Jonathan Tepper and Denise Hearn argue in their new book that economic equality is more than a noble ideal—it’s essential if capitalism is to thrive.
In The Myth of Capitalism: Monopolies and the Death of Competition the authors maintain that “Capitalism has been the greatest system in history to lift people out of poverty and create wealth but the ‘capitalism’ we see today in the United States is a far cry from the competitive markets; it is a grotesque, deformed version of capitalism.’’
As they see it, the culprits in today’s highly concentrated version of capitalism are industries dominated by companies swollen from M&As—including airlines, banks, health-care providers and food and beer distributors to the Silicon Valley tech giants who control search advertising, e-commerce and social media—and government, which fails to enforce anti-trust laws or pass competitive new patents, and is larded with staffers who toggle back and forth from lobbying for industry to regulating industry.
In each of these industries, a small number of companies control the marketplace. The writers provide alarming statistics about how concentration brings enormous power to a few.
“The top technology companies in the United States have a market capitalization ($4 trillion) that exceeds the gross domestic product of Germany, France or Italy,’’ they write.
This concentration of industries creates “the toll road’’ over citizens’ lives, they say.
“Competition matters because it prevents unjust inequality, rather than the transfer of wealth from consumer or supplier to the monopolist. If there is no competition, consumers and workers have less freedom to choose. Competition creates more choices, more innovation, economic development and growth, and a stronger democracy by dispersing economic power. It promotes individual initiative and freedom.’’
When growing companies seek “efficiencies’’ from a merger, said Tepper and Hearn, they cut staff and lower wages. The authors explain how “less competition has led to lower wages, fewer jobs and fewer startups. Going from a very competitive to a highly concentrated job market is associated with a 15 to 25 percent decline in wages.’’
Lower wages and fewer jobs lead to less investing among the middle class: about 46 percent of Americans do not own stocks, up from 38 percent in 2008. The wealthiest 1 percent own nearly 50 percent of stock and the top 10 percent earners own more than 81 percent. The middle class owns 8 percent.
Of particular interest to advisors is the statistic that more than half of public companies have “disappeared over the last 20 years,’’ and that between 1996 and 2016 “the number of stocks in the United States fell by roughly 50 percent. It is not lower growth or the global financial crisis that caused fewer IPOs. The collapse is happening where industries are becoming more concentrated.’’
The authors show a link between fewer anti-trust filings during an era of heavy mergers and acquisitions. They say the current Gilded Age of M&As is greater in volume than the M&A mania of the early 20th century. Anti-trust filings fell from 15.7 cases per year between 1970-1999 to fewer than three per year from 2000-20014; in the last year recorded, 2014, no anti-trust cases were filed.