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The Bigness Complex

Stanford University Press

Contents

List of Tables and Charts..............................................................ixPreface................................................................................xiPart I. The Problem of Power...........................................................11. Power and Public Policy............................................................32. Economists and Power...............................................................11Part II. The Apologetics of Power......................................................233. Operating Efficiency...............................................................294. Innovation Efficiency..............................................................465. Social Efficiency..................................................................63Part III. The Political Economy of Power: A Historical Perspective.....................776. The Revolution of 1776: American Government........................................797. The Revolution of 1776: British Economic Policy....................................88Part IV. Competition and the Control of Power..........................................958. The Role of Antitrust..............................................................979. Cartels............................................................................10510. Monopoly...........................................................................12311. The Merger Problem.................................................................14412. Horizontal Mergers and Joint Ventures..............................................15313. Vertical Mergers...................................................................16414. Conglomerate Mergers...............................................................17415. The Limitations of Antitrust.......................................................184Part V. Government Intervention and Private Power......................................20116. The Regulation of Power............................................................20317. Airlines: Regulation and Deregulation..............................................20918. The Limits of Deregulation.........................................................22219. The Protection of Power............................................................23720. The Bailout of Power...............................................................253Part VI. The Coalescence of Power......................................................26921. The Labor-Industrial Complex.......................................................27222. The "Sports-Industrial" Complex....................................................284Part VII. Public Policy Alternatives...................................................29923. The Neo-Darwinist Vision...........................................................30124. The Neoliberal Vision..............................................................30825. A Public Philosophy................................................................316Notes..................................................................................327Index..................................................................................379

Chapter One

Power always thinks it has a great Soul, and vast Views, beyond the Comprehension of the Weak, and that it is doing God's Service, when it is violating all his Laws. John Adams

REPORTS ON THE STATE of the American economy are filled with anxiety and unease: a "new economy" stock market bubble bursts, "correcting" trillions of dollars from pensions and retirement accounts; spectacular revelations emerge of fraud, corruption, and looting in corporate suites, aided and abetted by some of the nation's most prestigious accounting and financial concerns; an agonizingly prolonged economic slump defies categorization as either recession or recovery; an epic merger-mania during the 1990s fused the biggest firms in one industry after another, dramatically increasing concentration of control throughout the economy; turmoil in the Middle East, once again, raises the specter of gyrating energy prices that threaten an automotive economy dependent on sales of gas-guzzling sport-utility vehicles; an avowedly free trade, free market administration promulgates steel tariffs and a $170 billion agriculture subsidy program; prices for prescription medicines skyrocket; a catastrophic fling with deregulation of electric power wreaks havoc in California; millionaire athletes and billionaire team owners hold fans and communities hostage to their financial demands; major airlines collapse into bankruptcy. The list seems endless.

Somehow we seem incapable of dealing with problems that are essentially structural in nature. In Washington, politicians react in their accustomed manner. They choose to ignore these problems, devoting their energy instead to passionate debates about abortion, the wording of the Pledge of Allegiance, and stem cell research. Or they treat symptoms of the problem with makeshift, ad hoc, cosmetic palliatives. On Wall Street, the corporate elite are staggered by "Enronitis" in what are described as some of the most dismal years in the annals of American corporate history: having "squandered hundreds of billions of dollars on doomed mergers, vacant dot-com warehouses, and thousands of miles of useless fiber-optic cable," their "rickety empires are falling to pieces"-events that the British Economist says have prompted a "widespread questioning of the usefulness of the executive class." In academia, economists are more concerned with esoteric model building, the latest graffiti of the trade, and refining the most sophisticated apologia for the status quo than with the real world and its problems. For aficionados of the Theater of the Absurd, the script is all too familiar.

There is, to be sure, no dearth of prophets proclaiming the path to salvation. Packaged in superficial sound bites, and couched in the parlance of liberal chic or conservative platitudes, the shibboleths of our day are little more than ideological cant. On both the Right and the Left of the political spectrum, they are based on assumptions that are incongruent with the structural realities of the American economy. Their fatal flaw, we submit, is that they ignore the political economy of power.

On the Right, the culprit is Big Government. "Government-imposed mandates and regulations suppress wages, and excessive taxation of capital and investment stifles economic growth and job creation," Newt Gingrich's "Contract with America" ringingly declared. Onerous taxes and regulations "threaten the competitiveness of American industry" and "stifle entrepreneurial activity." Big Government punishes people "for being productive by hitting them with big tax increases," while rewarding others "for being unproductive by giving them entitlements." Government regulations "damage the economy and undermine values and morale." If we would only slash government spending, cut taxes, and pare back regulation, then, the Right is sure, the "entrepreneurial talent, the managerial talent, the creative talent of men and women that is now boxed into mediocrity would be...