Financial analysts predict that the large number of distressed small businesses will provide large corporations with a “once-in-a-generation opportunity to make acquisitions and consolidate power.” While neoliberal economists claim that corporate mergers lead to more efficiency and lower prices for consumers, the reality is that corporate consolidation fuels inequality by driving up the prices of goods and depressing the wages of workers. Without strong government action, massive corporations and their billionaire executives could grow even bigger and stronger at great public cost.
Laws to address the negative effects of corporate consolidation have been in place for more than a hundred years. In the late-nineteenth century, massive conglomerates controlled huge portions of the economy including railroads, oil, steel, and sugar. Companies such as Standard Oil and U.S. Steel dominated entire industries, leaving consumers and small businesses with no choice but to purchase their products at whatever price the goliaths set. In response, the U.S. passed a series of antitrust laws designed to protect consumers by promoting competition in the marketplace.
Since the New Deal-era, however, shifting interpretations of antitrust law and policy have allowed an increasing number of industries to consolidate. The biggest shift occurred in the 1970s, when neoliberal economists reoriented U.S. antitrust policy around getting the greatest number of goods to customers at the lowest cost—rather than safeguarding against undue corporate influence or preserving competition. In the subsequent years, waves of corporate mergers and acquisitions resulted in a growing number of industries dominated by a shrinking number of companies. The trend has hit almost every industry you could think of, from pet food to online pornography.
The lax approach to corporate consolidation allows massive corporations to hoard wealth to themselves while distorting the market for everyone else. By eliminating pressure from competitors, mergers result in an average price increase of 7 percent. Independent businesses are paying higher prices and receiving less favorable terms as a result. One estimate found that the high rate of corporate concentration costs the typical American household more than $5,000 a year. The rise of corporate behemoths also stifles new business creation as dominant corporations make it harder for smaller or newer competitors to enter the marketplace.
Mergers may be even worse for people as workers than consumers. When companies merge they look for “redundancies” they can eliminate to create “cost savings,” which is corporate-speak for layoffs. As a result, corporate consolidation has reduced overall U.S. employment by an estimated 13 percent. In some cases, CEOs get bonuses when they sell companies—a practice known as “payoffs for layoffs” because of how often it leads to people losing their jobs. Consolidation also drives wages down by decreasing competition for labor; the average person’s salary would be more than $10,000 higher if employers were less concentrated. Meanwhile, corporate mergers have resulted in a larger class of billionaire executives.
The COVID-19 crisis and recession may lead to another wave of mergers and acquisitions. While the pandemic disproportionately impacted small businesses, the initial federal rescue package in 2020 provided the bulk of direct business aid to Wall Street and large corporations. This leaves big businesses flush with cash while struggling businesses seek life preservers to stay afloat.
We need strong government action to take on these corporate behemoths and enforce existing antitrust law. The Federal Trade Commission and the Department of Justice Antitrust Division are supposed to be the most important cops on the beat, but have long been strapped by insufficient budgets and inadequate administration. It is a great step that leading antitrust expert Lina Khan has been confirmed to fill one of the FTC’s open slots, but we need more individuals like her on the commission in order to implement a much-needed halt in merger activities. The administration also has yet to name someone to lead the DOJ antitrust role. That needs to happen quickly, and it needs to be someone who is not afraid to take corporate America to court. Congress has a role to play as well, and can start by passing stronger merger laws.
Today’s corporate consolidation bears a striking resemblance to that of the Gilded Age of the late 19th century, when America first established its antitrust policy to rein in an unsustainable surge in big corporate monopolies. If we don’t step up enforcement, dominant corporations could continue to manipulate their market position to grow even bigger and stronger. As America emerges from the coronavirus pandemic, small businesses and working people cannot afford to get squeezed even further by an ineffectual antitrust regime.