A major reform which helped saved capitalism from collapse was regular decisions to break-up trusts or large companies. The 1890 Sherman Antitrust Act generated much more competition in markets. Markets had become dominated by a few huge companies like Standard Oil, which was broken up in 1914.
Look at this concentrated power
The concentration of market power has been rising in too many industries in the past few decades. It is particularly bad in technology. “Google has an 88 per cent market share in search advertising. Facebook (including Instagram, Messenger and WhatsApp) controls more than 70 per cent of social media on mobile devices. Amazon has a 70 per cent share of the ebook market.” (Financial Times, 14 May 2017).
Because prices of technology products have been falling rapidly, many unthinkingly believe that this is because markets are efficient and working for us all. In fact we are paying excessively for tech products. The big tech companies are making huge profits and in many unseen ways from users. They are also controlling and know all about us in ways which George Orwell never even thought about.
If capitalism is to survive in the 21st first century, capitalism and its elites, the administrators and governments need to address the emergence of untrammelled monopolies in recent decades. The law says it is OK to be dominant but you must not abuse your dominance. I think too many big companies are doing this today and especially some big techie firms.
Varieties of capitalism
Of course, there are many who do not want capitalism to survive. The numbers not benefiting under the current system is growing rapidly. This is the hundredth anniversary of the Russian Revolution. The Soviet Union no longer exists. It did not last a full century. Then there was fascism in many countries in Europe in that century too. Fascism had its roots in far left socialism and populism.
Thus the alternative to capitalism system is not always progress. There are varieties of capitalism, but it is more intertwined than ever, dampening the room for greater divergence in the varieties.
The US is the world’s most dominant economy and one of the most unequal, with poor social protection. It was entrepreneurial, but concurrenlty good at reforming its big companies in the past. That day has gone.
Europe is better at tackling monopolies and has led the way with Microsoft, and Apple and with the Parliament concerned to Google (but with little power). However, the EU environmental regulator utterly failed to find the systemic and deliberate abuse of environmental laws by big EU firm Volkswagen. It took the US regulator to expose this corrupt company.
There is the legitimate view that because the EU has less successful tech firms than the US, it is focusing on regulating – tying up with red tape – the US successes. But if the US has lost its will to regulate and it certainly has under Trump, then only the EU has the power to tackle those dominant firms which do abuse their market power.
In spite of the VW fiasco, there is a bit more hope here in Europe in regulating the big firms. Facebook received a €110 million fine recently from the European Union’s antitrust regulators, who say the social media giant provided misleading information during its 2014 acquisition of the messenger app WhatsApp. In 2013 the European Union fined Microsoft Corp €561 million euros for failing to offer users a choice of web browser.
Then the Commission also ordered Ireland to claw-back up to €13 billion in back taxes from Apple Corporation. Our government is fighting this decision. Interestingly, it cost €13.6bn to run the Irish health system last year!
The US once led the way
The 1890 Sherman Antitrust Act was followed in 1914 with the Clayton Antitrust Act and the creation of the Federal Trade Commission which had the power to investigate possible violations of antitrust laws and issue orders.
More recently in 1984, AT&T, the telephone monopoly, was broken up and in 1999 one of the largest antitrust suits was brought against Microsoft. A decision in 1999 found the company had attempted to create a monopoly position on internet browser software and the court ordered the breakup of Microsoft, but this was overturned by the appeals court in 2001.
So today it appears that the rise of oligopolistic corporations in the US is not being so contained. Silicon Valley now spends almost as much as Wall Street and big pharma in lobbying for light regulation. It is extremely successful in this regard. Now Trump - the anti-red tape man - is running the US.
From plucky garage upstart to monopolist abuser
The image of Silicon Valley and tech industries has been very positive. Companies have been portrayed as a plucky innovative entrepreneurs which supplied highly popular goods. This image is changing dramatically.
The companies are now seen as making fortunes from invasions of privacy; some are sexist employers; they have extraordinary access to our personal data which they monetise relentlessly, unseen; a group of these firms often exploit a new underclass of precariat; and all seem to be intent on dodging all taxes. It seems that too many of these companies are not interested in the ethics of disruptive technology, but in self-serving propaganda and profit.
The motto of Uber is “always hustlin” but it doth hustle too much. Senior engineer Susan Fowler left, citing a pervasive sexist culture. Its boss, Travis Kalanick was caught on a dashcam berating one of his drivers. It was charged with stealing IP by Alphabet and there was the exposure of its Greyball programme which sought to mislead state authorites on the location of its cars.
The privatisaiton of public goods
On top of that, of course, many of the products of tech companeis are based on state / public innovations e.g. by DARPA. As DARPA says, it has created “precision weapons and stealth technology, but also such icons of modern civilian society such as the Internet, automated voice recognition and language translation, and Global Positioning System receivers small enough to embed in myriad consumer devices.” The tech companies monetised these products.
On the other side, the cyber weapon WannaCry, one of the worst cyber attacks ever was stolen last year by ShadowBrokers from the National Security Agency in the US and repurposed into ransomware.
Big US firms are quick to buy-out EU start-ups, acquire the intellectual property and ship them back home. In Ireland, Government policy is to encourage indigenous firms. We taxpayers subsidise them, but when there is a promising start-up, little is done to retain the firm here and it's usually bought out by a multinational. Public private is permeable, but private takes the profit.
There is a false image of the US being full of start-ups. The reality is that the rate of start-ups there “has slowed markedly since the late 1970s. Big Tech’s sweeping patents, standard platforms, fleets of lawyers to litigate against potential rivals and armies of lobbyists have created formidable barriers to new entrants” according to Robert Reich (New York Times, 15 Sept 2015). Guy Standing in his book The Corruption of Captialism argues that patent law confers monoply power on large firms for far, far too long.
The state as the ultimate market rule-maker needs to limit monopolies by breaking them, curbing them, reducing patent lives and perhaps urgently, regulating data harvesting.
Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He is a member of the Economic Committee of the ETUC and chair of TASC’s Economists’ Network. He was a President of the Statistical and Social Enquiry Society of Ireland, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.