 20. Plutarchs have run this country for several generations with their own human greed dictating the outcome.

  4. Monopolies also become lazy which does not serve the public. Instead of innovating to keep profits up, they simply raise prices. Why spend money on R&D when it’s so much easier to jack up the price a few percentage points on a regular basis? And, if the product or service has few substitutes (inelastic demand) the advantages to the enterprise only multiply.

  5. While we can all applaud the facts that our 401Ks increase in value, we also need to understand that we don’t have that available as cash until at least age 55.5. So, if you’re paying off student loan debt, a house, and a car while trying to do little things like eat and pay utility bills the impact of that great win for your dotage is somewhat less significant.

  6. Failure to enforce antitrust laws is one of my top ten peeves and Nixon’s gift of privatized healthcare to his Kaiser buddies in California was in its massive effect perhaps worse than his Watergate crimes. Simply stated, it never should have happened, but it did, and we have seen the result – a chaotic health care system that serves HMO executives and shareholders which has become a political and economic nightmare responsible for 41 percents of bankruptcy filings by millions of sick and poor Americans who are excluded from decent and affordable care, a “system” that cries out not for reform, but death. We need a single payer system where all of the money paid into such a system (less administrative costs) go to real healthcare, not to HMO executives and corporate shareholders, who are skimming 25 to 30 percent off the top that could have gone for real health care costs – and for what? In words of the street, “Who needs ’em?” HMOs are costly and unnecessary, and should go the way of Gilded Age monopolies, though for much better reasons, and with one exception hereinafter discussed.

    It may astonish some who read my healthcare blogs that I can understand how monopoly can serve the public interest as measured by the Ma Bell breakup back when I was first practicing law. Ma Bell was a monopoly but a strictly regulated one. Costs were low, its personnel union etc., but it was argued that it was “too big” and should be broken up so that the resulting competition would reduce prices to consumers. It was broken up and, after a suitable interval in which regional Bells tried to prove their rationale for having been broken up, prices zoomed – and I need not tell readers what has happened since with the advent of new means of
    electronic communication and weak to no regulation of such corporate enterprises.

    Competition is not the only element involved in cost control; lack of strict regulation of such enterprises in the public interest is also involved, as proven by the Ma Bell episode, where a heavily controlled monopoly resulted in lower prices to consumers than its regional competitors subsequently provided, and while rare, sometimes, in a well regulated environment, big can be good. Trouble is, of course, such an environment is fashioned by politicians, politicians who are always on the lookout for “campaign contributions,” aka bribes, in return for which they instruct regulators to ignore the Sherman Antitrust Act of 1890. When will we learn, starting with public financing of political campaigns? Ever?

  7. People who support “free trade” philosophies should be wary of monopolies. Monopolies undermine the basis of “free trade” principles. You know the one that states competition keeps prices down.

    The people who want their manufacturing jobs don’t seem to understand that the cost of health care insurance drives labor costs up markedly. I have not seen any reports in the media looking at this issue. Health care costs are reducing America’s ability to compete in a global market and to keep manufacturing jobs here at home.

    I went into nursing in 1970 JoAnn. At that time no one had to worry about huge medical bills that forced them to 2nd mortgage their homes. It’s been my observation that here in Indiana free trade has led to the expansion of IU Health, Francisan alliance and Ascension health(St. Vincent’s). They have taken over many small county hospitals. Those 3 corporations dominate health care in Indiana. Competition is undermined by the lack of transparency in what health care facilities charge in their “fee for service” billing. And now, when they are required to post their charges, they simply post the billing codes. That does not help consumers understand what they charge, really. Insurance companies should be compelled to post what they pay as well so that consumers can clearly see what sort of bill they might have.

    There will be an ongoing debate in this country about universal health care. There also needs to be a growing awareness regarding the importance of public health services, of creating a health service infrastructure that provides skilled preventative services.

    Prevention is the key to reducing health care costs. Many of us need to get off the couch and eat health enhancing food. If we start changing what we eat, the food industry will have to change what it produces. I am certain that currently the food industry supports obesity and dare I say, sugar addiction. After all, the more we eat, the more money they make. And then, the health care system benefits as well.

    And for those living in poverty, the food they can afford to buy does not support health. It’s high in unhealthy carbohydrates. People trapped in poverty are more likely to become sick and less likely to go see a doctor because they can’t afford it.

    So, income inequality damages the health of many of our citizens who live in poverty and now is affecting the health of people in the middle class who often cannot afford the health care that they need.

    If we are going to create a universal health care system, we will have to invest in a public health infrastructure to keep costs down. I could be wrong but I suspect that countries that have universal health care have to invest more in preventative services to manage the cost of health care effectively.

  8. It seems that it is always a Republican administration or Congress that messes up economics in our capitalistic system. Why? Because corporatism, after the Eisenhower years, was allowed to wiggle its greedy nose under the tent of our politicians. In the 50s there were fewer than 2,000 lobbyists. Today, there are over 40,000.

    It should also be noted that Bush II allowed Medicare Part D to enter the picture. This little bit of giveaway PREVENTED Medicare from negotiating drug prices. We see how well that worked out…and is still working to destroy the middle class.

    During the Reagan/Regan years, Taft-Hartley and other anti-monopoly laws were simply ignored and corporations were allowed to buy and sell each other so that stockholders and CEOs could make even greater profits off the backs of the working classes and the poor. Is it any wonder, then, that 26 individuals own more wealth that 50% of the entire planet’s population of humans? TWENTY-SIX!! When John D. Rockefeller was asked how much money was enough, he answered: “Just a little more.”

    I know I sound like a raving radical, but I have to ask: What can these 26 people spend it on? I think the answer is that they DON’T spend it, they hoard it. This is the end game that Marx predicted for capitalism, and our dumb-assed Republican Congress and presidents are allowing it to destroy the entire nation. To these people, money equals power and power equals control over others. How pathetic is that?

  9. Appreciate all the great healthcare knowledge in these comments. We haven’t even touched on our now 3 drugstore chains, 5 airlines and the beast hovering over all retail in its drones, Amazon.

  10. The state has sanctioned monopolies in the past Old Ma Bell, gas and electric utilities. These state sanctioned monopolies were supposed to be controlled by various boards appointed by politicians, along with citizen input. These appointees were the Achilles heal of the system. They end up being puppets for the industries they are supposed to be watch dog for – really foxes in the hen house.

    Here in Indiana the cable companies were given territorial monopolies, with No oversight over charges to the consumers. The cable companies control the delivery systems plus the content of what is being broadcast.

    The ugly but predictable side to Steroid Capitalism has been the ability of the large company to destroy their smaller rivals or buy them up.

    The Wall Street crowd seems to understand that in spite of the sweet treats President Agent Orange and Pastor Pence handed them with tax cuts, the Regime of President Agent Orange and Pastor Pence is too unpredictable. No Republicans will challenge President Agent Orange and Pastor Pence in 2020.

    The hope for the 1% is a Corporate Democrat, who can talk the talk of Progressive Politics but will not walk the walk.

    From an article in Politico:
    “I’m a socially liberal, fiscally conservative centrist who would love to vote for a rational Democrat and get Trump out of the White House,” said the CEO of one of the nation’s largest banks, who, like a dozen other executives interviewed for this story, declined to be identified by name for fear of angering a volatile president. “Personally, I’d love to see Bloomberg run and get the nomination. I’ve just never thought he could get the nomination the way the primary process works.”

    On Wall Street, executives love Trump’s tax cuts and soft-touch regulatory posture. After mentioning Bloomberg, Wall Street executives who want Trump out list a consistent roster of appealing nominees that includes former Vice President Joe Biden and Sens. Cory Booker of New Jersey, Kirsten Gillibrand of New York and Kamala Harris of California. Others meriting mention: former Virginia Gov. Terry McAuliffe, former Colorado Gov. John Hickenlooper, former Maryland Rep. John Delaney and former Texas Rep. Beto O’Rourke, though few know his positions.

    Bankers’ biggest fear: The nomination goes to an anti-Wall Street crusader like Sen. Elizabeth Warren (D-Mass.) or Sanders. “It can’t be Warren and it can’t be Sanders,” said the CEO of another giant bank. “It has to be someone centrist and someone who can win.” https://www.politico.com/story/2019/01/28/wall-street-2020-economy-taxes-1118065
    ===================================================================
    Sen. Elizabeth Warren is scaring the hell out of Corporate Wall Street Democrats.

  11. Poor and sick people have no 401(K)s; they live in the real world, have medical bills they cannot pay, and are headed for chapter 7s in bankruptcy court. With 41% of bankruptcy court filings due to medical bills petitioners cannot pay, we should also consider other creditors of the bankrupts who are going to get stiffed with the court’s discharge findings and the losses such others must endure, some perhaps having to themselves take bankruptcy as a result. Everyone suffers when the numbers show that single payer would end such losses in 41% of the cases. Thus single payer would help many others along with the bankrupts, and while that may not seem like a lot of money in an individual case, the collective loss amounts to billions, enough to negatively affect our GDP, another plus to be considered in adoption of single payer.

  12. Gerald,

    As you probably already know, Medicare’s administrative overhead is about 7%. Insurance companies, of course, have to buy silk suits for their executives and pay off their slavering stockholders, so their overhead ranges between 25% – 60% depending on what they can get away with.

  13. Gen-X here. No retirement. “Health care” is an impoverishing joke.

    Last time I was at a party with people my age (not lawyers, doctors, or inheritors), the subject of euthanizing the Boomers came up. Not kidding.

    I don’t think people realize the anger that is lurking under the surface.

  14. Make more money now regardless of the impact of any others ever. I’ve written it a million times. We could add to it; advertise, it’s just like brain washing. Especially when you add that a by-product of advertising it what we fall for as entertainment in our homes.

    We have to stop treating Trump as a disease when in reality he’s a symptom of a sick culture. I think that the contagion causing the sickness is what I just wrote.

    In the simplest words possible, greed (hate, anger, self centeredness, taking) has replaced love (respect, responsibility for others, caring, giving) as the most basic ingredient in our culture among a significant minority of us.

    If we are to love, to matter, to make a difference we must be the force that restores our caring culture to a larger majority here.

    How?

  15. The only “anger bubbling under the surface “should be directed at one’s self- onewho didn’t plan for retirement when they were younger. Seriously doubt if we are going to go Soylent Green

  16. As a veteran of one of the biggest anti-trust suits of all time – U.S. Government vs. IBM – I had a front-row seat to the energy and money sapping efforts of the government gone amuck for 13 years. In 1969 (I joined the company in 1968) there were seven other companies competing for mainframe business. Some, like NCR and Honeywell, barely had their act together and posed little competition. CDC and others proved much tougher.

    Several times during the 13-year course of the suit we were confident that we had won, only to have the government file a completely new set of charges. Fortunately, IBM had had the good sense to hire Lyndon Johnson’s Attorney General, Nicholas Katzenbach (who had filed the suit on his last day in office) to defend us.

    I never became intimate enough with the anti-trust details to judge the case on its merits, but I do know we had to fight like hell on every sales effort I was ever involved in (which included many government agencies and a number of loses) and for every dollar of revenue. It didn’t feel like a monopoly! In the end, it seemed like the only measurable outcome was to restrain the company’s success while the Japanese kicked into high gear on producing mainframes and to fill warehouses across the country with millions of boxes of paper work that were never looked at.

    I think it is fair to say that the American computer industry would not have enjoyed the success it has and would not have continued to lead the world if the Justice Department had prevailed (but it did continue to buy our computers).

    Ironically, I retired in 1992 when our CEO decided that PCs would never amount to anything, that mainframes would own the future, and the company looked like it could go bankrupt.

    IBM didn’t invent the management philosophy of “excellence”, but it was preached by nearly every manager on a regular basis and most of us employees bought into it and believed it to be the real foundation of our corporate success.

  17. as a working man, who earns a wage,or hustles for the extra buck, ive seen nothing but a joint effort to keep the corps in our pockets and stealing wages. first off, everything i touch,and do,has a corprate influence,product,install, haul,deliver etc. its all making money some how,for someone else. those economists,think tanks etc,must have figured out how to combine my everyday efforts,to include thier own personal pocket. think about it. with every product you buy,use,or rent,its has its ties to other,corps. since 1986 i have been a direct impact,on thier bottom line,except,they have decided, 1 how much i will make 2 how much i will spend 3 how i will spend it 4 where i will spend it,and 5 when i will spend it. not bad for a high school drop out eh? if all this is a allusion,then contradict me,and get a job driving a truck. ive been saying this since reagan. my wallet has the same spending capital,i had in 1986. i make more,but balance for inflation,and costs now associated with whatever corp america says it should be, and presto, screwed again.Bernie is right,its rigged against,the ones who do the work, but the ones with the tools,reign supreme. as such with a congress that sits with the table cloths,while we get a park bench for dinner
    bumper sticker.
    corp americans hand is so deep in the working mans pockets
    hes crushing our nuts., ( i said he,citizens united,their human,and bigots alive,its always a man)

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