Which do you want? Do you want to live in a town patronized by some great combination of capitalists who pick it out as a suitable place to plant their industry and draw you into their employment? Or do you want to see your sons and your brothers and your husbands build up business for themselves under the protection of laws which make it impossible for any giant, however big, to crush them and put them out of business, so that they can match their wits here, in the midst of a free country with any captain of industry or merchant of finance … anywhere in the world?After winning the election, Wilson set out to implement his vision, and that of his intellectual mentor, Louis Brandeis, of an America in which the federal government used expanded political powers to structure markets in ways that maximized local control of local business. The Wilson-Brandeis program included, for example, passing the Clayton Antitrust Act, which targeted even incipient monopolies in the name of making the world safe for small business. It also included dramatic cuts in tariffs, which at the time were widely seen as propping up northern manufacturing monopolies at the expense of the rest of the country. It also included establishment of the Federal Reserve System, which aimed to shift control of finance and monetary policy from private bankers in New York to a transparent public board, with voting power dispersed across twelve member banks headquartered in cities across the Heartland such as St. Louis, Minneapolis, and Kansas City. In the Wilson-Brandeis vision, effective government management of the economy meant maintaining equality of opportunity not only among firms but also among the different regions of the country. These and similar public measures enacted early in the twentieth century helped to contain the forces pushing toward greater regional concentrations of wealth and power that inevitably occurred as the country industrialized. Standard Oil sucked wealth out of the oil fields of western Pennsylvania, and transferred it to its headquarters in New York City, for example, but the government broke up the colossus into thirty-four regional companies, ensuring that the oil wealth was widely shared geographically. Working toward the same end were laws, mostly enacted in the 1920s and ’30s, that were explicitly designed to protect small-scale retailers from displacement by chain stores headquartered in distant cities. Indiana passed the first of many graduated state taxes on retail chains in 1929. In 1936, overwhelming majorities in the U.S. House of Representatives and Senate joined in by passing federal anti-chain store legislation known as the Robinson-Patman Act. Sometimes referred to by its supporters as “the Magna Carta of Small Business,” Robinson-Patman prevented the formation of chain stores even remotely approaching the scale and power of today’s Walmart or Amazon by cracking down on such practices as selling items below cost (a practice known as “loss leading”). The legislation also prohibited the chains from using their market power to extract price concessions from their suppliers, Similarly, the Miller-Tydings Act, enacted by Congress in 1937, put a floor on retail discounting, thereby ensuring that large chains headquartered in distant cities didn’t come to dominate the economies of local communities. This did not prevent innovation in retailing, such as the emergence of brand-spanking-new supermarkets to replace small-scale butcher shops and green grocers. But into the 1960s, these and similar laws would ensure that no supermarket chain would control more than about 7 percent of any local market. Another powerful policy lever used to limit economic concentration attacked patent monopolies. Starting in his second term in office, Franklin Delano Roosevelt dramatically stepped up antitrust enforcement, including by repeatedly forcing America’s largest corporations to license many of their most valuable patents. This policy took the form of consent decrees that, for example, resulted in General Electric having to license the patents on its light bulbs, and, perhaps most consequentially, in AT&T having to share its transistor technology, which became the basis for the digital revolution. (See Barry C. Lynn, “Estates of Mind,” Washington Monthly, July/August 2013.) In 1950, Congress significantly strengthened antitrust laws again by passing the Celler-Kefauver Act. In explaining the need for such legislation, Representative Emanuel Celler emphasized its effect on the regional distribution of wealth and power, noting that “the swallowing up of … small-business entities transfers control from small communities to a few cities where large companies control local destinies. Local people lose their power to control their own local economic affairs. Local matters are within remote control.” Or, as Senator Hubert Humphrey put it in a debate on the Senate floor in 1952, “We are talking about the kind of America we want.… Do we want an America where the economic marketplace is filled with a few Frankensteins and giants? Or do we want an America where there are thousands upon thousands of small entrepreneurs, independent businessmen, and landholders who can stand on their own feet and talk back to their government or to anyone else?” By the 1960s, antitrust enforcement grew to proportions never seen before, while at the same time the broad middle class grew and prospered, overall levels of inequality fell dramatically, and midsize metro areas across the South, Midwest, and Far West achieved a standard of living that converged with that of America’s historically richest cites in the East. Of course, antitrust was not the only cause of the increase in regional equality, but it played a much larger role than most people realize today. To get a flavor of how thoroughly the federal government managed competition throughout the economy in the 1960s, consider the case of Brown Shoe Co., Inc. v. United States, in which the Supreme Court blocked a merger that would have given a single distributor a mere 2 percent share of the national shoe market. Writing for the majority, Supreme Court Chief Justice Earl Warren explained that the Court was following a clear and long-established desire by Congress to keep many forms of business small and local: “We cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned business. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision.” In 1964, the historian and public intellectual Richard Hofstadter would observe that an “antitrust movement” no longer existed, but only because regulators were managing competition with such effectiveness that monopoly no longer appeared to be a realistic threat. “Today, anybody who knows anything about the conduct of American business,” Hofstadter observed, “knows that the managers of the large corporations do their business with one eye constantly cast over their shoulders at the antitrust division.” In 1966, the Supreme Court blocked a merger of two supermarket chains in Los Angeles that, had they been allowed to combine, would have controlled just 7.5 percent of the local market. (Today, by contrast there are nearly forty metro areas in the U.S where Walmart controls half or more of all grocery sales.) Writing for the majority, Justice Harry Blackmun noted the long opposition of Congress and the Court to business combinations that restrained competition “by driving out of business the small dealers and worthy men.” During this era, other policy levers, large and small, were also pulled in the same direction—such as bank regulation, for example. Since the Great Recession, we have all relearned the history of how New Deal legislation like the Glass-Steagall Act served to contain the risks of financial contagion. Less well remembered is how New Deal-era and subsequent banking regulation long served to contain the growth of banks that were “too big to fail” by pushing power in the banking system out to the hinterland. Into the early 1990s, federal laws severely limited banks headquartered in one state from setting up branches in any other state. State and federal law fostered a dense web of small-scale community banks and locally operated thrifts and credit unions. Meanwhile, bank mergers, along with mergers of all kinds, faced tough regulatory barriers that included close scrutiny of their effects on the social fabric and political economy of local communities. Lawmakers realized that levels of civic engagement and community trust tended to decline in towns that came under the control of outside ownership, and they resolved not to let that happen in their time. In other realms, too, federal policy during the New Deal and for several decades afterward pushed strongly to spread regional equality. For example, New Deal programs like the Tennessee Valley Authority, the Bonneville Power Administration, and the Rural Electrification Administration dramatically improved the infrastructure of the South and West. During and after World War II, federal spending on the military and the space program also tilted heavily in the Sunbelt’s favor. The government’s role in regulating prices and levels of service in transportation was also a huge factor in promoting regional equality. In 1952, the Interstate Commerce Commission ordered a 10 percent reduction in railroad freight rates for southern shippers, a political decision that played a substantial role in enabling the South’s economic ascent after the war. The ICC and state governments also ordered railroads to run money-losing long-distance and commuter passenger trains to ensure that far-flung towns and villages remained connected to the national economy. Into the 1970s, the ICC also closely regulated trucking routes and prices so they did not tilt in favor of any one region. Similarly, the Civil Aeronautics Board made sure that passengers flying to and from small and midsize cities paid roughly the same price per mile as those flying to and from the largest cities. It also required airlines to offer service to less populous areas even when such routes were unprofitable. Meanwhile, massive public investments in the interstate highway system and other arterial roads added enormously to regional equality. First, it vastly increased the connectivity of rural areas to major population centers. Second, it facilitated the growth of reasonably priced suburban housing around high-wage metro areas such as New York and Los Angeles, thus making it much more possible than it is now for working-class people to move to or remain in those areas. Beginning in the late 1970s, however, nearly all the policy levers that had been used to push for greater regional income equality suddenly reversed direction. The first major changes came during Jimmy Carter’s administration. Fearful of inflation, and under the spell of policy entrepreneurs such as Alfred Kahn, Carter signed the Airline Deregulation Act in 1978. This abolished the Civil Aeronautics Board, which had worked to offer rough regional parity in airfares and levels of service since 1938. With that department gone, transcontinental service between major coastal cities became cheaper, at least initially, but service to smaller and even midsize cities in flyover America became far more expensive and infrequent. Today, average per-mile airfares for flights in and out of Memphis or Cincinnati are nearly double those for San Francisco, Los Angeles, and New York. At the same time, the number of flights to most midsize cities continues to decline; in scores of cities service has vanished altogether. Since the quality and price of a city’s airline service is now an essential precondition for its success in retaining or attracting corporate headquarters, or, more generally, for just holding its own in the global economy, airline deregulation has become a major source of decreasing regional equality. As the airline industry consolidates under the control of just four main carriers, rate discrimination and declining service have become even more severe in all but a few favored cities that still enjoy real competition among carriers. The wholesale abandonment of publicly managed competition in the airline sector now means that corporate boards and financiers decide unilaterally, based on their own narrow business interests, what regions will have the airline service they need to compete in the global economy. (See “Terminal Sickness,” Washington Monthly, March/April 2012.) In 1980, President Carter signed legislation that similarly stripped the government of its ability to manage competition in the railroad and trucking industries. As a result, midwestern grain farmers, Texas and Gulf Coast petrochemical producers, New England paper mills, and the country’s mines and steel, automobile, and other heavy-industry manufacturers, all now typically find their economic competitiveness in the hands of a single carrier that faces no local competition and no regulatory restraints on what it charges its captive shippers. Electricity prices similarly vary widely from region to region, depending on whether local utilities are held captive by a local railroad monopoly, as is now typically the case. Since 1980, mergers have reduced the number of major railroads from twenty-six to seven, with just four of these mega systems controlling 90 percent of the country’s rail infrastructure. Meanwhile, many cities and towns have lost access to rail transportation altogether as railroads have abandoned secondary lines and consolidated rail service in order to maximize profits. In this era, government spending on new roads and highways also plummeted, even as the number of people and cars continued to grow strongly. One result of this, and of the continuing failure to adequately fund mass transit and high-speed rail, has been mounting traffic congestion that reduces geographic mobility, including the ability of people to move to or remain in the areas offering the highest-paying jobs. The New York metro area is a case in point. Between 2000 and 2009, the region’s per capita income rose from 25 percent above the average for all U.S. metro areas to 29 percent above. Yet over the same period, approximately two million more people moved away from the area to other parts of the country than moved in, according to the Census Bureau. Today, the commuter rail system that once made it comparatively easy to live in suburban New Jersey and work in Manhattan is falling apart, and commutes from other New York suburbs, whether by road or rail, are also becoming unworkable. Increasingly, this means that only the very rich can still afford to work in Manhattan, much less live there, while increasing numbers of working- and middle-class families are moving to places like Texas or Florida, hoping to break free of the gridlock, even though wages in Texas and Florida are much lower. The next big policy change affecting regional equality was a vast retreat from antitrust enforcement of all kinds. The first turning point in this realm came in 1976 when Congress repealed the Miller-Tydings Act. This, combined with the repeal or rollback of other “fair trade” laws that had been in place since the 1920s and ’30s, created an opening for the emergence of super-chains like Walmart and, later, vertically integrated retail “platforms” like Amazon. The dominance of these retail goliaths has, in turn, devastated (to some, the preferred term is “disrupted”) locally owned retailers and led to large flows of money out of local economies and into the hands of distant owners. Another turning point came in 1982, when President Ronald Reagan’s Justice Department adopted new guidelines for antitrust prosecutions. Largely informed by the work of Robert Bork, then a Yale law professor who had served as solicitor general under Richard Nixon, these guidelines explicitly ruled out any consideration of social cost, regional equity, or local control in deciding whether to block mergers or prosecute monopolies. Instead, the only criteria that could trigger antitrust enforcement would be either proven instances of collusion or combinations that would immediately bring higher prices to consumers. This has led to the effective colonization of many once-great American cities, as the financial institutions and industrial companies that once were headquartered there have come under the control of distant corporations. Empirical studies have shown that when a city loses a major corporate headquarters in a merger, the replacement of locally based managers by “absentee” managers usually leads to lower levels of local corporate giving, civic engagement, employment, and investment, often setting in motion further regional decline. A Harvard Business School study that analyzed the community involvement of 180 companies in Boston, Cleveland, and Miami found that “[l]ocally headquartered companies do most for the community on every measure,” including having “the most active involvement by their leaders in prominent local civic and cultural organizations.” According to another survey of the literature on how corporate consolidation affects the health of local communities, “local owners and managers … are more invested in the community personally and financially than ‘distant’ owners and managers.” In contrast, the literature survey finds, “branch firms are managed either by ‘outsiders’ with no local ties who are brought in for short-term assignments or by locals who have less ability to benefit the community because they lack sufficient autonomy or prestige or have less incentive because their professional advancement will require them to move.” The loss of social capital in many Heartland communities documented by Robert Putnam, George Packer, and many other observers is at least in part a consequence of the wave of corporate consolidations that occurred after the federal government largely abandoned traditional antitrust enforcement thirty-some years ago. Financial deregulation also contributed mightily to the growth of regional inequality. Prohibitions against interstate branching disappeared entirely by the 1990s. The first-order effect was that most midsize and even major cities saw most of their major banks bought up by larger banks headquartered somewhere else. Initially, the trend strengthened some regional banking centers, such as Charlotte, North Carolina, even as it hollowed out local control of banking nearly everywhere else across America. But eventually, further financial deregulation, combined with enormous subsidies and bailouts for banks that had become “too big to fail,” led to the eclipse of even once strong regional money centers like Philadelphia and St. Louis by a handful of elite cities such as New York and London, bringing the geography of modern finance full circle back to the patterns prevailing in the Gilded Age. Meanwhile, dramatic changes in the treatment of what, in the 1980s, came to be known as “intellectual property,” combined with the general retreat from antitrust enforcement, had the effect of vastly concentrating the geographical distribution of power in the technology sector. At the start of the 1980s, federal policy remained so hostile to patent monopolies that it refused even to grant patents for software. But then came a series of Supreme Court decisions and acts of Congress that vastly expanded the scope of patents and the monopoly power granted to patent holders. In 1991, Bill Gates reflected on the change and noted in a memo to his executives at Microsoft that “[i]f people had understood how patents would be granted when most of today’s ideas were invented, and had taken out patents, the industry would be at a complete standstill today.” These changes caused the tech industry to become much more geographically concentrated than it otherwise would have been. They did so primarily by making the tech industry much less about engineering and much more about lawyering and deal making. In 2011, spending by Apple and Google on patent lawsuits and patent purchases exceeded their spending on research and development for the first time. Meanwhile, faced with growing barriers to entry created by patent monopolies and the consolidated power of giants like Apple and Google, the business model for most new start-ups became to sell themselves as quickly as possible to one of the tech industry’s entrenched incumbents. For both of these reasons, success in this sector now increasingly requires being physically located where large concentrations of incumbents are seeking “innovation through acquisition,” and where there are supporting phalanxes of highly specialized legal and financial wheeler-dealers. Back in the 1970s, a young entrepreneur like Bill Gates was able to grow a new high-tech firm into a Fortune 500 company in his hometown of Seattle, which at the time was little better off than Detroit and Cleveland are today—a depopulating, worn-out manufacturing city, labeled by the Economist as “the city of despair.” Today, a young entrepreneur as smart and ambitious as the young Gates is most likely aiming to sell his company to a high-tech goliath—or will have to settle for doing so. Sure, high-tech entrepreneurs still emerge in the hinterland, and often start promising companies there. But to succeed they need to cash out, which means that they typically need to go where they’ll be in the deal flow of patent trading and mergers and acquisition, which means an already-established hub of high-tech “innovation” like Silicon Valley, or, ironically, today’s Seattle. They may also need to maintain a Washington office, the better to protect and expand the policies that have allowed the concentration of wealth and power in a few imperial cities, including intellectual property protections, minimal antitrust enforcement, and financial regulations that benefit behemoth banks. The spectacular rise in the affluence of the D.C. metro area since the 1970s belies the idea that “deregulation” has brought a triumph of open and competitive markets. Instead, it is the result of a boom in what our libertarian friends in other contexts like to call “rent seeking,” or the enrichment of a few through the manipulation of government and the cornering of markets. Inequality, an issue politicians talked about hesitantly, if at all, a decade ago, is now a central focus of candidates in both parties. The terms of the debate, however, are about individuals and classes: the elite versus the middle, the 1 percent versus the 99 percent. That’s fair enough. But the language we currently use to describe inequality doesn’t capture the way it is manifest geographically. Growing inequality between and among regions and metro areas is obvious to all of us. But it is almost completely absent from the current political conversation. This absence would have been unfathomable to earlier generations of Americans; for most of this country’s history, equalizing opportunity among different parts of the country was at the center of politics. The resulting policies led to the greatest mass prosperity in human history. Yet somehow, about thirty years ago, we forgot our history.
Join the Movement
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.
Sign up to stay informed.