Checks and balances
The U.S. political system tends to be seen as one of checks and balances, with tensions and competing power centers among various branches of government as well as between federal, state and local officials. And for most of the 20th century, there has also been the same sort of balance in the business world as well, with political power and influence split between national and regional companies.
In other words, in many industries government policies such as Glass-Steagall Act of 1933 and the Communications Act of 1934 helped ensure a balance between large national companies and smaller ones that operated at a regional or state level.
For example, Glass-Steagall reformed the financial industry to limit the number of nationally chartered investment and commercial banks that could sell their products anywhere, and forbade them from lines of business reserved for savings and loans. State-chartered savings and loan institutions, meanwhile, were restricted in where they could do business.
Similarly, the government licensed television and radio stations to operate in specific localities. National networks could own only a limited number of stations and broadcast only at certain hours, leaving most of the day for locally produced shows.
As a consequence of this national-regional split, local companies had more influence over their state senators and representatives, both through the financial largess of their owners and the electoral power of their employees. Thus the influence of America’s elite on U.S. politics was more spread out, and regionally focused businesses were able to limit the reach of large national companies. This prevented a few giant corporations from controlling government policy and markets.
But that balance depended on vigorous antitrust enforcement.
Part of the problem is that regulators tend to judge mergers on whether they raise prices and reduce choice for consumers. This vague standard leaves a lot of wiggle room for the Justice Department’s antitrust division and the political appointees who supervise the career of government lawyers.
Enforcement from Franklin Delano Roosevelt through Lyndon B. Johnson was strict enough to prevent the emergence of oligopolies or single industry-dominating firms. The policy changed abruptly in 1969, when the Nixon administration became more tolerant of within-industry mergers, even when they significantly reduced competition.
Newly formed mega companies and massive banks used their enhanced political power and influence over policy to lobby for more deregulation in the financial, telecommunications and other industries, which in turn made more mergers possible. By the 1990s, few restrictions were left.
This is why Americans tend to pay more for pharmaceuticals, cell and internet services and other products than people in many other countries, and why a growing share of government spending goes to corporate subsidies. One noteworthy example of that is Medicare D, which is forbidden by law from negotiating prices with pharmaceutical companies for drugs, many of which were developed in government labs or with federal grants to university labs.
Challenging corporate interests
So before all these mergers, regional companies served as an effective check on the power of their national competitors, providing more room for elected officials to formulate policies that challenged their more monopolistic corporate interests.
As one or a few companies have come to dominate major industries, they have the power to block policies that benefit consumers. These businesses are also able to enrich themselves at the expense of rivals and others and to appropriate resources needed for the investments in infrastructure and education that are needed to sustain American competitiveness.
Enron, which imploded into bankruptcy in 2001, was emblematic of the political effects of such monopolistic companies. Enron was able to gain control over energy markets in a number of states, including California. The company’s leverage over federal and state regulators ensured that it was able to overcharge California industrial businesses as well as ordinary consumers.
The importance of reinvigorated enforcement
The Obama administration has been tougher in reviewing mergers than any administration since Nixon’s. Yet Obama has not been tough enough to reverse the tide of consolidation.
Most often Obama administration regulators have merely imposed limited conditions before allowing mergers to proceed. In other words, the “gigantification” that has dominated corporate America for the past 40 years has proceeded largely unhindered.
The question is whether this will change under the next administration. Fortunately, in my view, there are signs that it will.
Hillary Clinton, for her part, had pledged before the AT&T news to increase antitrust enforcement, with some of her own economic advisers arguing that consolidation has worsened inequality by concentrating profits with a handful of companies. She said AT&T’s deal deserves close scrutiny.
Donald Trump has come out forcefully against the merger, declaring it “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.”
If the next administration is able to follow through – which it’s free to do without Congress’ approval – room would be created for more competitors in various industries. Those new, or newly viable older, businesses will bring their particular and conflicting interests to bear on the making of regulations and legislation and on decisions about federal and state spending. Legislators will come under more diverse pressures and will have expanded opportunities to attract support and build coalitions.
Politics won’t be a confrontation between the interests of one or a few corporations against citizens who usually are disorganized and not mobilized. Conflicts among firms within and across industries would create openings for less wealthy citizens to gain leverage as firms need allies in legislative and regulatory arenas they no longer can control through sheer size.
Antitrust was rightly understood a hundred years ago as a way to empower citizens as well as to reduce prices and improve product quality for consumers.
Antitrust again can help reduce the advantage the biggest corporations have in politics.