New report: Breaking up the Giants of Harm
To protect democracy and have a resilient economy, we must tackle corporate power. Again
Welcome to The Counterbalance, the newsletter of the Balanced Economy Project.
The recent global chaos caused by a Microsoft update is the latest warning about the many dangers of dangerous chokepoints created by growing monopoly powers in our economies. Today, we publish a new report entitled Breaking up the Giants of Harm, which shows why we must break up dominant firms, when to break them up (and when not to), and how to do it.
Our report calls on political leaders and regulators to take the harms of big firms on democracy and society seriously, and revive this once highly potent and effective tool, which largely fell out of favour four decades ago. Regulators are at last waking up to this option again – though not nearly fast enough. We need to force the pace.
The report is here.
The press release is here.
Breakups: a long and distinguished – but interrupted – historical record
As the Second World War drew to a close, the victorious Allies in the Potsdam Agreement of 1945 promised to create “a balanced economy throughout Germany,” amid wide recognition that highly concentrated and interlocking corporate power had played a key role in fueling the rise and endurance of fascism. The Allies vowed that “the German economy shall be decentralized for the purpose of eliminating the present excessive concentration of economic power as exemplified in particular by cartels, syndicates, trusts and other monopolistic arrangements.”
One of the biggest moves in these de-centralising efforts to keep German democracy healthy was the break up of the chemicals giant IG Farben a few years later: a company that had been a key contributor to the Nazi project, as this book by Diarmuid Jeffreys explains:
The breakup of IG Farben was relatively straightforward and produced highly successful firms such as Bayer, Hoechst, and BASF – and a surge in beneficial innovation and productivity.
Forced breakups in the last century, perhaps most famously with the breakup of the giant Standard Oil Co. in 1911, proved immensely effective in taming the power of corporations that had grown too powerful, and in generating wide economic and societal benefits. But the last successful major forced breakup, of the U.S. telecoms firm AT&T in 1982, was followed by the rise of a radical pro-monopoly ideological insurgency. From a new article on breakups in The Guardian:
From the 1970s [regulators] fell prey to a “consumer welfare” ideology, which argued that bigger companies were more efficient, and that these “efficiencies” would trickle down to consumers in lower prices and better products. As long as consumers were OK, they claimed, we needn’t worry about corporate power. As a result, breaking up companies fell out of fashion. Mergers were in. These pro-monopoly ideas were spread, ironically, by “free market” thinktanks.
As our report notes, there have been some 275,000 recorded corporate mergers and acquisitions (M&As) in the past five years, worth some $3.5 trillion annually, equivalent to more than three times the U.S. defence budget. That is a lot of power, steadily coalescing into more concentrated forms.
We need radical action if our democracies are to survive, and if our economies are to serve people and the planet.
The harms
Many people today feel it in their gut that some corporations are too powerful – but also don’t see how breaking up Amazon, say, or Pfizer, would help: they worry that this might disrupt their shopping convenience, or interrupt vaccine research, or create confusing numbers of mini-me companies running amok in a harmful competitive race. Dominant firms also tend to adopt progressive cultural mantles, leading to widespread disorientation about the nature and scale of the monopoly damage, or what to do about it.
The harms from monopoly power are well known in policy and academic circles: more political polarisation, weaker democracy, higher inequality, more price-gouging and inflation, less economic and societal resilience (as the latest Microsoft outage showed,) threats to citizens’ (and national) security, more geo-political tensions, less personal freedom, weaker innovation and economic dynamism, damage to public health, more corruption, worse conditions for workers, environmental damage, more frequent and bigger financial crises – to name but a few.
Our report also contains another remarkable graphic about the links between monopoly power and billionaire wealth, via the Roosevelt Institute:
As we explained in our Taken, Not Earned report for Davos in January:
“The world's wealthiest billionaires have a common secret hiding in plain sight: they are monopolists. Much of their wealth and income was taken, not earned”
Using their monopoly power to jack up prices far above the costs of production in swingeing price “markups”, the world’s largest companies and their “billionaire blockholders” are able to impose what are in effect private taxes on the rest of us. [Watch out for some remarkable new data on this, which our colleagues at SOMO should publish tomorrow.]
High profits for the monopolists are thus the flip side of high prices, inflation and consumer pain for the rest - and the connecting thread is monopoly power.
Why should we break up too-big firms?
Our new report looks at some of the precise reasons why we might want to break up firms that are too big, and too powerful. These include a need to:
● eliminate conflicts of interest
● unblock economic (and political/geo-political) chokepoints
● protect the state, the media and democracy
● restore choice, personal freedoms and free speech
● promote fair competition
● bring global systems under more local control
● tackle the ‘too big to fail’ problem
● protect and promote small businesses, broad prosperity and a balanced, diversified, resilient economy
Regulators are currently blinkered by outdated regulations and institutional cultures that make it hard to ‘see’ excessive concentrations of power, let alone tackle them. This must urgently change.
How should we break up firms with too much power?
First, establish clear goals. Is the aim to protect democracy? To unblock economic or geo-political chokepoints? To promote competition? To protect innovation, or economic resilience? Each may imply a different approach.
Next, understand why and how they grew so big. A manufacturer of large passenger aircraft needs to be big; a grocer, not so much. Companies that grew large through internal expansion and success in developing wonderful products may be less ripe for breakups, than companies that grew big through mergers & acquisitions (M&As,) predatory pricing and killing competitors.
Consider if an interconnected system needs to be inside the same corporate form. A telephone network needs to interconnect seamlessly – but that doesn’t imply that only one phone company should dominate the network. Imagine if we separated Google Search, the Android mobile operating system, Youtube, the Chrome browser, gmail, Google Classroom, Fitbit, Google Cloud, the content recommender systems, and Google’s advertising businesses into independent companies. This may be going a bit far in the real world, but the point is: there is no technical or engineering reason why these companies must be together under the same corporate roof. The rest of the internet inter-connects pretty seamlessly, so why can’t these parts? Diversity and choice promote resilience, and supports personal freedoms too.
Have a solid framework ready to deal with the pieces. Without strong democratic guardrails, post-breakup breakup entities may still compete on negative factors, such as greater willingness to pollute. Some pieces may be better in public ownership; others may be more usefully subject to utility-style regulation, and others could be subject to more market competition. Broad prohibitions – such as the U.S. Glass-Steagall Act that for decades separated investment banking from deposit-taking activities – may also be necessary to stop markets tipping back into monopoly.
Next, break them up. With any large company there will be many possible ways to slice, unblock and remove: undo past mergers, sever conflicts of interest, break leverage points, remove offending business units, separate control layers, and more.
The myths and taboos
A key purpose of this report is to push back against some of the many myths and misunderstandings about breakups, to show that they are both feasible, desirable, necessary – and in fact more common than is often supposed.
Many people aren’t – yet convinced about breakups, preferring to do *something else* instead to tackle the excessive power of corporations – such as taxing them more, organising to build countervailing labour and citizen power, nationalising them, building collaborative alternatives, or enforcing privacy rules.
We need all these things. We also need our regulators to block a massively higher share of corporate mergers (the European Commission, for instance, only blocked 0.2 percent of notified mergers in the last decade.) Yet breakups aren’t an either/or proposition. We can do both - and, by unblocking power concentrations, make all these other approaches easier.
Breakups are perfectly feasible: technically, legally, politically
Companies break themselves up all the time. Just yesterday, the billionaire French media titan Vincent Bolloré said he was looking into breaking up the entertainment giant Vivendi, which he effectively controls, to counter recent under-performance.
In fact, an estimated one-third of the $3.5 trillion in annual M&A activity in recent years have also involved 'divestitures' selling off parts of a company – often as a condition for being allowed to merge. These divestitures are enabled by an industry of specialists (accountants, lawyers, tech consultants) to facilitate the processes.
Voluntary breakups are common enough, it is true, but they tend to leave intact monopoly power, often the heart of corporate profit machines. Our report is about forced breakups by governments acting in the public interest, and it shows that there are many legal instruments at hand allowing breakups to happen.
The problem is ultimately political - and that is what needs to change now. As the new Guardian article on breakups notes:
“The tides are shifting against corporate power, but not fast enough. We must now force the pace. Otherwise, we will fall deeper into the deadening embrace of the most powerful monopolies the world has ever seen.”
** Breaking up the Giants of Harm was published today by the Balanced Economy Project **
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