Graeme Sloan/SIPA USA via AP Images
The Justice Department can choose to protect citizens from monopolies.
This article is part of our series on “The Post-Corona World.”
In 2017, 13,024 U.S. companies merged, a record number. In the first six months of 2018, $2.5 trillion in merger deals were announced worldwide, a record value. New business formation is half of what it was in the 1970s. In October 2018, researchers Gustavo Grullon, Yelena Larkin, and Roni Michaely identified increased market concentration in 75 percent of all industries over the past two decades.
But this period could soon look like a golden age of competition if the coronavirus crisis continues its heartbreaking trajectory.
We effectively stopped enforcing antitrust laws in the early 1980s, and markets predictably consolidated as a result, with drastic consequences for worker wages, innovation, entrepreneurship, inequality, and democracy itself. But those 40 years have not seen an accelerant like the Corona Depression could provide, handing over even more power to a select few.
Banks and financiers, already riding a wave of deregulation to record profits before the pandemic, will be primary beneficiaries. The entire retail sector is at risk, putting even more economic activity at the whim of a few executives. Already-dominant platforms could find themselves in position to dominate like never before. And the post-corona economy could further transform who grows our food, who heals our ailments, and who tells us what’s happening in the world.
This doesn’t have to be the end of the story, however. Laws on the books intended to protect citizens from monopolies still exist, needing only sufficient political will to snap into action. Our economy is poised to suffer the greatest shock of our lifetimes. But policymakers still set policy, and we all have the opportunity to affect who acts in our name. The extraordinary nature of this crisis, and the community it is building in the struggle in real time, could provide the necessary spark for a movement that demands democracy work for all of us. But it will take massive organizing and leadership to climb out of the deep hole the crisis will create.
MONTHS OF lockdowns will produce economic carnage, and Congress’s current response could prove even more damaging, because of its disproportionate nature. The CARES Act and follow-up legislation bifurcated relief between smaller and larger businesses. Collectively, both bills send about $700 billion to the small-business sector. But larger businesses have access to Federal Reserve credit facilities with about six and a half times as much in funding.
Plenty of outrage has been expended on midsized restaurant chains and franchises and publicly traded companies grabbing forgivable small-business loans. But the Paycheck Protection Program’s forgivable loans are capped at $10 million, a minuscule fraction of what firms are liable to receive from the Fed. The first come, first served nature of the PPP pitted desperate businesses against one another, distracting from the bailout’s real beneficiaries.
Furthermore, if the PPP had enough funding to meet demand, nobody would care about “undeserving” recipients at the margins. In its current form, the effort to save small businesses will simply not save very many. Only 5.7 percent of small businesses got aid in the first round of PPP loans; even fewer dollars are available for round two. Moreover, these loans are intended only to keep small businesses’ payrolls afloat for two months; few expect the economy to turn around completely in that time.
To the extent there was any real winner in the PPP, it was the banks, which earned $10 billion in PPP round one, and are in line for another $10 billion in round two, merely for substituting as processors for an overmatched Small Business Administration (see Alexander Sammon’s story in this issue). For small businesses, this temporary, underweight relief will not stop a rash of closures, destroying the fabric of local communities and ushering in the depressing uniformity of surviving chain stores. Though we mostly think of that in terms of local restaurants and the corner dry cleaner, countless niche manufacturers and exporters, startups, and service providers will be crushed, across every economic sector. Industries that managed to retain competition will see the low end vanish.
The Fed’s $4.5 trillion money cannon, by contrast, is robust enough to accommodate whoever needs to be nursed back to health. Where you stand in America and in its pandemic response depends on where you already stood. Individuals desperate for survival aid must endure rickety systems and fend off private debt collectors; small businesses must fight one another for scarce funds; state and local governments are advised to give bankruptcy a spin. But the largest corporations in America enjoy concierge service, let inside the velvet rope and handed fistfuls of cash.
The Fed has set up a “Main Street” lending program, where your idea of Main Street must include companies with up to 10,000 employees. There are primary and secondary credit facilities ready to purchase virtually any manner of corporate debt, including exchange-traded funds exposed to the riskiest junk bonds. The Term Asset-Backed Securities Loan Facility (TALF) will slurp up securitized consumer and business loans, backed by auto payments, student debt, credit card arrears, corporate bonds, you name it. There’s a municipal-debt program that’s curiously more muted than the corporate facilities. It’s a short-term loan that localities will have to pay back, in contrast with the Fed taking underwater securities off bank and hedge fund books. And less than half of the money cannon has been loaded; the Fed’s balance sheet is expected to swell past $9 trillion, if you count the surge in liquidity for a host of credit markets.
Before one dollar was spent, the money cannon nailed its target: owners of capital. The Dow Jones Industrial Average rose nearly 6,000 points between March 23, the day before the Senate reached a deal on the CARES Act that blessed the money cannon, and April 29. The mere announcement of corporate debt and junk bond purchases similarly served to re-inflate asset prices, protecting the investor class. Bloomberg reported in early April on Citigroup enjoying a $100 million windfall from a single trade of commercial real estate loans. Revenue-less Carnival Cruise Line was ready to tap hedge fund loan sharks for survival cash until the Fed opened the spigot on junk bond markets; Carnival raised $6 billion in cheaper loans within days.
Anything that helps traders also helps banks, already the recipients of deregulatory actions throughout Donald Trump’s term in office. The Fed has obliged further, scaling back bank examinations and removing capital requirements. This sets the stage for increased risk and asset bubble formation, a secondary shock that could come amidst the coronavirus recovery.
The airline and aviation bailouts have a few concrete conditions; the Treasury Department is seeking minor equity stakes, for example. Every other company in line for low-interest loans has effectively no restrictions on the cash. Congress established a few guardrails, from holds on buybacks and dividends to payroll maintenance to executive compensation caps. But Steve Mnuchin, a mediocrity who has dabbled in foreclosure profiteering and Hollywood producing—an unmatched combination of corporate sleaze—can as Treasury Secretary waive any condition at his personal whim.
Moreover, the Fed didn’t extend conditions to its bond purchases, meaning the downstream corporate beneficiaries of the relief have no strings attached. It took a herculean effort just to get the Fed to commit in late April to release the names of the recipients of its largesse. Whether it will ensure the cannon supports people outside of Wall Street or the executive suites is another matter. At the moment, there is really nothing stopping a company from using bailout funds to pad stock prices while canning workers, outsourcing production, busting unions, and seizing the opportunity of a crushed small-business sector to buy up rivals and market share on the cheap.
This disconnection—where capital owners and large corporations get superior service, and everyone else gets screwed—cannot help but fuel corporate power. With small retailers mostly shuttered, big-box stores like Costco, Walmart, and Target have surged, along with e-commerce leviathan Amazon. While 26 million people lost jobs in the first month of the crisis, the retail monopolists hired 500,000. Google and Apple are taking on governing functions, building a global contact tracing system for the cellphones they control.
About 36,000 journalists have lost their jobs during the crisis as of late April, as the news media continues to shrink. The dichotomy of empty grocery shelves and massive dumping and bulldozing in the fields is the consequence of a concentrated food supply chain that cannot easily switch from commercial to consumer markets. The disaster will likely knock out even more small players and entrench industrial agriculture further. Hospital collapses and disproportionate shares of aid going to large for-profit chains like HCA are likely to narrow provider networks.
Policymakers can disallow a nation of monopolies, prevent Wall Street control, safeguard citizens and promote their welfare.
Even unlikely winners from the pandemic may not stay that way. To Zoom is now a verb, after the company’s easy-to-use multi-user video chat service became ubiquitous. But Facebook created a knockoff within weeks, and Google’s version is expanding as well. Both platforms can leverage billions of existing users to crush the nascent competition.
The victory for our leading oligarchs is near-total. According to the Institute for Policy Studies, from March 18 to April 10, a time when tens of millions of Americans lost their jobs, U.S. billionaires saw their wealth increase by 9.3 percent. Since January 1, eight billionaires have added at least another $1 billion to their bankrolls.
With mass starvation at the low end of the business chain, and a bounty of available support at the top, the power structure in America is fated to transform. But the path to a corporate state is not foreordained.
IT MAY NOT be immediately obvious, but not every outcome of the coronavirus crisis automatically favors monopolization and financialization. In many respects, it has revealed the need for more modest, more redundant, more resilient economic structures.
Big banks failed to pump out PPP loans at the level of their community bank counterparts, a high-profile display of ineptitude while the nation watched. Loans, especially commercial loans, are what most people think of when they think of a bank. The Federal Reserve, for better or worse, is designed to push capital to banks in a crisis for them to lend out to the real economy. If the Fed is now lending directly to companies, because large money center banks are poorly managed for rapid lending and even disinclined to lend, and if non-banks and online banks and even community banks are better at this core function, a smart regulator might ask: What purpose do big banks really serve? And if so, why are we loosening regulations so they can take further risks and threaten the economy through their unproductive casino-gambling side hustles?
One of the biggest concerns after the crisis lifts is that the private equity industry, loaded with trillions in undeployed funds, could achieve dominance. After all, firms would have their pick of struggling businesses, with discounted deals and cheap credit helping them along. But recent purchases are now vastly overvalued, and the highly leveraged business model magnifies such losses. The industry is holding a bunch of bankrupt companies, shrinking assets that they cannot unload. Top firms may not make it to the other side where the bargains await.
Industrial agriculture cannot turn the battleship around fast enough to get food into people’s hands, another high-profile signal of incompetence. Maybe we’re all better off with smaller processors where any single failure doesn’t threaten food supply chains. Local farms have adapted much more quickly, with an emphasis on community support agriculture (CSA) and online ordering and delivery. The entire disaster of concentrated supply chains begs for a more self-reliant solution based on diverse domestic manufacturing.
Even Big Tech, seen as likely to amass more power post-crisis, won’t emerge unscathed. Google and Facebook are really advertising companies, and the ad market has cratered enough to make them unsteady. Google’s revenue rose in the first quarter of 2020, but mainly due to frontloaded ad sales in January; there was a “significant and sudden slowdown” in March, which should continue. Apple’s hardware sales are almost sure to drop given the global downturn, and its huge manufacturing bet on China has proved hazardous.
Toby Scott/SOPA Images/SIPA USA via AP Images
Amazon’s corporate headquarters in Seattle
Amazon is supposed to be tech’s big winner, given that it sells physical goods in socially distanced fashion. Indeed, it has seen outsized demand, both in e-commerce sales and cloud computing (many of those Zoom calls run off Amazon Web Services). But like many in the crisis, Amazon is finding itself too big to manage. Prime orders are taking as long as a month, and the company discontinued nonessential sales for weeks, destroying third-party businesses. This fallback in convenience and selection contrasts with every single retailer in America being forced by circumstance to get smart about delivery, putting millions of companies in direct competition with Amazon. Many will fade away, but not all, and it’s always going to be quicker to get a box of tissues or pet food delivered from down the street than from an Amazon warehouse. With local delivery surging, Amazon, incredibly, may lose the loyalty of its customers.
Most of these hazards can be papered over with more bailout funds and hollowed-out competition, and that could happen. But that’s where policymakers, the wild card in our post-corona world, can check in. They can choose laissez-faire bailouts, by-standing as America becomes unrecognizable. Or they can choose to act, to disallow a nation of monopolies, prevent Wall Street control, safeguard citizens and promote their welfare.
This would mean stopping any company receiving bailout funds from using them to merge with a rival. When the carnage shakes out, the Federal Trade Commission and the antitrust division of the Justice Department should undertake a critical review of key markets, with the presumption that any market share over a certain threshold must necessitate a breakup.
Robust grants and loans to small business throughout the recovery, so we don’t get the monopolization in the first place, would be critical. New rules on banks now exposed as useless to the real economy are critical, to fill in the gaps where Dodd-Frank fell short and arrest the trend toward bigness and risk that comes with over-financialization. And we should outright eliminate private equity and hedge funds, so they cannot roll up the economy ever again.
I recognize that the track record for economic policy interventions is virtually nonexistent in recent memory. But this crisis is bigger and the stakes higher than ever before. And early signs are relatively promising. House Antitrust Subcommittee Chair David Cicilline (D-RI) proposed a ban on mergers throughout the pandemic’s duration, and Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio-Cortez (D-NY) joined him. Cicilline and members of his antitrust subcommittee are questioning Amazon for committing perjury, after a Wall Street Journal article found that the company scraped data from its third-party sellers to devise competing products under its house brand, at odds with its sworn testimony.
The gradual construction of an anti-monopoly movement, inside and outside Congress, fits this moment. There are enough headlines of bad behavior to spur public outcry. Many investigations are proceeding at the state and federal level. Regulators and politicians, stuck at home and cut off from lobbyists, do not have to act like inert puppets, only ambulatory when corporate America pulls their strings. They can use existing tools to block mergers, to end market manipulation, to really prevent a takeover of modern society.
In the New Deal era, public anger forced experimentation and action from government rather than neglect and decay. We have that forcing event again.
