I just finished reading Tepper’s book “The Myth of Capitalism,” which is a thought provoking work on the hazards of monopolized industry and the importance of anti-trust.
The book’s main premise is that the cornerstone of capitalism is competition.
For nearly two decades now, less small businesses have been created than destroyed through closing or acquisition.
In 2014, the largest source of employment for US workers was very large corporations, a mantle long held by the small businesses sector.
Median workers have seen little to no wage growth for decades while the cost of living (rent, food, fuel, and other modern necessities like college tuition and health insurance) have been skyrocketing and benefits have been continually watered down.
Our economy is growing fragile. Localized events, like the hurricane in Puerto Rico, caused massive shortages of Saline, which is the base fluid of IVs in hospitals. It is relatively easy to produce, yet all our production is concentrated. This is the case for many industries, some of which are already completely outsourced. As a result, our entire economy is more at risk to natural or geopolitical shocks.
Political instability is increasing worldwide as the wealth divide grows while workers are increasingly over-educated and under-utilized. Income inequality is accepted and even embraced by the middle class if people see a clear upward path. When their hard work goes unnoticed and the system is seen as rigged, this sentiment becomes poisoned.
A note on socialism vs communism:
We are already in a period that will see significant political change. The anti-communist rhetoric is still a powerful voice in politics, but the mainstream parties have twisted this message in a way that is increasingly dangerous. They relentlessly equate socialism with robbing the productive and handouts to the lazy, while strategically ignoring the centralization of power in our system.
Centralized decision making is the cornerstone of communist government. The Soviet Union was lambasted for having a feudalistic command-and-control economic system, NOT for being a workers paradise.
Popular social reforms like social security, progressive income taxes, Medicaid, food stamps, and so on should never be confused with communism. If this subterfuge continues while large corporations are allowed to centralize our economy at the expense of the average voter, then there is an ever-increasing danger that a real communist will be elected and large swaths of our economy will be nationalized.
1. Watch for and regulate portals.
Monopolies typically involve the control of key portals between many suppliers and many consumers. The SEC needs to carefully watch for these portals and actively regulate them to either spread control or eliminate the outsized profit.
A small number of firms buy all of the produce from US farmers and supply all of the grocery outlets. Most farmers in a region have only one large buyer for their goods, which then supplies all of the large chain grocery stores. These could be broken up along with large grocery chains to create smaller competing firms.
Amazon owns the biggest portal for online retail. They also act as a large warehouser/retailer. Their online portal should be severed from their retail engine so that they can’t systematically compete with and crush and small retailer encountering initial success on their website. Similarly, Google Search is a very powerful portal which should be severed from all of their other businesses so that they can’t just take over or replace any online company with a good idea at their whim.
2. Passively discourage monopolies through taxes.
A special monopoly tax should hit all company profits when market share hits a threshold such as 10%. This should scale up and become quite large as market share approaches 100%. This cuts the rewards of monopolization and encourages investors to put more money into smaller firms.
3. Watch for and combat industry collusion.
Whether it’s a small number of firms who follow the “price leader” or powerful investors cross-holding shares of all major competitors in an industry, the SEC needs more direction and leeway in this area.
4. Create fertile soil for small businesses to start up.
The cards are clearly stacked against startups. A few things can change this such as the following:
– Increasingly use business size exemptions in regulations (targeting gross revenue and/or number of employees)
– Create special tax breaks for small businesses and make them permanent
The idea here is that an ordinary person could quit his day job and make a comfortable living in the private sector on his own. If successful, he will have the means, experience and basic structure to allow him to scale up operations. If successful this would bring a wave of innovation while empowering the individual worker – a real win-win.
5. Allow small business employees to enjoy the retirement and health care perks typically reserved for large employers
There is no reason to hold back 401k’s from small business employees just because their employers lack the size and clout to avoid getting fleeced by the few large 401k providers. I strongly believe annual caps to IRA’s should be eliminated entirely and replaced with total value caps. $5,500 a year won’t get me far in retirement, and a $1 million retirement account balance is way beyond reach for a median employee today. Same story with health care – a small company employee should be allowed the same choices and subsidies as his corporate counterpart.
I’m going to stop here, but I hope this gets you thinking. The future doesn’t have to be a dystopian nightmare of control and obedience- it can be a golden age of individuality and innovation. I’m happy to say I’m optimistic on that score.