Monopoly Power

The Curse of Bigness: Antitrust in the New Gilded Age by Tim Wu

The “economics eugenics movement” targeting firms perceived as “unfit to deserve industrial life” birthed the modern monopoly in America. It also brought about the laws that are supposed to govern the concentration of economic power in America. Tim Wu provides a rollicking history of what have often been bare-knuckle fights over political and economic power in the US.

The history of monopoly in the US began as an "economics eugenics movement" targeting those seen as "unfit to deserve industrial life," Tim Wu writes in TThe Curse of Bigness: Antitrust in the New Gilded Age. Wu's book, a history of monopoly power and public policy in America from the late 1800s onward, is particularly useful to revisit in this current age of monopoly of tech firms, big pharma, airlines, and other industries. Its also illuminating in showing how tussles over market concentration created openings in the modern American economy that made possible the tech and internet industries that exist today.

The story begins with the Trust movement in the mid-19th century, a group of clever financiers (including J.P. Morgan) who believed that, just as man had come from apes, monopolies were the natural evolutionary outcome of competition, and a society run by monopolies was one ruled by the strong.

At the time, America was a nation of decentralized and distributed economic activity, dominated by many small producers – farmers, professional service providers, shop owners – scattered throughout the country, working for themselves and trading amongst each other.

But the Trust movement began aggressively taking out small businesses and independents through acquisition or demolition, believing that economic competition had no place in modern economies. In the decade between 1895 and 1904, 2,274 firms merged into 157 corporations, including a number you'd recognize as still in business today. Railroads were particularly ripe for domination through nefarious methods, and in response to outcry, Congress nearly unanimously passed the Sherman Act in 1890 outlawing monopoly and restrictions on trade, and gave the Justice Department the power to prosecute such crimes. But while this law is still today the backbone of Antitrust law in the US, it left a number of items off the table, and monopolists found ways around them.

Enter Louis Brandeis, a lawyer unhappy with seeing his friends and clients crushed by ruthless monopolists, who would write a series of articles in Harper's Weekly on J.P. Morgan's merger of the New Haven-Boston & Maine railroad in 1907-1909. Brandeis' essays would come to shape the views of many thinkers and politicians on how monopolist companies behaved to the detriment of the larger society ( and land him a seat as Supreme Court Justice and economic advisor to Woodrow Wilson).

His investigation of the mergers revealed that the new New Haven company was being built not through virtue, as the Trusters would have the public believe, but rather worked to "exterminate other businesses, mistreat workers, defraud investors, and...hide gross inefficiencies with their size--all in the service of profits for bankers and speculators." The merger also proved physically dangerous – operational problems at a corporate level lead to train derailments, accidents, injuries and death.

All this led Brandies to conclude that monopoly spawned another problem besides the concentration of economic power – that of "excessive bigness" – the book's namesake – which was characterized by large-scale inefficiencies in the monopolies themselves, which in turn causes secondary problems.

Come the assassination of President McKinley, Cowboy President Teddy Roosevelt took the reins at a moment where political power had been ceded to Wall Street, and he was determined to take it back, asserting that a "majoritarian government must lead the country" and that corporations must be accountable to the government, not the other way around. He became an anti-monopoly crusader, as the federal government sought to rein in the worst monopoly abuses, pursuing 45 companies for violations of the Sherman Act under Teddy, the most famous of which was Rockefeller's Standard Oil. Not all of the cases stuck, as the Sherman Act needed clearer definitions and didn't forbid specific practices. It also was unclear which government agencies would enforce anti-trust laws. The Clayton Act of 1914 strengthened anti-trust law, created the Federal Trade Commission to oversee anti-trust activity and criminalized specific acts of monopolist behavior, including price discrimination, predatory pricing, and price cutting; the creation of exclusive dealings to create monopoly power; the right of individuals to sue when affected by monopolist behavior; and set the terms under which mergers and acquisitions might be considered monopolist behavior.

These significant laws to try to temper the concentration of economic power in the hands of a few powerful firms were democratically popular and widely supported by the public, which supported decentralized economic activity over concentration. That choice (and these laws) have never been repealed democratically. Yet, the enforcement of them since then has been sporadic, partisan, and frequently under attack, particularly since the presidency of George W Bush.

This book is full of juicy bits about various battles between businesses seeking to dominate their industries and how government has sought (or failed) to temper the effects of that domination over time. The battle over ATT's monopoly, which controlled not only local and long distance telephone service, the telephone technology itself, business telephone services, but also emerging technologies specifically online services; remember that the earliest internet connections were served over telephone lines. Scholars argue that without the breaking up of the conglomerate it would have been nearly impossible for smaller entrants to innovate in online services; Sprint, the earliest commercial internet service provider, would certainly not have been able to do so.

Had the government not sued IBM for monopoly practices including sabotage and false product announcements, IBM would have not voluntarily stopped bundling software with their hardware sales, thus dominating the software industry. Instead, in doing so, it birthed the modern software industry where small entrants had a shot at selling their products for their hardware. And because IBM was in litigation while their home personal computer was in production, they did not attempt to purchase or control their suppliers, leaving room for competition in the PC market. The epic battle against IBM stretched over thirteen years, in which the government's case spanned 104,000 pages and IBM called 856 witnesses with 12,280 exhibits to argue its case.

The Reagan administration dropped the IBM case – the same day that there was a settlement in the AT&T case. Meanwhile, academics at the University of Chicago and Harvard in the 1970s and 1980s sought to redefine and temper what the dimensions of anti-trust actually were, narrowing in on a definition of competition that focused on whether or not a company's actions resulted in higher prices for consumers.

This narrow definition in turn has allowed a number of more recent massive firms to try to skirt antitrust law by focusing on maintaining or lowering consumer prices while still taking other monopolistic actions in their industries. As Lina Khan has written about Amazon, "by this measure, Amazon has excelled; it has evaded government scrutiny in part through fervently devoting its business strategy and rhetoric to reducing prices for consumers..... It is as if Bezos charted the company's growth by first drawing a map of antitrust laws, and then devising routes to smoothly bypass them."

The last big antitrust case was filed against Microsoft, for force-bundling its Internet Explorer software and making it difficult for people to uninstall it and use other browser software, and making their software work better with IE than with other browsers. This case also stretched across administrations, and under Bush 43, the case was magnanimously settled. It would be the only anti-trust case handled in the eight years of Bush II. His administration also did not prevent any mergers over the same period. Wu sets the time of death of antitrust enforcement as 2004, when "the Supreme Court, under Justice Antonin Scalia, elevated what was once called "the evil of monopoly" to something different: an essential motivating factor within the American economy. In an unnecessary aside, Scalia wrote: The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices--at least for a short period--is what attracts "business acumen" in the first place; it induces risk taking that produces innovation and economic growth."

It's been two decades since a big anti-trust case has been prosecuted by the government, thanks to these shifting opinions amongst lawmakers and the judiciary. And as a result, more than 75 percent of industries have achieved increased concentration, and industries with large increases in concentration now enjoy higher profit margins and high-value merger deals.

Airlines in the US have shrunk to four major carriers, creating a 31.5 percent decline in number of flights at smaller airports between 2007 and 2016; the already high cost of flying to mid and smaller airports has increased; all while airline profits have hit an all-time high. The Cable television industry has managed to merge enough to raise bills from $30-40 to the range of $100-$200, the pharmaceutical industry has shrunk between 2005-2017 from more than sixty firms to ten, while in agriculture, the uncontested merger of Bayer and Montasanto has resulted in a global grip on seed supplies that have seen seed corn rise from $80 to over $300. A single firm dominates much of global beer production since the 2016 merger of Anheuser-Busch InBev and SABMiller (themselves conglomerates that were the result of mergers).

But the biggest coup in monopoly-building has clearly been in tech. Wu reminds us how in the early days of the industry everyone believed the rules didn't apply anymore, that the internet had changed everything forever, but most importantly, it wasn't an industry like any other, and therefore shouldn't be treated as other industries. In those "heady times," Wu writes, "only a malcontent would dare suggest that just maybe, business and economics had not quite been reinvented forever. Or that what was taken to be a new order might, in fact, just be a phase that was destined to come to an end as firms better understood the market and its new technologies."

And so, the Justice Department gave tech companies a pass for decades on mergers and other anticompetitive practices that have resulted in what Wu calls essentially, three giant trusts: Amazon for online shopping, Facebook for social media, and Google for search and related industry. The government rubber-stamped or otherwise looked the other way during 67 acquisitions made by Facebook, 91 acquisitions made by Amazon, and 214 acquisitions made by Google, many of which were completed to eliminate competition from other firms.

In turn, this had lead to deep profits at the big three, and Silicon Valley has benefited from and appreciated the dominant approach to anti-trust governance. Their evangelist Peter Thiel is out there regularly arguing that monopoly "drives progress" and that "competition is for losers." It is why Amazon, Apple, Google and Facebook have armies of lobbyists on Capitol Hill, and spend as much as the defense, banking and auto industries to defend their market power.

Wu argues that we must go back to providing checks on monopoly and limiting the concentration of economic power in private hands if Americans are going to have a say in their political processes and be freed from the "invisible government" of private economic power. We have laws on the books and clear precedent to do so. But, people have to actually understand how monopoly power threatens their way of life and, Wu believes, Constitutional order – and that itself is a bigger challenge we face. Brushing up on this rollicking history via The Curse of Bigness: Antitrust in the New Gilded Age would be a good start.


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