Capitalism and Monopolies: Is Regulation the Answer?

Cyryl Ryzak

June 6, 2019

With The Myth of Capitalism: Monopolies and the Death of Competition, Jonathan Tepper and Denise Hearn have written a succinct, well organized, and very readable survey of concentration and monopolization in the contemporary US economy. It is to their credit that they by and large  steer clear of theory for most of the book and let the facts speak for themselves. However, when theory – and moreover politics – does rear its head, it is far less pleasant than the purely empirical part of their work.

In each chapter, Tepper and Hearn explore our highly concentrated monopoly capitalism from different angles. Some chapters such as “Dividing Up the Turf” and “Toll Roads and Robber Barons” lay out the structure of the monopolized economy. We learn just how concentrated American capital is, from railroads and airlines to beer producers and milk distributors. Other chapters deal with consequences– high prices, lack of choice for job searchers and consumers, inequalities and the like. There is also a very interesting historical account of anti-trust legislation, how it was enforced and ultimately swept aside.

For Tepper and Hearn, the figure representing contemporary monopolism is the icon of American investment advice, Warren Buffet of Berkshire Hathaway. The investment practice that bestowed tremendous wealth on Buffet was to avoid competition and embrace concentration. As quoted by Tepper and Hearn, Buffet’s self-declared preferred business investment is characterized by “High pricing power, a monopoly”. Very few illusions about the value of competitive capitalism exist at the top.

Competition Breeds Monopolization

Unfortunately, the book’s usefulness is somewhat ruined by the authors’ insistence that what they are describing is not actually “capitalism”. “Capitalism”, they write, “without competition is not actually capitalism. Capitalism is not merely a high return on capital.” It is true enough that capitalism is “not merely a high return” but nonetheless it is driven by the pursuit of the highest return possible in competition with others who also want the highest return possible. In so far as some seek an advantage in this contest or consolidate their position after decisively capturing a market and pushing their competitors out, it is completely in keeping with this basic economic drive.

To take an example from their book, the airlines were deregulated in 1978. The end result of this policy is the oligopolization and regional monopolization that plagues the industry today. As Tepper and Hearn admit, however, this process involved fierce competition that followed in the wake of deregulation. So for them, capitalism in the airline industry existed one day and then as a result of the competition they extol, it ceased to exist the next day. The Myth of Capitalism’s definition of capitalism as competition would have us think that capitalism abolishes itself by the element that makes it capitalist.

Regulatory Dreams

The Myth of Capitalism’s analytic weakness in understanding capitalism is compounded by its political weakness. Tepper and Hearn’s solution to capital concentration is state regulation to return competitiveness to the capitalist economy. Their heroes are the trust busters of the Progressive Era and policymakers who designed Germany’s post-war economy. Taking the US example first, as they themselves show, capitalists deftly outmaneuvered anti-trust legislation, even when it was seriously enforced, by buying disparate industries. And eventually, capital found political muscle in the form of the American Right which ultimately grew strong enough to destroy or severely weaken any impediments to concentration.

The German example is also more problematic than Tepper and Hearn’s account. They promote “Ordoliberalism,” a set of policies developed by post-WW II German economists who argued that the economic concentration that characterized the Nazi economy had to be dismantled through state regulation, providing the basis for political freedom against both Nazi and Soviet “totalitarianism.”  Opposition to economic concentration whether public or private was the answer.

In the context of post-war Germany, however, Ordoliberalism was introduced not as the alternative to the cartel-based capitalism of the Third Reich, but to the more radical push of the reborn German left for the socialization of Nazi-collaborating industries as the basis for a new democratic Germany. The “social market” economy of the Adenhauer years came hand and hand with the rearmament of West Germany, continued insistence on Germany’s 1937 borders, and a general conservatism.

Tepper and Hearn’s political aim is to unite the forces behind the Tea Party and Occupy Wall Street into a kind of mega-‘anti-establishment’ movement. Their anti-monopoly program also targets excessive regulations. They provide much useful information in their book on how large companies benefit from regulations that hamper their competitors, but their political conclusions about a potential alliance with the Right because it hates regulation are wrong headed.

Even if the Right starts to adopt some sort of anti- capitalist rhetoric, it tends to be the case, as the example of the German National Socialists demonstrates, that this is forgotten exceptionally quickly after taking power. Tepper and Hearn lionize the late nineteenth century British conservative Prime Minister Disraeli. As if trying to whet the appetites of Republican strategists, they point out that thanks to reform Toryism “the Conservatives dominated British politics from 1886 to 1906.”

Expecting the contemporary American Right to act like a 19^th century British Tories is a waste of time. The mentality of a Benjamin Disraeli is extremely removed from that of a Ted Cruz. If there is any space where Tepper and Hearn’s ideas will find approval it is in the world of liberal politicians, especially those who realize the Clinton option is no longer viable. The program of The Myth of Capitalism seems perfectly fitted for the Elizabeth Warren camp, reformist, even feistily so, but lacking in the more explicit leftism of Bernie Sanders.

A Flawed Strategy of Alliance with the Right

The eagerness of Tepper and Hearn for a reformist alliance with the Right in order to build a new “competitive capitalism” doesn’t consider that even if this were possible, it would give the Right a decisive role in shaping the new legislative regime. Tepper and Hearn offer general principles for anti-monopoly measures, regulations, and patent protections. Somebody will have to turn these into laws and administrative rules. Would they really be happy to leave it to the Tea Party, the instrument of the Koch brothers, to transform their pristine recommendations into grotesque caricatures?

This brings us to the final underlying problem of the Myth of Capitalism. Their obsession to prevent economic concentration, whether private or public, would not create a decentralized idyllic order of small producers but a muscular, interventionist, regulatory state that actively shapes the economic order. As businesses will always try to circumvent and outmaneuver any “competition policy,”  the regulators will have to be constantly vigilant. To create a “capitalism” according to Tepper and Hearn’s stringent criteria, an “on the books” legal passivity is too weak. State direction will always have to be taken.

If its ideals materialize, Myth of Capitalism’s utopia would be a never-ending war between the anti-monopolist state and the capitalist economy. This is the result of obsessing over every rule in the modern capitalist economy save the most important: that it is governed by the pursuit of profit.

The German Model

Peace in this scheme between the regulators and the capitalists is certainly possible but only at the cost of compromising its purpose. The trust-busting state can act as a tool for harmonizing the disparate interests of capitalists into a common national capitalist interest. The promotion of competition between capitalists transforms into the promotion of competitiveness in the global economic arena. Capitalists will no longer exert power through the sheer size of their holdings but through their assembly into corporatist bodies. Economic concentration of individual capitalists becomes the collective concentration of the capitalist class. In other words, for the competition-promotion state to find a stable role for itself, its capitalism would have to be German.

The historical evolution of German capitalism is instructive for the kind of state-promoted competition capitalists will actually accept. Germany with its vibrant export manufacturing may be envy-inducing for our depressed industrial areas. But one needs reminding that German capitalism holds the earnings of its workforce down as much as American capitalism. The adoption of a capitalism based on a German style Mittelstand, medium and small sized enterprises, is no assurance for the elimination of wage stagnation.

We cannot accept the panacea of “competition policy”.  However, The Myth of Capitalism should  be read for its description of monopoly capitalism’s lay of the land. The question of how to integrate an anti-monopoly movement into broader socialist strategy, and what sort of alliances and organizational forms that would entail, is very important. There is however a very big difference between a politics where anti-monopolism is the end in itself, and one where it is only a step along the road forward.