Explainers

Democracy and Monopoly


Fully two-thirds of Americans say the wealthy enjoy more sway over the election process than the average citizen. The way to remedy this imbalance, many believe, is to pursue new restrictions on how much money wealthy individuals and corporations can contribute to campaigns. Many point in particular to the Supreme Court’s 2010 Citizens United ruling—which abolished limits on corporations’ political spending. Seventy-eight percent of American adults oppose that ruling.

But trying to contain the influence of money on politics through campaign finance reform alone is problematic. One reason is the Supreme Court’s insistence that political spending is a form of protected free speech. Another is the ingenuity that moneyed interests have always shown in evading regulations, from the use of soft money during the late 90s to the Super PACs of today.

More fundamentally, the focus on campaign finance reform fails to address the many other ways in which concentrated moneyed interests corrupt the political process. Big business and wealthy donors fund lobbyists and think tanks, corrupt academic science with “sponsored” research, and underwrite popular media publications and news networks. Through all these mechanisms, moneyed interests can control the flow of information in public debates and determine which issues become part of the nation’s political agenda, and which remain on the fringe.

Previous generations of Americans took a different approach to sustain the democratic process. They fought political corruption and preserved democracy by breaking up monopolies and setting market rules in ways that prevented the build-up of concentrated economic power. As Supreme Court Justice Louis Brandeis explained a century ago, at the height of the power of railroad, steel, and banking barons like J.P. Morgan, “We may have democracy, or we may have wealth concentrated in the hands of a few … but we can’t have both.”

Or, as President Woodrow Wilson put it while explaining the need for vigorous antitrust action to preserve American democracy, “If there are men in this country big enough to own the government of the United States, they are going to own it.”

During this period of intensifying corporate power, Americans across the ideological spectrum responded by passing measures such as the Sherman Antitrust Act, which criminalized monopoly and was ultimately used to break up Standard Oil. In 1914, with passage of the Clayton Act, Congress and the Wilson Administration created the Federal Trade Commission and charged it with preventing even “incipient” monopolies, businesses which were just beginning to monopolize a market.

Where economies of scale favored large-scale organizations, as in railroads and electrical utilities, Americans deployed institutions like the Interstate Commerce Commission and myriad state utility commissions to prevent price discrimination and other abuses. And, they passed laws like the anti-chain store laws of the 1920s and ‘30s, which supported small, independent retailers. Similarly, they limited big businesses’ abuse of patent law, which fostered innovation and entrepreneurship.

This anti-monopoly system had a profound effect on the American economy and, crucially, on American democracy. Though the record is often forgotten or distorted, most sectors of the economy became less concentrated and more competitive from the 1930s through the 1980s, while per capita levels of new business formation and independent business ownership were much higher than today. This meant there were more employers competing for the labor of each worker, which in turn boosted wages and helped unions and other progressive forces to enact reforms long blocked by corporate power. These range from ending child labor and establishing the 40-hour work week, to winning the decades-long fight for Social Security and later Medicare.

The successful efforts waged during most of the last century to contain monopoly also meant that most cities and town continued to have many locally owned independent business, as well as banks and other financial institutions, that participated actively civic affairs in ways that absentee owners typically do not. This helped to build and preserve the social capital that, as scholars like Robert Putnam have observed, has since gone into deep decline in communities across America. At the same time, antitrust and anti-chain store laws helped preserve a class of independent black business owners who played an essential role in the Civil Rights Movement precisely because they were not beholden to the white economic power structure.

Beginning the 1970s, however, public policy largely retreated from this long-standing anti-monopoly system. Since then, businesses have grown larger, and markets have grown more concentrated. At the same time, the influence of concentrated moneyed interests over American politics and governance has grown correspondingly.

Charles and David Koch provide a stark example. Fifty years ago, they inherited an oil business from their father and turned it into a conglomerate that ranks as the second largest private company in the country. Using merger strategy that would have been legally constrained, if not blocked outright, by the nation’s antitrust laws in earlier years, the Kochs have rolled up control of the makers of Dixie cups, Brawny paper towels, Lycra, Georgia Pacific-Lumber, Stainmaster Carpet, asphalt, oil, pipeline materials, and beef cattle, among others. Moreover, their control over thousands of miles of oil pipeline gives them great power over companies trying to ship petroleum cross country.

The Kochs have used this great concentration of economic power to buy political power. They have done so not primarily through campaign contributions but by building a wide universe of libertarian and conservative political institutions. Groups like Americans for Prosperity depend on Koch money to organize against minimum wage laws and tax hikes on the wealthy. Think tanks like the Cato Institute use Koch money to popularize and advocate for Social Security privatization and for the repeal of campaign finance laws. Conservative academics run departments with Koch money, teaching Ayn Rand, Milton Friedman, and other icons of the libertarian right. And state legislatures across the country pass bills crafted by ALEC, a legislation-writing group supported by Koch money. The Kochs have even financed their very own veterans group, which predictably lobbies for privatizing veterans’ healthcare.

The Kochs have gotten what they paid for, to a significant extent. Their funding of Tea Party organizations played a major role in stymying the Obama administration’s legislative agenda and defined the priorities of Congressional Republicans for years. The millions they funneled to groups denying the science on climate change played a key role in destroying Republican support for measures to control carbon emissions. More recently, the Kochs have funded successful efforts to pass right-to-work legislation in West Virginia, Michigan, and Wisconsin.

Meanwhile, concentrated moneyed interests have played a larger and larger role in setting the agenda of the Democratic party as well. For instance, Alphabet, the parent company of Google, held 427 meetings with the Obama Administration between 2009 and 2016. Hundreds of individuals moved between jobs with Google and positions with the federal government during the Obama administration. In addition to spending more than any other tech company on lobbying, Google exerts enormous influence across the political spectrum by funding all sorts of research on tech issues, as well as think tanks and big conferences.

This influence has benefitted Google immensely. The Federal Trade Commission chose not to file an antitrust lawsuit against Google, despite its staff finding evidence of anti-competitive wrongdoing. Google has avoided the privacy regulations that the Federal Communications Commission brought against Internet providers and has been pleased to see the commission take its side in disputes with cable companies.

Very often, big companies use their economic clout to influence government action. In 2016, Aetna, the health insurer, threatened to pull out of the Affordable Care Act health exchanges if the government blocked its merger with Humana. Aetna had grown big enough that it could damage the public interest—and give the Obama administration a PR-black eye—simply by threatening one course of action. Uber—the monopolistic ride-hailing firm—uses similar tactics. The company regularly threatens to pull out of cities that attempt to regulate it.

President Franklin Roosevelt summed up the challenge posed to our democracy by monopolists in a speech he gave in 1938: “The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself.”

Historically, Americans have joined together across party lines to contain political corruption by containing monopolies. It’s a lesson we need to learn again. Anti-monopoly policies that de-concentrate business prevent excessive concentrations of economic power so that democracy and freedom can flourish.

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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