Monopoly’s Role in Inequality

For several years I’ve been dipping into the subject of rising inequality, usually in book reviews like this one of Hacker and Pierson’s Winner-Take-All Politics. But all along a mystery has been nagging at me, and I think I’m finally getting to the bottom of it.

Inequality. The basic story is simple: Inequality in the United States has risen dramatically since the mid-70s. And the effect gets more extreme the farther out you go. It isn’t just that the top 10% is pulling away from the bottom 90%. The top .01% is pulling away from the top .1% even faster. The multi-billionaires are pulling away from the mere billionaires. (If you want graphs and numbers, look here.)

Obviously you can’t account for all that with education or competition from China. Maybe those factors explain why unskilled workers are having such a tough time, but they say little about the millionaire/billionaire divergence. Ditto for tax rates. Sure, the rich pay a much lower tax rate than they used to, but the explosive growth in their net worth is much bigger than tax rates can account for, and the mega-rich don’t get a significantly better tax deal than the ordinary rich. (Plus, tax cuts start with Reagan in 1982, not the mid-70s.)

Clearly something has happened to the structure of the market, but I couldn’t figure out exactly what.

Monopoly. Barry Lynn’s book Cornered: The New Monopoly Capitalism and the Economics of Destruction looks like the puzzle piece I was missing. Lynn claims our economy is now full of monopolies and near-monopolies — businesses big enough to dictate terms to their customers and/or suppliers.

In the mid-20th-century industrial economy, you got mega-rich by imitating Henry Ford: You figured out how to make things people wanted for a price they wanted to pay. Now you get mega-rich by building choke-points between producers and consumers.

WalMart exemplifies the current paradigm. WalMart makes nothing, but it is big enough to dictate how its suppliers will make things and what prices they can charge. In many of its rural markets, WalMart also dictates what people can buy. If your product isn’t on WalMart’s shelves, it’s not for sale. (WalMart also drives consolidation elsewhere in the economy, which produces big fees for Wall Street. For example, Procter & Gamble bought Gillette largely to improve its negotiating position with WalMart. In slightly different ways, Amazon and Google are trying to duplicate the WalMart model in the online economy. If your book isn’t on Amazon, it’s not for sale.)

Many near-monopolies are less visible than WalMart or Amazon. Lynn begins his book with the story of a pet-food recall, which suddenly made it obvious that many “competing” brands of pet food were actually all packed in the same factory. And Ford lobbied for the government bailout of “competitors” GM and Chrysler because it feared their common suppliers would go bankrupt. Many markets, Lynn says, are hydras: The countless brands on the shelves are just heads that spring from a common body.

The ends against the middle. Reading Lynn, I’m getting a clearer vision of how markets work. The purest form of market is what you can see at any big farmer’s market: Lots of consumers dealing directly with lots of producers. It’s rare that anybody gets really rich from these interactions, but many small producers have a chance to make a living and become independent.

Obviously the global economy has to be more complicated than that. But markets are created by rules, and the rules can be structured to favor either the ends (producers and consumers) or the middle. Producers and consumers benefit from transparent markets, where the rules force middlemen to treat everyone more-or-less the same.

But markets can also be structured to give middlemen as much freedom as possible. The most profitable way to use that freedom is to create choke-points where a toll can be extracted or one producer can be played off against another. In an opaque market, the way to get rich is not to produce things, but to build middleman power that allows you to dictate terms up and down the supply chain. (I don’t have space to go into it here, but keeping the internet transparent is what net neutrality is about, and why Comcast doesn’t like it.)

In a nutshell, what has happened since the mid-70s is that deregulation of old markets and under-regulation of new markets has made our economy more opaque. The people in the best position to take advantage of this are the very rich. Meanwhile, workers and small businessmen — the middle-class people who actually make stuff and deliver services — lose out. In the short term consumers may win or lose, depending on whether the middlemen’s advantage is in raising or lowering prices. But in the long run consumers lose options, power, and quality.

The most interesting thing politically is how the rhetoric of freedom works. Freedom for the middleman leads to domination of producers and consumers. “Freedom” seldom works out to mean more options for everybody.

One worked-out example. If you’ve watched much cable or satellite TV lately, you probably saw Viacom’s ads against DirectTV, like this one.

If you’re a DirectTV subscriber, Comedy Central (and other Viacom channels) went dark for nine days before the two corporations resolved their dispute, so you had to do without The Daily Show or watch it online.

Here’s the point: Maybe you couldn’t watch Jon Stewart for a week, but the problem had nothing to do with either you or Jon Stewart. He wasn’t asking for a raise; you weren’t balking at the price of watching the Daily Show. But both you and Jon were irrelevant when two giant middlemen had a power struggle.

Each brought a lot of power to the struggle. In most of its markets, DirectTV is the only alternative to the local cable monopoly, while Viacom is one of a handful of megacorps that dominate TV content. (Disney, Time Warner, NBCUniversal, NewsCorp, and CBS are the others. National Amusements owns a big chunk of both Viacom and CBS. Comcast plays both sides of the street, being both a cable monopoly and a partner with GE in NBCUniversal.)

Viacom thought it had the upper hand, so it was demanding a bigger payout from DirectTV and insisting DirectTV carry its new Epix channel. I haven’t sorted out yet who won.

These middlemen outweigh both you and Jon Stewart. If Jon doesn’t work for one of the six big media companies, he can’t reach a major audience. If you don’t deal with either DirectTV or a cable monopoly, your TV choices shrink considerably.

Transparent markets. But it’s not hard to imagine a TV system that works differently: Cable or satellite systems could be common carriers, making a fixed amount whenever they connect a TV producer with a TV consumer. Cable and satellite would still compete, but only by changing that fixed amount or by offering more reliable service to the consumer.

With that kind of middleman transparency, small TV companies could spring up and get their shows seen, so Jon Stewart would have a lot more than six choices. You and Jon would have more power, Viacom and DirectTV less.

Even more interesting is what happens to the profit motive: The way to make money in this transparent system is to create shows people want to watch and deliver them reliably. Wheeling and dealing to amass middleman power wouldn’t accomplish much.

Government regulation would probably be necessary to bring this system about, but it would still be capitalism. The marketplace would just be structured differently, so that the benefits and opportunities of capitalism would accrue to producers and consumers rather than to financiers and empire-builders.

Probably this restructured marketplace would lead to more small companies and fewer megacorps, more millionaires and fewer billionaires.

Picture the same transparent-market principle spreading across the economy: More small businesses, more places to look for jobs, greater variety of products, and more opportunity to go into business for yourself. Less inequality.

Post a comment or leave a trackback: Trackback URL.


  • Kim Cooper  On August 4, 2012 at 12:39 am

    Doug — Have you read “Occupy the Economy” by Richard Wolff? You should read it. It’s short, and full of good stuff.

  • Eric  On October 16, 2012 at 1:19 am

    On a quick note you site: “Cornered: The New Monopoly Capitalism and the Economics of Destruction looks like the puzzle piece I was missing”

    That book from what I understand did a fairly good job of showing businesses lobbying government which is not free market capitalism. You can only compete on price and quality not government created barriers.

    “businesses big enough to dictate terms to their customers and/or suppliers.”

    It’s very difficult to become a BIG business without government intervene but with the invention of corporate structure which was used to dodge liability in flurry of paper work, it became all but certain.


  • By What Free Market? « The Weekly Sift on July 30, 2012 at 2:09 pm

    […] Monopoly’s role in inequality. In my previous discussions of rising inequality, I’ve always felt like a piece of the puzzle was missing. I think I found it. […]

  • By If They Win « The Weekly Sift on August 13, 2012 at 12:18 pm

    […] Two weeks ago I talked about how transparent markets help producers and consumers, while opaque markets favor middlemen who can build near monopolies. […]

  • By Take a Left at the Market « The Weekly Sift on October 22, 2012 at 8:18 am

    […] has come to mean primarily freedom for owners. And owners left to their own devices will combine into cartels and monopolies that restrict access to the means of production. They’ll insist on low taxes that starve education and other government efforts to keep […]

  • By The Sifted Books of 2012 « The Weekly Sift on December 31, 2012 at 6:32 am

    […] Economics: Cornered by Barry Lynn, End This Depression Now by Paul Krugman […]

  • By Right to Continue « The Weekly Sift on February 18, 2013 at 11:12 am

    […] Farmers are controlled on one side by seed corporations, who are closing off all other ways to get seeds. On the other side, the market for farm crops is controlled by big suppliers who serve big retailers like WalMart and McDonalds. They impose their standards on the farmers, who have no alternative buyers. This is a detailed example of the general monopsony problem described in Barry Lynn’s Cornered. […]

  • […] So now we have a situation where the median household income is declining (down 6.6% since 2000), monopolies and monopsonies are increasing, and almost all the growth in the economy is being captured by the very […]

  • By Basic Rights | The Weekly Sift on December 9, 2013 at 1:20 pm

    […] I wish he would say more about one structural cause of the problem: lax enforcement of antitrust laws and the resulting monopolistic bottlenecks in the economy, which I talked about here. […]

  • By Déjà vu | The Weekly Sift on February 17, 2014 at 1:22 pm

    […] bulk it can throw between producers and consumers. I talked about this phenomenon in 2012 in “Monopoly’s Role in Inequality“. In that piece I argued for transparent markets that would make common carriers out of […]

  • By History Lesson | The Weekly Sift on April 28, 2014 at 12:29 pm

    […] The overall problem here is the one I talked about in my review of Barry Lynn’s “Cornered”. […]

  • By Owning and Disowning | The Weekly Sift on May 26, 2014 at 11:53 am

    […] illustration of what the book Cornered was about: Even when monopolistic power isn’t being used to raise consumer prices, it’s […]

  • By Belief and Reality | The Weekly Sift on July 7, 2014 at 1:00 pm

    […] an amazing conversation between Thomas Frank (What’s the Matter With Kansas?) and Barry Lynn (Cornered) about the hidden monopolization of our economy, what it has to do with inequality, how it […]

  • By The Case For Voting Democrat | The Weekly Sift on November 3, 2014 at 9:16 am

    […] for Social Security and Medicare, made it all but impossible to start a new union, drastically limited the enforcement of antitrust laws, and made students pay for more and more of the cost of a college education. The results have been […]

  • By So Much That Ain’t So | The Weekly Sift on November 17, 2014 at 11:05 am

    […] or by getting control of a choke-point where you can charge a big toll? (I described that choice here two years ago.) Comcast and Verizon are building a big toll gate that will prosper at the expense […]

  • By Different Races, Different Rules | The Weekly Sift on January 5, 2015 at 11:32 am

    […] the least productive way to get rich is to increase your power over some part of the market, which will raise the price of your stock at the expense of your customers, workers, and the […]

  • […] government. Liberals blame the effects of the Reagan Revolution: By lowering taxes on the wealthy, freeing corporations from anti-trust regulations, and making it nearly impossible for workers to unionize — policies that Clinton and Obama […]

  • By Buying and Owning | The Weekly Sift on May 25, 2015 at 10:52 am

    […] market. They want the 600-acre farmer to blame government regulations for his problems, and not the monopolistic power of the Monsantos who supply him or the Cargills he has to sell […]

  • […] The result has been a completely reshuffled economy, which I first started discussing in a 2012 post “Monopoly’s Role in Inequality“. […]

  • By Complicity | The Weekly Sift on September 10, 2018 at 11:30 am

    […] monopsony-dominated economy is not a good place to achieve economic equality. Starting your own small business has traditionally been a way to get ahead in America. But if […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: