US economy updates
Sign up to myFT Daily Digest to be the first to know about US economy news.
For the past 40 years in America, competition policy has revolved around the consumer. This is in part the legacy of legal scholar Robert Bork, whose 1978 book The Antitrust Paradox held that the major goal of antitrust policy should be to promote “business efficiency”, which from the 1980s onwards came to be measured in consumer prices. These were considered the fundamental measure of consumer wellbeing, which was in turn the centre of economic wellbeing.
But things are changing. A White House executive order on competition policy, signed last month, contains some 72 discreet measures designed to stamp out anti-competitive practices across nearly every part of the US economy. But it isn’t about low prices as much as it is about higher wages.
Like the Reagan-Thatcher revolution, which took power from unions and unleashed markets and corporations, Biden’s executive order may well be remembered as a major economic turning point — this time, away from neoliberalism with its focus on consumers, and towards workers as the primary interest group in the US economy.
In some ways, this matters more than the details of particular parts of the order. Many commentators have suggested that these measures, on their own, won’t achieve much. But executive orders aren’t necessarily about the details — they are about the direction of a government. And this one takes us completely away from the Bork era by focusing on the connection between market power and wages, which no president over the past century has acknowledged so explicitly.
“When there are only a few employers in town, workers have less opportunity to bargain for a higher wage,” Biden said in his announcement of the order. It noted that, in more than 75 per cent of US industries, a smaller number of large companies now control more business than they did 20 years ago.
His solutions include everything from cutting burdensome licensing requirements across half the private sector to banning and/or limiting non-compete agreements. Firms in many industries have used such agreements to hinder top employees from working for competitors, as well as to make it tougher for employees to share wage and benefit information with each other — something that Silicon Valley has done in nefarious ways.
This gets to the heart of the American myth that employees and employers stand on an equal footing, a falsehood that is reflected in such Orwellian labour market terms as the “right to work”. In the US this refers not to any sort of workplace equality, but rather to the ability of certain states to prevent unions from representing all workers in a given company.
But beyond the explicitly labour-related measures, the president’s order also gets to the bigger connection between not just monopoly power and prices, but corporate concentration and the labour share.
As economist Jan Eeckhout lays out in his new book The Profit Paradox, rapid technological change since the 1980s has improved business efficiency and dramatically increased corporate profitability. But it has also led to an increase in market power that is detrimental for people in work.
As his research shows, firms in the 1980s made average profits that were a tenth of payroll costs. By the mid 2000s that ratio had jumped to 30 per cent and it went as high as 43 per cent in 2012. Meanwhile, “mark-ups” in profit margins due to market power have also risen dramatically (though it can be difficult to see this in parts of the digital economy that run not on dollars but on barter transactions of personal data).
While technology can ultimately lower prices and thus benefit everyone, this “only works well if markets are competitive. That is the profit paradox,” says Eeckhout. He argues that when firms have market power, they can keep out competitors that might offer better products and services. They can also pay workers less than they can afford to, since there are fewer and fewer employers doing the hiring.
The latter issue is called monopsony power, and it is something that the White House is paying particularly close attention to.
“What’s happening to workers with the rise in [corporate] concentration, and what that means in an era without as much union power, is something that I think we need to hear more about,” says Heather Boushey, a member of the president’s Council of Economic Advisors, who spoke to the Financial Times recently about how the White House sees the country’s economic challenges.
The key challenge, according to the Biden administration, is that of shifting the balance of power between capital and labour. This accounts for the emerging ideas on how to tackle competition policy. There are many who regard the move away from consumer interests as the focus of antitrust policy as dangerously socialist — a reflection of the Marxian contention that demand shortages are inevitable when the power of labour falls.
But one might equally look at the approach as a return to the origins of modern capitalism. As Adam Smith observed two centuries ago, “Labour was the first price, the original purchase — money that was paid for all things. It was not by gold or by silver, but by labour, that all wealth of the world was originally purchased.” Reprioritising it is a good thing.