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It’s time to rein in the reckless monopolies

Credit: Bruno Vincent/Getty Images

Credit: Bruno Vincent/Getty Images

February 2, 2018   2 mins

The fourth in our ills of capitalism series looks at how weak anti-monopoly policy has inevitably led to an increase in producer power and oligopolistic behaviour

“The most common way people give up their power is by thinking they don’t have any.”

― Alice Walker 

Today, the world is confronted by globe-spanning, tax-dodging corporate behemoths; monopolies based on advanced, intrusive as well as seductive technologies. Some are armour-plated cartels with ever-stronger (and longer) intellectual property protection. They include not only the FANGS – that bundle of high-tech platform utilities – but also Big Pharma, Big Agrobusiness, Big Media and Megabanks. The rise of these new monopolies has coincided with the lowering of real wages, especially in the UK and US, for many workers, and to a reduction in the labour share of the economy.

The process of monopoly (or giant oligopoly) creation has accelerated at a reckless pace.

As economic power has become more concentrated, so levels of corporate crime have risen. Perhaps the most egregious of these was the conspiracy involving Barclays, a 300-year-old British bank, in rigging the interest rate that people and corporations around the world pay for loans or receive for their savings. LIBOR – the London Interbank Offer Rate –was used as a benchmark to set payments on about $350 trillion worth of financial instruments.

The process of monopoly (or giant oligopoly) creation has accelerated at a reckless pace. But can this late-capitalist model survive populist uprisings across the world?  Can it survive the political instability caused by the gross inequality in wealth fostered by increased monopolisation?

For many decades, the USA operated a strong anti-monopoly (or “anti-trust”) policy.  Beginning with the Sherman (1892) and Clayton (1914) Acts, the federal government oversaw an era of active interventionism to regulate, prevent or break up monopolies, reaching a new peak with FDR’s New Deal in the 1930s. It is no accident that the strongest steps to control big finance and Wall Street ran in tandem with anti-trust laws – first with the creation of the Federal Reserve in 1913, and then with the Glass-Steagall Act of 1933.

In Britain, the home of ultra-laissez-faire ideology, action against monopolies was more restrained. Indeed, the common law doctrine of unlawful “restraint of trade” was traditionally used more against trade unionists than against any corporate’s “conspiracy against the public, or… some contrivance to raise prices” in Adam Smith’s famous phrase. True, from 1948, legislation was passed to give some limited powers over monopolies and mergers, but they were used more modestly than in the anti-trust heyday in the States.

Global monopolies were not created thanks to technology, or to entrepreneurial genius – but because we citizens let them happen

The big change in ethos came with the era of financial liberalisation, notably the Nixon-Reagan-Thatcher years, effectively endorsed in the Clinton-Blair period. First, the creation of a private monopoly was no longer seen as a bad thing (recall for example how at its peak Microsoft avoided break-up). Glass-Steagall was repealed in 1999, with support from Bill Clinton and the economist Larry Summers, symbolising the bi-partisan policy of support for hyper-financialisation.

The Reagan-Thatcher era also gave birth to the privatisation boom, with an ambiguous policy towards monopoly, leaving telecom giants in place, while also (in the UK) illogically fragmenting the rail network.

The myth propounded by recent governments is that the answer is more competition, with the public constantly checking prices (usually unfathomably expressed) from ever more new entrants to each utility. Everyone understands that this is a farce, since it relies on the inertia of the majority for a minority of customers to benefit. The attempts by regulators to police the system have likewise failed, so that customers have become victims of “regulatory capture”.

Margrethe Vestager, European Commissioner for Competition, has taken on Google in ways not yet seen in the UK (Photo by Thierry Monasse/AND/ABACAPRESS.COM)

The EU runs a different competition and monopolies model, still (contrary to Brexiter mythology) from a strongly capitalist perspective. If the Anglo-Saxon model is founded on laissez-faire, the continental model has strong roots in German ordoliberalism, with its emphasis on rules and their enforcement. The European Commission takes its role more seriously in taking on cartels and harmful private sector monopoly acts. It was the Commission that forced the telecom oligarchs to abandon roaming charges. Its Commissioner Ms Margrethe Vestager (a staunch economic liberal) has taken on Google in ways not yet seen in the UK.

The great British public is supremely unconvinced by the past decades of privatisation

After decades of experience of privatised utility monopolies, in water, gas and electricity as well as rail, the great British public is supremely unconvinced. Polling by Populus and Legatum Institute showed that 86% said favoured public ownership of water, 77% gas and electricity, and 76% rail.  50% supported public ownership of banks.

The next step is for the British public to understand that it has the power to hold these companies accountable.

  • This can be done by Parliament enacting tough anti-monopoly laws.
  • Secondly, a democratic government can use its powers more effectively to break up companies that do not act in the public interest.
  • Third, companies that have a strong public interest dimension should be required by law to fulfil public service obligations. Those obligations have already been imposed on the liberalised network industries in the EU, but public service obligations need now to be extended to companies in the gig economy.

Global monopolies were not created thanks to technology, or to entrepreneurial genius. They happened because we, as citizens let them happen. We must not give up our power to change this monopolistic system, by thinking that we don’t have the power. As citizens of democracies, we most certainly do.

Ann Pettifor is a UK-based analyst of the global financial system, director of Policy Research in Macroeconomics, an honorary research fellow at the Political Economy Research Centre and a fellow of the New Economics Foundation, London.


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