Democrats have a new message for American workers: Giant corporations are holding back the economy by cutting back on investment and hiring, and the party is going to put a stop to it.
The pitch for stricter enforcement of antitrust laws — preventing firms from getting too big and penalizing or dissolving those that are using their size to shut out rivals — is full of lines that will come naturally to Democratic candidates on the stump. Free competition is a basic principle of American capitalism that could appeal to small business and independent voters, while a forceful attack on corporations, a familiar villain, might animate the party’s base.
And the message is part of a broader economic agenda Democrats are announcing Monday as they lay out a campaign platform for next year’s midterm elections.
But while U.S. corporations are undoubtedly getting bigger and more powerful, there is no consensus among economists about how this trend is affecting ordinary households, and no clear answer to whether breaking them up would relieve the economic frustration that contributed to President Trump’s victory in November.
For about a century, federal regulators have worked to prevent large firms from gaining too much power. When only a few firms control one industry, they can behave like monopolies, which cut down production to drive up prices. Not only do consumers pay more, but as the pace slows down in offices and factories, workers have more trouble finding jobs.
This strategy does not succeed when firms have more competition, because their rivals will simply offer more of the same product at a reduced price.
Recently, though, more corporations have been consolidating their control over more sectors of the economy, and critics have argued that regulators have been looking the other way. Under the Democratic proposal, regulators would enforce broader and stricter standards for companies seeking mergers that could reduce competition in their industry.
For the biggest deals, the merging corporations’ lawyers would have to persuade a judge that merging would be beneficial. Democrats also propose establishing a new federal watchdog to report on large firms that are using their size to keep competitors out of the market.
Those reports would be referred to regulators at the Federal Trade Commission and the Department of Justice. The white paper identifies beer, food, cable, airlines and eyeglasses as products that might have become more expensive for ordinary consumers because the industries are controlled by a few big firms.
Economists have assembled compelling evidence that mergers in particular industries have caused prices to rise. In 2008, for example, the companies that brew Miller Lite and Coors Lite in the United States merged, and prices promptly soared from around $9.75 to around $10.40 for a 12-pack, economists found. Meanwhile, other popular beers, such as Corona Extra and Heineken, became cheaper.
Other studies have reached similar conclusions in sectors outside of beer — gasoline, dishwashers and more. Reviewing the evidence overall, John Kwoka, an economist at Northeastern University, has argued that regulators have been too lenient, failing to protect consumers from exploitation by major firms.
Based on these case-by-case studies of particular firms, industries and products, it is difficult to say whether a lack of competition is a serious issue for the economy overall, and there is not much research yet on how corporate consolidation has affected consumers and workers in general.
Dean Baker, an economist and a founder of the liberal Center for Economic and Policy Research, pointed out that preventing monopolies from forming — that is, antitrust enforcement — is a “classic populist theme,” one that animated the American left a century ago. Yet he argued that today, the economy has different problems, such as the inequality created by the financial sector.
“I think antitrust is part of the story, but not the major part,” Baker said in an interview with The Washington Post earlier this year.
For decades, the consensus among economists has favored a laissez-faire approach to corporate concentration. In the past few years, however, consolidation has reached historically high levels, and some researchers have begun to worry.
Just last week, the National Bureau of Economic Research published a study by a pair of economists at New York University who argued that declining competition had allowed corporations to invest less in plants, equipment and research. When corporations have fewer competitors, looking for ways to operate more efficiently or producing goods and services of better quality might not be worth the effort.
And when corporations have less competition, they can make more money by selling fewer products at higher prices. They can invest less in their facilities as a result.
Lackluster corporate investment is an important reason that economic expansion has been frustratingly slow for years. When corporations spend less, their suppliers can hire fewer people as well. A lack of competition “explains a big chunk of why investment is low in the U.S. today,” Thomas Philippon, one of the authors of the new paper, told The Washington Post.
“It’s not just investment in plant and equipment. It hangs over all forms of expansion in businesses,” said Robert Hall, an economist at Stanford University. “Hiring workers is subject to the same drag.”
The issue is still under investigation, but Hall pointed out that with fewer and fewer firms in charge of American industries, the models that experts have long relied on for understanding and making predictions about the U.S. economy need another look. “The formulas we used to rely on that basically assumed competition are more and more suspect,” he said.
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