Forget China, the biggest threat to the US economy is the rise of its ‘oligarchs’ and ‘robber barons’
The US-China trade war may be hogging the headlines, but the rise of “oligarchs” across many American industries is the primary culprit of the nation’s rampant inequality, the co-author of a new book said.
A wave of mergers and acquisitions has left sectors like airlines, retail and banking with heavy concentrations of power, allowing big business to set market prices, but also squeezing employment opportunities for citizens in the United States.
Large swathes of the economy are now dominated by “oligarchs” and “robber barons”, terms usually reserved for Russian tycoons and freewheeling, unscrupulous 19th century American industrialists, rather than corporate America, which claims to be “the bastion of free markets”.
Denise Hearn, co-author of The Myth of Capitalism: Monopolies and the Death of Competition, believes that more than offshoring to China, or the US-China trade war, the decline in competition is the biggest issue facing the US economy.
“We would contend that of course China entering the [World Trade Organisation] was an issue, but we don’t believe in mono-causal explanations,” Hearn said.
“Concentration [of corporate power] isn’t the only factor, but it is under appreciated in terms of how pervasive and pernicious it is, how it has slowed the economy in the US, hurt workers, hurt wages, and contributed to all of these societal issues.”
The central thesis of the book is that competition is dying in the US, and this is bad for the average consumer.
In some of the most extreme examples, a few companies have carved up the US among themselves and forming oligopolies: two companies control 90 per cent of the US beer market; four airlines dominate the US domestic airspace; four players control the whole of the American beef market; and five banks control half of the nation’s banking assets.
In the hi-tech space, Google accounts for 90 per cent of internet searches, while Facebook owns 80 per cent of the social media space.
Amazon is “crushing retailers”, Hearn said, and Apple and Google’s Android have divided the smartphone market into a duopoly.
Supermarket Walmart, meanwhile, have dominated independent retailers, and in turn has the entire economy in a stranglehold.
“Think about a rural town, the high street used to have the local hardware store, grocer, local banker and now that’s all been replaced by one store, Walmart,” said Hearn, who co-authored the book with Jonathan Tepper.
“So, Walmart becomes the price-maker for the price of goods. They may have lowered the price of goods for the consumer, but they got a lot of that through squeezing their suppliers and paying them less.”
Walmart is also the only buyer of labour, meaning that in many parts of the US, it controls the jobs market: setting the price of goods and also dictating the wages that are paid.
A common mantra of free-market economists is that “a rising tide lifts all boats”, but productivity levels in the US have increased by 240.4 per cent since 1950, while wages have gone up by just 108.3 per cent over the same period.
The productivity gains are not being passed onto workers, nor the wider economy. Instead, they are being siphoned off by “large parasites that are sapping nutrients and robbing the country of its energy”, according to the book.
“That has massive effects on workers. We’re now in a situation where there’s so much concentrated economic power on the corporate side and there’s been a withering away of bargaining power for workers and also suppliers,” Hearn said.
“Those dynamics mean that money is being siphoned off from these rural zones into coastal cities and further widening inequality.”
The hollowing out of local industry by huge behemoths has had a huge negative effect on society as well, the book showed.
In many instances, the areas of America in which there is least competition also have high rates of addiction and suicide.
They are also more likely to have voted for US President Donald Trump, who was elected on a promise to “drain the swamp” and penalise those with vested interests in maintaining the status quo in Washington.
“When you overlay highly concentrated economic zones, over where Trump was elected, they match quite closely. There was another fascinating study where a woman was researching opioids, and in counties with a high degree of ‘deaths of despair’, that is deaths from suicides, overdose of drugs or alcohol, that matched very closely where Trump was elected,” Hearn said.
“To me that says there’s been a loss of hope. People have lost their economic opportunities and options, Trump came along and said: ‘I will give you back your economic opportunity’, and was able convince them that he could materially impact their economic situation. That’s how Trump got elected.”
Income inequality is largely accepted to be one of the greatest issues facing US policymakers.
A report released in October 2018 by a think tank, the Institute for Policy Studies, found that three dynastic families in the US have seen their wealth rise by 6,000 per cent since 1982, while median household wealth has fallen by 3 per cent over the same period.
“The median family in the United States owns just over US$80,000 in household wealth. The richest person in the United States [and the world], [Amazon founder] Jeff Bezos, has accumulated a fortune nearly two million times that amount,” read the report, entitled Billionaire Bonanza.
A separate report by the Economic Policy Institute released this month found “not only rising inequality in general, but also the persistence, and in some cases worsening, of wage gaps by gender and race”.
Inequality is set to form a key topic for debate in the 2020 US election. A new breed of Democratic lawmakers such as New York congresswoman Alexandria Ocasio-Cortez have captured headlines with campaigns aimed at narrowing the wealth gap.
And while Hearn’s book focuses mostly on the US, the issue is not exclusively an American one. Instead, it is a story of dynastic wealth, under-regulation and the revolving door between industry and governance that helps chip away at the laws that are supposed to keep corporate power in check.
Hong Kong, for instance, is home to three of the 14 largest conglomerates in the world in CK Hutchison, Jardine Matheson, ThyssenKrupp which help dominate the local economy.
“Twenty-one tycoons in Hong Kong own more assets than the Hong Kong Monetary Authority,” Hearn said. “Although Hong Kong is touted as the freest economy in the world, there are high levels of concentration of economic and political power.
“As well, Hong Kong is at a 45-year high in terms of inequality. You can see that these things go together and cause real effects for real citizens who are struggling to make things work.”