Dean Baker
The Hankyoreh, April 30, 2017

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There has been growing attention in recent years to the near monopolization of many sectors of the U.S. economy. For example, Google completely dominates the search engine market, while Facebook has an overwhelming presence in social media. Amazon controls close to 70 percent of book sales in the United States and an ever growing share of retail more generally. Microsoft remains by far the dominant force in computer operating system software.

Recent research has found an increasing concentration of corporate profits in recent decades in such large firms. In addition, the workers at these dominant firms tend to be paid much more than at their less successful competitors. For these reasons, increasing concentration could be one of the main factors behind the rise of income inequality.

While it is good to see many mainstream political figures raising concerns over excessive market power, there are a couple of important caveats that need to be included in this story. First, it is important to note that this is not a simple story of corporate profits rising at the expense of wages.

Corporate profits rose sharply following the collapse of employment in the Great Recession. Profits peaked as a share of corporate income at 26.8 percent in 2014. This was a full 5.0 percentage points above the peak in the nineties of 21.8 percent. However, most of the upward redistribution of income had occurred before 2005, when the profit share first began to rise notably. And the pre-recession increase is inflated by the profits booked on housing bubble related loans, which subsequently went bad.

Furthermore, the profit share has declined substantially in the last two years. It stood at 24.5 percent in 2016. It seems plausible that if the recovery continues and the labor market tightens further, that profit shares will fall back to levels comparable to what we saw in the 1990s and prior decades.

This means that there is not a simple story where growing concentration means that wages have been shifted to monopolists’ profits. However, it is still quite plausible that monopolistic firms have pulled profits away from other firms and possibly impaired innovation in the process. There is also the possibility that monopolists have contributed to wage inequality, due to the wage premium their workers enjoy. These are good reasons to be concerned about the growing concentration in many sectors of the economy.

While the prospect of breaking up a Google or Microsoft may raise difficult questions, there are some other issues that should be pretty simple. At the most basic level, these giants should not be allowed to buy up other firms with the purpose of eliminating competition. That is the most basic feature of anti-trust policy.

Enforcing this policy would have almost certainly prevented many corporate takeovers in recent years. The most obvious was Facebook’s purchase of WhatsApp after the failure of a previous buyout attempt of Snapchat. In both cases it was widely reported in the business press that Facebook’s willingness to pay billions of dollars for tiny companies with no profits was driven primarily by the desire to eliminate a potential competitor.

Nonetheless the takeover or potential takeover, in the case of Snapchat, aroused little interest from regulatory authorities. Certainly they have to be more awake about future efforts designed to eliminate competitors, and of course they should be open to the possibility of forcing divestment to reverse some recent consolidations.

The other area where restraint of competition is quite explicit is with the proliferation of patents. Patents are increasingly used as a mechanism for harassing competitors rather than a way of protecting innovation.

This was seen most clearly in the years’ long patent wars between Apple and Samsung. Every new smartphone introduced by one was immediately faced with a series of patent infringement suits by the other. The outcome was usually a negotiated settlement where each would agree to drop their suit, usually with little money actually changing hands.

In the case of these two tech giants the main cost was needless money spent on legal fees, and occasionally a phone being kept off the market for a short period of time. But smaller competitors, without the same resources, can be kept out of a market altogether by such tactics.

The United States should be looking to reduce the strength of its patent laws more generally and to increase the availability of technology in the public domain, but it may also consider special measures against the tech giants. When AT&T had a monopoly on the telephone industry, it was required to make all its patents available for a modest licensing fee. Google and the other tech giants can be offered a similar option as an alternative to being broken up.

Finally, there is a simple issue which doesn’t even require anti-trust action: enforce the law. Uber has made a sport of flaunting the law everywhere it operates. It routinely ignores rules on background and safety checks for drivers, safety inspections of vehicles, and labor regulations for its workers. It claims exemption from the law because it is Uber. Amazon still does not collect the same sales tax required of traditional brick and mortar retailers in close to half the states because of an archaic provision exempting mail order purchases.

Ensuring that these giants are subject to the same rules as everyone else would go a long way towards limiting their market power. In fact, in Amazon’s case, its savings on collecting sales tax has quite likely exceeded its aggregate profits since its inception. So before we ask about breaking up the giants, let’s first stop giving them tax and regulatory subsidies.

In short, it is good to see a new concern with monopolistic behavior in major markets. But there are some very simple measures that should be taken as we construct rules for a new competitiveness policy.