My thoughts on the state of corporate power in the US.

Blair Fix

I recently had a lively [Twitter
debate](https://twitter.com/blair_fix/status/1442175886569181193){target="_blank"
rel="noopener"} with Jonathan Nitzan, Shimshon Bichler and Cory
Doctorow[^1^](#fn1){#fnref1 .footnote-ref} about the future of big
corporations in the United States. The debate was prompted by Doctorow's
piece ['End of the line for
Reaganomics'](https://capitalaspower.com/2021/09/end-of-the-line-for-reaganomics/){target="_blank"
rel="noopener"}, which I reposted on
[capitalaspower.com](https://capitalaspower.com/){target="_blank"
rel="noopener"}.

Doctorow argues that we may be witnessing a sea change in the way
governments treat big corporations. Since the Reagan era, the US
government has taken most of the teeth out of antitrust enforcement. The
reason is not well known. In fact, I'm ashamed to admit that as a
trained political economist, I didn't learn this antitrust history in
grad school. I learned it from Doctorow's blog.

### In Bork we trust {#in-bork-we-trust target="_blank"}

The antitrust story revolves around a judge named [Robert
Bork](https://en.wikipedia.org/wiki/Robert_Bork){target="_blank"
rel="noopener"}, who came up with a way to defang antitrust law by
changing how it was interpreted. His 1978 book [*The Antitrust
Paradox*](https://en.wikipedia.org/wiki/The_Antitrust_Paradox){target="_blank"
rel="noopener"} argued that antitrust law should be interpreted narrowly
in terms of 'consumer welfare'. And 'consumer welfare', in turn, meant
one thing: *low prices*.

To make an antitrust case, Bork argued that you needed to show that the
offending firm had used its monopoly power to raise prices. Moreover,
you needed to demonstrate that government intervention would do more
good than harm. The paradox, according to Bork, was that by interfering
in the 'free market', antitrust prosecution tended to protect
inefficient firms from competition, and so led to higher prices.

From a scientific standpoint, Bork's arguments are a flaming pile of
garbage. But they are fiendishly clever ideology. Once judges were
indoctrinated in the Borkian worldview, it became nearly impossible to
successfully prosecute an antitrust case. The problem is simple: if a
sector is monopolized, you cannot tell what the prices would be if the
sector was *not* monopolized.

Take, for example, big tech companies like Google and Facebook, which
[dominate](https://martech.org/almost-70-of-digital-ad-spending-going-to-google-facebook-amazon-says-analyst-firm/){target="_blank"
rel="noopener"} the market for online advertisements. Do these companies
use their power to set prices? Absolutely. Can we tell what advertising
prices would be in a 'competitive' market? Absolutely not.

Sure, we can speculate about these prices. We can even run models. But
once we start doing that, antitrust law devolves into an obscure
exercise in model building. In other words, it enters the terrain of
neoclassical economics, where absurd assumptions get buried in a wall of
math, and where the outcome can be tweaked to give the results you want.
Whoever can hire the most model-building economists wins. When you play
that game, deep-pocketed corporations are almost always victorious. And
so as Bork's ideas became widespread (in the 1980s), antitrust law all
but died.

Fortunately, Doctorow notes, there are signs that things are changing.
The Biden administration has put [antitrust proponent Lina
Khan](https://www.yalelawjournal.org/pdf/e.710.Khan.805_zuvfyyeh.pdf){target="_blank"
rel="noopener"} in charge of running the FTC. Under her watch, the
government has launched a major antitrust case against Facebook.

That's the good news. The bad news is that the judiciary remains
indoctrinated in the Borkian worldview. In June 2021, justice James E.
Boasberg [threw
out](https://www.nytimes.com/2021/06/28/technology/facebook-ftc-lawsuit.html){target="_blank"
rel="noopener"} the Facebook case, arguing that prosecutors had failed
to provide evidence that Facebook was a monopolist. Channelling Borkian
ideology, Boasberg
[wrote](https://law.justia.com/cases/federal/district-courts/district-of-columbia/dcdce/1:2020cv03590/224921/73/){target="_blank"
rel="noopener"}:

> It is almost as if the agency expects the Court to simply nod to the
> conventional wisdom that Facebook is a monopolist. After all, no one
> who hears the title of the 2010 film "The Social Network" wonders
> which company it is about. Yet, whatever it may mean to the public,
> *'monopoly power' is a term of art under federal law with a precise
> economic meaning*.
>
> ::: {style="text-align:right" target="_blank"}
> (my emphasis)
> :::

What Boasberg actually means is that under federal law, 'monopoly power'
has a precise *ideological* meaning that differs from the common-sense
view held by the public. Hence, what seems like an obvious monopoly to
the average person is, in the eyes of the law, a 'competitive market'.

Legal setbacks aside, Doctorow remains optimistic that antitrust law is
poised to regain its teeth.

### A tight grip on power {#a-tight-grip-on-power target="_blank"}

Alright, that's Doctorow's take. Jonathan Nitzan and Shimshon Bichler
then entered the [Twitter
debate](https://twitter.com/blair_fix/status/1442175886569181193){target="_blank"
rel="noopener"} backed by their own research on corporate power. For
their part, Nitzan and Bichler are less optimistic that the US
government will seriously challenge the power of big corporations.

Here's their reasoning. By several metrics, corporate power has tracked
upwards over the last 70 years. Figure [1](#fig-bn-profit) shows Bichler
and Nitzan's analysis of profit concentration in the United States. The
blue line shows the share of profits earned by the top 100 US
corporations (ranked by market capitalization). The red line shows the
profit share of the top 500 US corporations. Both measures of
concentration have trended upward since data began in 1950.

[]{#fig-bn-profit}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/09/bn_profit_share.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 1: The largest US corporations’ share of
total profit. Source: <a
href="https://rwer.wordpress.com/2021/02/05/dominant-capital-is-much-more-powerful-than-you-think/"
target="_blank" rel="noopener">Bichler and Nitzan</a>.</figcaption>
</figure>

While this trend is worrying, Bichler and Nitzan argue that it actually
understates the growth of corporate power. That's because at the same
time that big corporations have become more profitably, small
corporations have struggled. So relative to the *average* level of
profit, big corporations' grip on power has grown to astonishing levels.

Figure [2](#fig-bn-dif-profit) shows this alternative measure of
corporate power. The blue line compares the average profits of the top
100 US corporation (ranked by market capitalization) to the average
profits of all US corporations. The red line shows the same ratio, but
measures the profits of the top 500 corporations. Both metrics have
increased by more than an order of magnitude since 1950.

[]{#fig-bn-dif-profit}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/09/bn_differential_profit.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 2: Profits of top US corporations relative to
the average profit of all US corporations. Source: <a
href="https://rwer.wordpress.com/2021/02/05/dominant-capital-is-much-more-powerful-than-you-think/"
target="_blank" rel="noopener">Bichler and Nitzan</a>.</figcaption>
</figure>

Looking at this data, Bichler and Nitzan argue that big corporations are
more powerful than ever. So although the Biden administration may talk
about enforcing antitrust law, Bichler and Nitzan think that the
government is unlikely to put a serious dent in the power of dominant
firms.

### Big corporations vs. big government {#big-corporations-vs.-big-government target="_blank"}

Here's where I enter the debate. I am more optimistic than Bichler and
Nitzan that the US government will challenge corporate power. The reason
is that the COVID crisis has forced a drastic change in government
policy. Let's have a look.

What I think is missing from Bichler and Nitzan's analysis is government
itself. Their data shows that when judged against the average company,
top corporations are shockingly powerful. What this data does *not*
show, however, is that big corporations have government under their
thumb. To make the case for the corporate dominance of government, we
need to analyze government behavior.

One option is to look at government policy and determine whether it is
pro-big-business or not. That's a messy job that I'll leave for a later
date.

The other option is to simply measure the size of government and see how
it compares to the size of big corporations. This size gives us a sense
of the tug-of-war between the public and private sector. It's not a
perfect indicator, since government spending can be channelled into
private-sector coffers (that's what the Pentagon does). Still, when the
government spends money, it is using its power to shape society.

With that in mind, I'm going to compare the sales of top US corporations
to the expenditure of the US federal government.[^2^](#fn2){#fnref2
.footnote-ref} Think of this comparison as a measure of corporate power
relative to government power. If big US corporations have government
under their thumb, we expect this metric to increase. And indeed it has.

Figure [3](#fig-gov) shows trend in the United States. I've plotted here
the ratio between the sales of the top 500 US firms (ranked by sales)
and the expenditure of the US federal government. From 1950, corporate
power trended upwards, as indicated by the dashed grey line.

[]{#fig-gov}

<figure class="wp-block-image size-large">
<img
src="https://i0.wp.com/economicsfromthetopdown.com/wp-content/uploads/2021/09/gov_plot_2.png?w=723&amp;ssl=1"
decoding="async" data-recalc-dims="1" />
<figcaption>Figure 3: Sales of the top 500 US corporations
relative to expenditures of the Federal government. I’ve ranked
corporations by sales, and then aggregated the sales of the 500 largest
corporations. Then I divide these sales by US federal expenditures. [<a
href="#sources-and-methods" target="_blank" rel="noopener">Sources and
methods</a>].</figcaption>
</figure>

The steady creep of corporate power (from 1950 to 2019) elicits a
feeling of inevitability. And had 2020 been a 'normal' year, corporate
power might have continued to increase. But 2020 was not a normal year.
It was the year of COVID. While there is little to love about the COVID
pandemic, it did demonstrate something important: *society is the way we
make it*.

It is our collective ethos that determines the balance of power between
big corporations and government. Yes, the ethos can seem inevitable. And
under 'normal' circumstance, it is difficult to change. That's why for
the last half century, big corporations increasingly dominated society,
all the while championing the ethos of ['free
markets'](https://economicsfromthetopdown.com/2021/09/16/the-long-slow-death-of-the-free-market/){target="_blank"
rel="noopener"}. But we should not forget that an ethos can change,
sometimes in a shockingly short time.

And that, I believe, is what we are witnessing in Figure [3](#fig-gov).
In a single year --- 2020 --- the corporate grip on power was reversed
to levels not seen since 1952. We all know what happened. Faced with the
need to keep people home but not have them starve, governments around
the world went on spending sprees so massive that they would make JM
Keynes blush.

While we can debate the effectiveness of this spending, what seems clear
is that it constitutes a cataclysmic shift in our collective ethos. Talk
about free-market competition was suddenly dominated by talk about
social welfare. As David Graeber put it, COVID woke us from a collective
dream:

> \[t\]he crisis we just experienced was waking from a dream, a
> confrontation with the actual reality of human life, which is that we
> are a collection of fragile beings taking care of one another, and
> that those who do the lion's share of this care work that keeps us
> alive are overtaxed, underpaid, and daily humiliated, and that a very
> large proportion of the population don't do anything at all but spin
> fantasies, extract rents, and generally get in the way of those who
> are making, fixing, moving, and transporting things, or tending to the
> needs of other living beings.
>
> ::: {style="text-align:right" target="_blank"}
> ([David Graeber,
> 2021](https://jacobinmag.com/2021/03/david-graeber-posthumous-essay-pandemic){target="_blank"
> rel="noopener"})
> :::

My take, then, is that Doctorow's optimism is justified. Yes, Bichler
and Nitzan are correct that big corporations became increasingly
powerful over the last half century --- a period during which the public
sector was beaten into submission by private power. And until 2020, the
growth of corporate power looked inevitable. But it was not. The last
year has shown that society is what we make it. If we want pro-social
spending that shirks the doctrine of free markets, we can have it.

The last year has been surreal in so many ways. Stock markets [are
up](https://economicsfromthetopdown.com/2020/09/04/stocks-are-up-wages-are-down-what-does-it-mean/){target="_blank"
rel="noopener"}. Unemployment reached
[levels](https://fred.stlouisfed.org/series/UNRATE/){target="_blank"
rel="noopener"} not seen since the Great Depression. And yet the poverty
rate [actually
fell](https://www.nytimes.com/2021/09/14/business/economy/census-income-poverty-health-insurance.html){target="_blank"
rel="noopener"}. That's the funny thing about giving people money. It
makes them unpoor.

Moreover, widespread eviction moratoriums relieved the burden of paying
rent. By so doing, they laid bare the facts of property rights. There is
no 'natural law' that says landlords should earn money from their
property. No, that stems from the human-made law of property rights. And
guess what ... if the government stops enforcing that law, property
income vanishes.

Whether all the changes that COVID has wrought will last is anyone's
guess. And whether these changes will translate into robust antitrust
policy is unknown. But I prefer to remain hopeful that pro-social change
is possible.

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### Sources and methods {#sources-and-methods target="_blank"}

For details about Bichler and Nitzan's analysis, see their research
note: ['Dominant capital is much more powerful than you
think'](https://rwer.wordpress.com/2021/02/05/dominant-capital-is-much-more-powerful-than-you-think/){target="_blank"
rel="noopener"}.

Data for the sales of top US corporations is from COMPUSTAT, series
`SALES`. I rank firms by sales, and then sum the gross income of the top
500 firms. Data for US federal government expenditures comes from FRED
series `FGEXPND`.

### Notes {#notes target="_blank"}

::: {.footnotes target="_blank"}
1. [Doctorow is a science fiction author by trade, but he's also a
 prolific blogger who writes about the perils of big tech, monopoly,
 and the abuses of property rights. (Check out his blog
 [Pluralistic](https://pluralistic.net/){target="_blank"
 rel="noopener"}). I'm an avid reader of Doctorow's work, and find
 that he often writes more insightful commentary about modern
 capitalism than do trained economists. The reason is painfully
 obvious to heretics like me: Doctorow hasn't been brainwashed by the
 economics profession, so he retains his critical
 faculties.[↩](#fnref1){.footnote-back}]{#fn1}
2. [A note on my analysis of corporate-vs-government power. On the
 corporate side, I use sales (not profit) to measure firm size
 because there is no equivalent of profit in the public sector. And
 on the government size, I use expenditures (rather than tax revenue)
 because tax revenue is only part of the government's 'income'. The
 federal government can also create its own income by printing money.
 So total expenditures tells us about both taxation and money
 creation.[↩](#fnref2){.footnote-back}]{#fn2}
:::

I recently had a lively Twitter debate with Jonathan Nitzan, Shimshon Bichler and Cory Doctorow

 1

about the future of big corporations in the United States. The debate was prompted by Doctorow’s piece ‘End of the line for Reaganomics’, which I reposted on capitalaspower.com. Doctorow argues that we may be witnessing a sea change in the way governments treat big corporations.

Messaggi di Rogue Scholar

How Dominant are Big US Corporations?