Today, far too many people lack options when they shop for an internet connection, groceries, or local news. In March of this year, The Economist magazine (not known for supporting socialism) wrote an article saying, "Profits are too high. America needs a giant dose of competition" (www.economist.com/...).
Corporations are getting richer, with no benefit to consumers. Services aren't better. Products aren't better. Corporations are richer because there's less competition, so they can charge more for the same service:
Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google. Even as the price of fuel, one of airlines’ main expenses, collapsed alongside the oil price, little of that benefit was passed on to consumers through lower prices, with revenues remaining fairly flat. After a bout of consolidation in the past decade the industry is dominated by four firms with tight financial discipline and many shareholders in common. And the return on capital is similar to that seen in Silicon Valley. What is true of the airline industry is increasingly true of America’s economy as a whole.
The article unabashedly supported Sanders and Clinton:
It means that when Hillary Clinton and Bernie Sanders, the Democratic contenders for president, say that the economy is “rigged”, they have a point.
Companies have huge amounts of money and zero incentive to spend it:
high profits across a whole economy can be a sign of sickness. They can signal the existence of firms more adept at siphoning wealth off than creating it afresh, such as those that exploit monopolies. If companies capture more profits than they can spend, it can lead to a shortfall of demand. This has been a pressing problem in America. It is not that firms are underinvesting by historical standards. Relative to assets, sales and GDP, the level of investment is pretty normal. But domestic cash flows are so high that they still have pots of cash left over after investment: about $800 billion a year.
Mergers continue with zero benefit to consumers:
Since 2008 American mergers have sought to remove recurring annual costs of about $150 billion from industrial ledgers. Few firms that are not regulated utilities have public plans to pass these gains on to consumers.
The problem is particularly acute in healthcare:
Roughly another quarter of abnormal profits comes from the health-care industry, where a cohort of pharmaceutical and medical-equipment firms make aggregate returns on capital of 20-50%. The industry is riddled with special interests and is governed by patent rules that allow firms temporary monopolies on innovative new drugs and inventions. Much of health-care purchasing in America is ultimately controlled by insurance firms. Four of the largest, Anthem, Cigna, Aetna and Humana, are planning to merge into two larger firms.
Among The Economist's suggestions are two upon which we could build a movement:
It would start a more serious conversation about whether it makes sense to have most of the country’s data in the hands of a few very large firms. It would revisit the entire issue of corporate lobbying, which has become a key mechanism by which incumbent firms protect themselves.
Burning Newspapers for Cash
According to a new website run by Saving Community Journalism (newspaperownership.com/...), local newspapers are now largely owned by the vehicles of the super rich, private equity:
These new owners are very different from the newspaper publishers that preceded them. For the most part they lack journalism experience or the sense of civic mission traditionally embraced by publishers and editors. Newspapers represent only a fraction of their vast business portfolios — ranging from golf courses to subprime lenders — worth hundreds of millions, even billions, of dollars. Their mission is to make money for their investors, so they operate with a short-term, earnings-first focus and are prepared to get rid of any holdings — including newspapers — that fail to produce what they judge to be an adequate profit.
The newspapers are paying off the debt that was used to acquire them:
Most have financed acquisitions with significant debt. To reduce costs, the new media barons have typically laid off staff, frozen wages, reduced benefits and consolidated sales and editorial functions. With revenues and profits still declining, much initial cost cutting has been painful, but necessary — and may have actually saved some newspapers in the short term. However, for the most part, profits derived from cost cutting have not been reinvested to improve their newspapers’ journalism, but used instead to pay loans, management fees and shareholder dividends.
Newspaper ownership is heavily concentrated, and the owners care about profits, not journalism:
The seven largest investment groups own and operate more than 1,000 newspapers in 42 states, or close to 15 percent of all American newspapers, as defined for this study.
The Big Investors
Compounding the problem of the big corporations is the problem of the big investors. Three companies dominate stock market ownership:
In America, since 2008 . . . $1 trillion has flowed into passive funds. So the passive funds now hold gargantuan ownership stakes in large, public firms. That makes for some awkward economics. Research by Jan Fichtner, Eelke Heemskerk and Javier Garcia-Bernardo from the University of Amsterdam tracks the holdings of the “Big Three” asset managers: BlackRock, Vanguard and State Street. Treated as a single entity, they would now be the largest shareholder in just over 40% of listed American firms, which, adjusting for market capitalisation, account for nearly 80% of the market (see chart). The revolution is here, but it was not the workers who seized ownership of the means of production; it was the asset managers.
The big investors have no interest in competition. They like the predictable, uncompetitive markets that dominate America today. And if the GOP succeeds in destroying the safety net, people who are planning for their retirement will have to give even more money to them. Big investors reward CEOs who play along: "large funds often approve generous pay packets for executives whether or not they are performing well."
The article appears to have hoped that Hillary would solve the problem (Trump will exacerbate it):
As evidence of the side-effects of growth in passive funds accumulates, the best remedy might be for Washington to take its antitrust responsibilities more seriously.