Friday, July 23, 2010

World monopoly ... it is worse than we think!

Dear Colleagues

I like the blog that Polly Cleveland writes ... it is thought provoking. This item caught my attention today.

Cornered: The New Monopoly Capitalism and the Economics of Destruction, by Barry C. Lynn

This is the scariest book I’ve read since The Day of the Triffids. Back in the ‘70’s, when I worked on my dissertation, US business monopolization seemed bad, but not getting worse. Spinoffs and breakups balanced mergers. So I forgot about the problem. Since then, as documented in Cornered by financial journalist Barry Lynn, global monopolization has rapidly returned us to a new age of robber barons. A few items:
  • Some 30 years ago, one of my husband’s students landed a dream job at the DuPont labs in Delaware, doing cutting-edge research in his field of photosynthesis. Today, the DuPont labs have shrunk, and he’s reduced to applied research on sugarcane waste.
  • A medical equipment inventor has developed retractable needles and needleless syringes that greatly reduce blood-borne infections. But as told in the latest Washington Monthly, Dirty Medicine, he cannot sell to US hospitals–because the market is monopolized by a handful of giant group purchasing organizations, or GPO’s, which Congress exempted from antitrust in 1986. The GPO’s in turn have a comfortable kickback deal with medical supply giant Becton Dickinson, which controls 70% of the US syringe market.
  • Remember the great 2007 pet food recall? It turned out that most of the US pet food business depends on a single packager. That company purchased Chinese gluten, which had been doctored with melamine to increase the apparent protein content. Some 150 brands were contaminated, ranging from cheap Wal-Mart brands to luxury brands. Some 50% of pet food is sold through Wal-Mart.
  • If you buy eyeglasses, you may think you’re in a competitive market, with Lens Crafters, Pearl Vision and others. In fact, almost the entire worldwide optical business, from manufacturing to sales outlets, belongs to a single giant Italian firm, Luxottica.
  • Two giant distributors, InBev of Belgium and SAB of South Africa, control the world beer market—including famous brands like Budweiser, Michelob, Stella Artois, Kirin, Tsingtao and Corona.
  • And don’t forget those six TBTF banks (“too-big-to-fail”)—Bank of America, JP Morgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley. These now control assets equivalent to over 60% of GDP. B of A, JP Morgan and Wells Fargo between them hold 33% of US bank deposits. The megabanks arose from a blizzard of mergers over the last 20 years—topped off, after the 2008 crisis, by mergers forced by the US Treasury and the Federal Reserve.

As Barry Lynn reports, not only the scale but the structure of monopoly has changed. Back in the 1970’s, big oligopolies like the auto and oil industries were vertically-integrated, meaning they produced their own inputs, and controlled their sales. Today’s giants take the form of horizontally integrated trading companies like Dell Computer, buying their inputs all over the world. The auto companies now operate as a virtual monopoly, sharing all their suppliers.

Worse—which is what Lynn means by “the economics of destruction”—monopolists are often sole buyers as well as sole sellers. In that position, they squeeze their workers and suppliers, often at the expense of quality and variety. They cut wages, jobs and benefits. Retail chains force small suppliers out of business, and tell larger ones how to make and price their product. For example, Wal-Mart has told Coca-Cola what artificial sweeteners to use in its diet sodas, and has told Levis what fabric to use in its Jeans. Manufacturers cut R&D and buy up patents—not to make new products but to suppress innovation and competition.

Monopolization creates instability. This is evident in agriculture, where once independent farmers now operate as subcontractors to Tyson or Cargill or ADM or (now Brazilian-owned) Swift, raising genetically uniform corn or pigs or chickens according to prescribed recipes. A new blight or growing resistance to antibiotics can wipe them out. The TBTF banks epitomize instability.

Monopolization threatens political freedom. A friend’s husband works for the B of A. We recently suggested that she might contribute to the campaign of a promising young Democratic congressional candidate. She shook her head. Just as English lords monitored their tenants’ votes for Parliament, the bank monitors employees’ contributions.

Lynn traces the rush of monopolization to the “free-market fundamentalism” ideology of the Reagan era. The prophet of this ideology, Milton Friedman, proclaimed that government regulation impedes “efficiency”. So out went anti-trust enforcement, slowly at first, but gaining momentum. Lynn views President Clinton as the worst offender, allowing and even encouraging mergers not only among the banks, but in the media, where about fifty big firms quickly consolidated into six giants.

Lynn, libertarian by inclination, offers little remedy outside renewed anti-trust enforcement and a serious attention to checks and balances. For a better appreciation of how the tax, subsidy and regulatory systems favor the top one percent, read David Cay Johnston’s Perfectly Legal and Free Lunch. Lynn also misses how monopoly depends on control of natural resources including prime locations—like bank corners and auto strips. What is Wal-Mart, after all, but great swaths of real estate at major highway intersections? But let’s hope Lynn’s alarm summons up a new generation of trust-busters.

Meanwhile, Lynn should make us all acutely monopoly-conscious in our personal lives. Toronto-Dominion (TD) Bank recently gobbled up our local Commerce Bank. So we’re moving to a surviving local bank, Apple Bank for Savings. And no more Heineken! We’re switching to Brooklyn Lager.
This dialog is about important issues ... but the problem is that these matters are being reported as part of journalism rather than being part of a serious movement about meaningful metrics. Over and over again I see or hear thoughtful people working on very important matters with considerable competence ... and yet they have near zero traction in any of the places where decisions are being made.

I made the following comment on their blog ... not sure whether it will get accepted or be "moderated out". We shall see in due course!
Peter Burgess
July 23, 2010 at 2:30 pm
Dear Colleagues

The world is a mess … but as most everyone tells me, it always has been! My position is that the world would have been over a long time ago if good people had not worked very hard to keep things on track and to stop completely awful behavior in check.

In this 21st Century we have some things going for us. The world of science and technology has delivered to us some awesome knowledge and the capacity to do some amazing things. As we know from the experience with nuclear knowledge, this might be power or it might be bombs … so good decision making is needed and guidance about how the best decisions can be made.

I argue for more meaningful metrics. Some of the power of technology should be deployed to give us much better metrics about the state of society, and the decisions being made within this society. I argue that the power of information technology is about one million times greater now than at the beginning of my career … so why do we not have really great metrics about socio-economic performance.

My experience with metrics has been that good data usually tell me something I did not know … or did not expect. More decisions need to be based on data and not so much on opinions … especially political opinions. We should have access to data that are easy to understand and very meaningful … but it is a data system that is needed not just a big pile of more and more disorganized data. This presupposes that we know what we want … and I would observe that many of us do know what we want, and it is not what makes the most profit for the oligarchs of the world and their surrogates. Certainly we have to start measuring something I call value, and not just measuring money profit and driving everything from that perspective. Value based metrics can change the way we keep score … and in turn change the way we play the game.
I want, more than anything else to be able to say that we have deployed some easy to use meaningful metrics that are becoming widely accepted ... and as a result those with power are starting to change behavior. I know how powerful metrics can be ... and maybe so do the people who have most control over decision making in the system.

Stay tuned

Peter Burgess

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