From Route 66 to Anytown, USA
The Hidden History of Monopolies: How Big Business Destroyed the American Dream
While the cancerous growth of giant corporate monopolies and oligopolies was largely held in check from the time of FDR until the Reagan administration, America’s middle class began to feel the influence of the laissez-faire Chicago School of Economics and Robert Bork in the last years of Nixon’s presidency. During Nixon’s era, when the US economy was about a third the size it is now, there were about twice as many publicly traded companies as there are today.
Public companies began to collapse in earnest in the mid-1990s, as the Clinton administration embraced neoliberal economics and maintained Reagan’s policy of not seriously enforcing the Sherman Antitrust Act. In 1996, there were roughly 8,000 publicly traded companies; today it’s in the neighborhood of 4,000.
In my lifetime, America has transformed from a nation of small and local family businesses into a nation of functional monopolies where small handfuls, typically three to five giant companies, control around 80% of pretty much every industry and marketplace, and make pricing and other decisions in concert with each other.
We see this clearly in industries like airlines and pharmaceuticals, but it exists in pretty much every industry in America of any consequence. It’s often obscured, because companies operate under dozens or even hundreds of brand names, and they rarely list on their packaging or advertising the name of the corporate behemoth that owns them.
As Jonathan Tepper pointed out in The Myth of Capitalism, fully 90% of the beer that Americans drink is controlled by two companies.65 Air travel is mostly controlled by four companies, and over half of the nation’s banking is done by five banks. In multiple states there are only one or two health insurance companies, high-speed internet is in a near-monopoly state virtually everywhere in America (75% of us can “choose” only one company), and three companies control around three-quarters of the entire pesticide and seed markets. The vast majority of radio and TV stations in the country are owned by a small handful of companies, and the internet is dominated by Google and Facebook.
Right now, 10 giant corporations control, either directly or indirectly, virtually every consumer product we buy. Kraft, Coca-Cola, PepsiCo, Nestlé, Procter & Gamble, General Mills, Kellogg’s, Mars, Unilever, and Johnson & Johnson together have a stranglehold on the American consumer. You can pick just about any industry in America and see the same monopolistic characteristics.
A study published in November 2018 by Jan De Loecker, Jan Eeckhout, and Gabriel Unger showed that as companies have gotten bigger and bigger, squashing their small and medium-sized competitors, they’ve used their increased market power to fatten their own bottom lines rather than develop new products or do things helpful to their communities or employees. Much of this shows up in increased profit margins, the benefits of which are passed along to shareholders and executives, rather than consumers.
They note that, “while aggregate markups were more or less stable between 1955 and 1980, there has been a steady rise since 1980, from 21% above cost to 61% above cost in 2016.”
Markups (the price charged above production costs), they note, were fairly constant between the 1950s and the 1980s, but there was a sharp increase starting in 1980. Thus, they conclude, “[i]n 2016, the average markup charged is 61% over marginal cost, compared to 21% in 1980.”
Markups, of course, define what’ll be left over for profits and dividends.
Additionally, everywhere the size of companies and the domination of the market have increased, so have markups.66
For most of the history of our nation — and even the centuries before the American Revolution — one dimension of “the American Dream” was to start a small local business like a cleaners, clothing store, hotel, restaurant, hardware store, or theater, and then not only run it for the rest of your life but be able to pass it along to your children and grandchildren.
The first four years of the 1960s saw a new TV show — first in black-and-white and then in color — starring Martin Milner and George Maharis. The two drove on the nation’s most well-known highway, Route 66, every week, stopping in small towns and mixing it up with the locals.
In the trailer for the classic DVD set of the show, Maharis asks Milner, “How many guys do you know that have knocked around as much as we have, and still made it pay?”
“Oh, we sure make it pay,” Milner replies. “Almost lynched in Gareth, drowned in Grand Isle, and beat up in New Orleans . . .”
I still remember being fascinated as a nine-year-old by the geographic, cultural, and linguistic diversity of the towns they visited across my nation. Every town was unique and was generally identified by the local businesses, which often provided a job for a few days for Tod and Buz.
Today, by contrast, you could be dropped from an airplane from a few miles up and land in any city in America unable to figure out where you were. Instead of the Peoria Diner, it’s Olive Garden or Ruby Tuesday. Instead of the Lansing Hotel, it’s the Marriott. Instead of local stores named after local families, it’s a few chains we all recognize or Amazon who’s providing the goods Americans want.
And as industries become more and more consolidated, the predictable result is that profit margins increase, prices increase, and the quality of products and services declines. We see this most obviously in the quality of services and products from internet service providers and airlines, but it even applies to industries as eclectic as hospitals.
In 2012, the Robert Wood Johnson Foundation did an exhaustive review of studies on what’s happened in the hospital business as hospitals have undergone a rapid period of consolidation since the 1990s. They concluded that the results were higher prices and stable or reduced quality of care without any reduction in costs, and that in the parts of the country where hospitals had not consolidated, care was better than in areas where it had. They found this was true of both the US and UK hospital marketplaces.67
But didn’t we outlaw functional monopolies like this with the Sherman Antitrust Act back in 1890? And if so, what was the legal rationale for all this consolidation, and what did it have to do with Robert Bork?