Not surprisingly, in less than fifteen years, most of America’s commodity crop farmers have become dependent on Monsanto. The result has been higher prices far beyond the cost-of-living rise. Since 2001, Monsanto has more than doubled the price of corn and soybean seeds. The average cost of planting one acre of soybeans increased 325 percent between 1994 and 2011, and the price of corn seed rose 259 percent. Another result has been a radical decline in the genetic diversity of the seeds we depend on. This increases the risk that disease or climate change might wipe out entire crops for years, if not forever. A third consequence has been the ubiquity of genetically modified traits in our food chain.
At every stage, Monsanto’s growing economic power has enhanced its political power to shift the rules to its advantage, thereby adding to its economic power. Beginning with the Plant Variety Protection Act of 1970, and extending through a series of court cases, Monsanto has gained increased protection of its intellectual property in genetically engineered seeds. It has successfully fought off numerous attempts in Congress and in several states to require labeling of genetically engineered foods or to protect biodiversity. It has used its political muscle in Washington to fight moves in other nations to ban genetically engineered seed.
To enforce and ensure dominance, the company has employed a phalanx of lawyers. They’ve sued other companies for patent infringement and sued farmers who want to save seed for replanting. Monsanto’s lawyers have also prevented independent scientists from studying its seeds, arguing that such inquiries infringe the company’s patents. You might think Monsanto’s overwhelming market power would make it a target of antitrust enforcement. Think again. In 2012, it succeeded in putting an end to a two-year investigation by the antitrust division of the Justice Department into Monsanto’s dominance of the seed industry.
Monsanto has the distinction of spending more on lobbying—nearly $7 million in 2013 alone—than any other big agribusiness. And Monsanto’s former (and future) employees frequently inhabit top posts at the Food and Drug Administration and the Agriculture Department, they staff congressional committees that deal with agriculture policy, and they become advisors to congressional leaders and at the White House. Two Monsanto lobbyists are former congressman Vic Fazio and former senator Blanche Lincoln. Even Supreme Court justice Clarence Thomas was at one time an attorney for Monsanto. Monsanto, like any new monopoly, has strategically used its economic power to gain political power and used its political power to entrench its market power.
It’s useful to view the strategy of the new monopolists as integrating economic and political dominance. They acquire key patents and then spend vast sums protecting them and charging others with patent infringement. In addition, they use mandatory licensing agreements to require potential competitors to use whole lines of their products and prevent customers from using competing products, thereby creating de facto industry standards. Favorable court rulings, advantageous laws, and administrative decisions to forgo antitrust lawsuits or bring them against competitors extend these de facto standards to entire sectors of the economy.
Monsanto’s genetically engineered seeds offer one example, but other examples abound in high tech, where a handful of companies—Google, Apple, Facebook, Twitter, Amazon, and Alibaba—are busily creating patented systems that are becoming worldwide standards and network platforms. The more people use the standard or platform, the more useful it becomes. When enough people adopt it, others have no choice but to adopt it as well.
For example, if you want Apple’s increasingly popular iPhone or other hardware, you have to accept its software. Although other developers can run their apps on Apple devices, Apple’s own software often runs more smoothly. Google’s Chrome browser doesn’t work as fast on Apple hardware as does Apple’s own free browser, Safari. And Safari is the only browser that functions as a default on Apple hardware. That’s because Apple doesn’t give other software developers access to the accelerated Nitro JavaScript engine that runs its software. Apple says it wants to ensure consumers a seamless experience, so its software is perfectly integrated with its hardware. More likely, Apple wants full control so that its software becomes as much of a standard for consumers as its iPhone and other hardware.
Will the federal government sue Apple for violating antitrust law, as it did in the 1990s when it accused Microsoft of illegally bundling its popular Windows operating system with its Internet Explorer browser in order to create the de facto industry standard? (Microsoft settled the case by agreeing to share its application programming interfaces with other companies.) That seems unlikely. Technically, Apple does allow other companies’ software to run on its hardware. But just in case, Apple has a formidable team of lawyers ready to spend whatever it takes to prevail in such a lawsuit. And it is no accident that Apple—along with Google, Facebook, Microsoft, and Amazon—maintains a platoon of lobbyists in Washington. (In 2013, Apple spent $3,370,000 on lobbying; Amazon, $3,456,000; Facebook, $6,430,000; Microsoft, $10,490,000; and Google, $15,800,000, according to the Center for Responsive Politics. By 2014 Google had become the largest corporate lobbyist in the United States.)
In 2012, the staff of the Federal Trade Commission’s Bureau of Competition submitted to the commissioners a 160-page analysis of Google’s dominance of the search market, and recommended suing Google for “conduct that will result in real harm to customers and to innovation.” It is unusual for the commissioners not to accept staff recommendations, but in this instance they decided against suing Google. They did not explain why, but a plausible explanation is Google’s increasing political clout. By contrast, Europe’s antitrust regulator filed charges against Google in 2015.
Whether it is Apple’s mobile hardware and related software, Google’s search engine and content, Twitter’s tweets, Facebook’s connections, Amazon’s shopping platform, or Alibaba’s shopping exchange, huge revenues come from owning a standard platform. To be sure, such platforms can sometimes make it easier for innovators to introduce their apps or books or videos or whatever other content they want to showcase. But the real power and profits lie with the owners of the platform rather than with the innovators who make use of it. And as that power and those profits increase, the innovators who depend on it have less and less bargaining leverage to negotiate good prices for their contributions. Since it costs almost nothing to sell more units, these new monopolists can keep out (or buy out) potential competitors and gain almost complete control—along with the profits and the legal and political leverage control brings.
A handful of giant corporations are reaping the rewards of such network effects. The larger their networks become, the more data they collect, and therefore the more effective and powerful they become. Consumers may be satisfied with the results, but they will never know what innovations have been squelched or stymied, how much more they are paying than they would otherwise, and how the rules of the game are being changed to the advantage of the owners of the standard platforms.
By 2014, for example, Google and Facebook were the first stops for most Americans seeking news, while Internet traffic to many of the nation’s preeminent news organizations—national newspapers, network television, news-gathering agencies—had fallen well below 50 percent. The newer the media company, such as BuzzFeed, the more likely it was to rely on Google’s or Facebook’s platforms to attract viewers or readers. All this has given Google and Facebook unprecedented economic and political power over these critical networks. Meanwhile, rather astoundingly, Amazon has become the first stop for almost a third of all American consumers looking to buy anything. Despite an explosion in the number of websites over the last decade, page views have become far more concentrated. While in 2001, the top ten websites accounted for 31 percent of all page views in America, by 2010 the top ten accounted for 75 percent. Talk about power.
In 2014, Amazon, already accounting for half of all book sales in the United States, delayed or stopped delivering books published by Hachette, the nation’s fourth-larg
est publisher, because it wanted better terms from Hachette (purportedly 50 percent of revenues from sales of e-books rather than 30 percent). Amazon said this was only fair: It accounted for 60 percent of Hachette’s e-book sales in the United States, and Hachette was making more money on digital sales than on its sales of physical books, so why shouldn’t Amazon have its due? Yet Amazon had so much power over the book publishing industry that it could take a loss on each book it sold in order to gain further market share for its Kindle e-reader, introduced in 2007. With a large enough share of the publishing market, it could then dictate its own terms—as it was seeking to do with Hachette. Amazon eventually agreed that Hachette could set its own prices for e-books, but Amazon showed the industry it was not reluctant to use its power if publishers failed to cooperate. Large retailers including Borders were already gone, Barnes & Noble was perilously weak, and thousands of smaller bookstores had closed. Amazon was also publishing books itself. How long would it be before Amazon put publishers out of business, too? How many years before it replaced books with downloads from a gigantic digital library in the cloud? How long, in other words, before Amazon had so much power that it was able to abuse it?
Undoubtedly, Amazon allows consumers to save money and enjoy the convenience of online shopping. And its platform allows more authors to market their books directly to readers. But by contributing to the demise of booksellers and possibly publishers as well, Amazon has enhanced its economic power relative to every other actor, including authors. If authors don’t agree to the price Amazon dictates, they may have few if any other avenues for getting their works to potential readers. In this way, Amazon may end up limiting the marketplace of ideas, just as Google and Facebook have chokeholds on the news—analogous to the way Monsanto’s seeds have reduced biodiversity in our food supply.
Moreover, as Amazon’s economic power increases, so does its political clout. Decisions have to be made about how the market is organized, and Amazon has excelled at using its power to shape the rules. In 2012 Amazon quietly pushed the Justice Department to sue five major publishers and Apple for illegally colluding to raise the price of e-books, yet in 2014 the department didn’t question Amazon’s tactics for squeezing better terms from publishers. (Perhaps it was pure coincidence, but in September 2014, as The New York Times’s Bits blog pointed out, Amazon was treating two Hachette books quite differently, shipping Daniel Schulman’s Sons of Wichita, a profile of the Koch brothers, over a two- to three-week interval but promising to get Republican House Budget Committee chair Paul Ryan’s The Way Forward into readers’ hands in just two days.) Other nations have laws protecting their bookstores and publishers. In France, for example, no seller can offer more than 5 percent off the cover price of new books, with the result that books cost about the same wherever you buy them in France, even online. The French government classifies books as an “essential good,” along with electricity, bread, and water.
But America is hurtling toward a very different kind of market, shaped by Amazon. The firm’s annual lobbying expenditures have grown from $1.3 million in 2008 to $2.5 million in 2012 and $4 million in 2014. In 2013, the firm beefed up its presence in Washington still further when its CEO, Jeff Bezos, purchased the venerable Washington Post.
Unlike the old monopolists, who controlled production, the new monopolists control networks. Antitrust laws often busted up the old monopolists. But the new monopolists have enough influence to keep antitrust at bay.
By 2014, Wall Street’s five largest banks held about 45 percent of America’s banking assets, up from about 25 percent in 2000. They held a virtual lock on taking companies public, played key roles in the pricing of commodities, were involved in all major U.S. mergers and acquisitions and many overseas, and were responsible for most of the trading in derivatives and other complex financial instruments. Wall Street’s biggest banks offered the largest financial rewards and fattest bonuses, attracted the most talent, oversaw the biggest pools of money, and effectively controlled the fastest-growing sector of the entire U.S. economy. Between 1980 and 2014, the financial sector grew six times as fast as the economy overall.
Here again, economic prowess and political power feed on each other. As the big banks have gained dominance over the financial sector, they’ve become more politically potent. They are major sources of campaign funds for both Republican and Democratic candidates. In the 2008 presidential campaign, the financial sector ranked fourth among all industry groups giving to then-candidate Barack Obama and the Democratic National Committee, according to the nonpartisan Center for Responsive Politics. Obama reaped far more in contributions—roughly $16.6 million—from Wall Street than did his Republican opponent, John McCain, at $9.3 million. The employees of Goldman Sachs were Obama’s leading source of campaign donations from a single corporate workforce. In the presidential campaign of 2012, Wall Street’s contributions went mainly to Mitt Romney.
Wall Street also supplies personnel for key economic posts in Republican and Democratic administrations and provides lucrative employment to economic officials when they leave Washington. The Treasury secretaries under Bill Clinton and George W. Bush, Robert Rubin and Henry Paulson, Jr., respectively, had each chaired Goldman Sachs before coming to Washington, and Rubin returned to the Street thereafter. Before becoming Barack Obama’s secretary of the Treasury during the Wall Street bailout, Timothy Geithner had been handpicked by Rubin to be president of the Federal Reserve Bank of New York; when Geithner left the Obama administration he returned to the Street. Former Republican House majority leader Eric Cantor was for many years one of the Street’s strongest advocates in Congress. As a member of the House Financial Services Committee charged with overseeing Wall Street, he fought for the bailout of the Street, to retain the Street’s tax advantages and subsidies, and to water down the Dodd-Frank financial reform legislation. In September 2014, just two weeks after resigning from the House, Cantor joined the Wall Street investment bank of Moelis & Company, as vice chairman and managing director, starting with a $400,000 base salary, $400,000 initial cash bonus, and $1 million in stock. Cantor would run the firm’s Washington office, presumably opening doors and keeping the congressional largesse flowing. Cantor explained, “I have known Ken [the bank’s CEO] for some time and followed the growth and success of his firm.” Exactly. They had been doing business together for years. The well-worn path from Washington to Wall Street had rarely been as clear, nor the entrenched culture of mutual behind-kissing as transparent.
In the decades leading up to the near financial meltdown of 2008, the biggest banks had already grown much larger and more profitable by persuading Congress and presidential administrations to dismantle many of the laws and rules that had been enacted in the wake of the Great Crash of 1929 to prevent big banks from making excessively risky bets. Then, after their risky behavior precipitated the crash of 2008 and they were bailed out by American taxpayers, they became even larger and more powerful—with so much clout they could water down new rules intended to prevent further crises.
Along the way, Wall Street’s major players have cooperated and colluded to enlarge their profits. In 2014, for example, three leading private-equity firms—Kohlberg Kravis Roberts, the Blackstone Group, and TPG—agreed to pay the government a combined $325 million to settle accusations that they colluded to drive down the price of corporate takeover targets. Evidence showed that when Blackstone had its eye on a company, Hamilton E. James, its president, wrote to George Roberts of KKR, “We would much rather work with you guys than against you. Together we can be unstoppable but in opposition we can cost each other a lot of money.” Roberts responded, “Agreed.”
For an example of collusion on a grander scale, consider the so-called Libor scandal, which at this writing continues to be investigated. Libor (short for “London interbank offered rate”) is the benchmark interest rate for trillions of dollars of loans worldwide—compiled by averaging the rates at which the major banks say they borrow. Evidence shows that ban
kers have manipulated Libor, enabling them to place bets in the global financial casino armed with inside information on what the market is really predicting. The scandal initially focused on one bank headquartered in Britain, Barclays, but Barclays couldn’t have rigged Libor alone. In fact, Barclays’s defense is that every major bank has fixed Libor in the same way, and for the same reason.
Wall Street’s new monopolists rig financial markets for their own benefit. And again, the rest of us pick up the tab.
The health care sector accounts for nearly a fifth of the U.S. economy, and here we see a similar pattern. Even before the Affordable Care Act was on the drawing board, health insurers, hospitals, and hospital systems were already merging into larger and larger entities. Insurers had long nurtured strong political ties. In 1945, they wangled from Congress an exemption to the antitrust laws—allowing them to fix prices, allocate markets, and collude over the terms of coverage—on the assumption that they’d be regulated by state insurance commissioners. But by the 1980s they had outgrown state regulation; they were consolidating into a few large national firms, operating across many different states. That gave them even more clout in Washington.
Saving Capitalism Page 5
