The Corner Newsletter: December 17, 2021
Welcome to The Corner. In this issue, we look at the role monopolists are playing in stoking today’s high inflation, and we highlight our recent congressional testimony on the supply chain crisis and the risks of stablecoins.
To read previous editions of The Corner, click here.
How Monopolists Drive — and Profit From — Today’s High Inflation
Garphil Julien
As 2021 comes to a close, inflation has surged into the political debate. Polling consistently shows a majority of Americans concerned about rising prices, and Republicans are using this to their advantage. Sen.Rick Scott (R-Fla.) recently said inflation “is a gold mine for us.” And indeed, at 6.8%, inflation is at its highest rate in almost 40 years.
But rather than simply fret about next year’s elections, Democrats have a clear way to make the inflation story work for them: Go after price gouging. Corporations have made record profits this year by jacking up prices on consumers, recording their largest profits since 1950. Many are simply using recent stories about supply chain chokepoints as a cover for what has been called a “once in a generation opportunity” to increase prices.
To be sure, some of the higher prices reflect natural shortages, including those created by the COVID-19 pandemic. But a major contributor to today's inflation is the extreme chokepointing of transportation and manufacturing systems over the last generation. Decades of neoliberal policy changes have made it far easier for U.S. and foreign corporations to concentrate capacity and control and use their new power to force the American people to pay more for less.
“Concentrated industries are more susceptible to coordinated pricing,” says Hal Singer, an economist and managing director of consulting firm Econ One.
Container shipping is a good example. The industry is on pace to reap profits of $100 billion in 2021—15 times higher than 2019. Mergers played a role, as the market share of the top 10 companies increased from 51 percent in 2000 to 82 percent now. Basic cartelization did the rest, as these companies then formed three globe-spanning alliances known as 2M, the Alliance, and Ocean. These super cartels facilitated years of coordinated capacity cutting and rate hikes, which in turn played a large role in disrupting supply chains and creating a cascading series of other shortages.
Much the same is true of railroads. As our own recent article detailed, decades of consolidation, cost-cutting, and downsizing of major railroads by executives to please Wall Street and boost short-term profits have weakened freight services and worsened congestion and bottlenecks in the shipment of goods.
Then there are the manufacturing chokepoints, such as in semiconductors. As this recent Open Markets article makes clear, Wall Street has used its power to force more extreme consolidation of the U.S. semiconductor industry and to shift more production to offshore monopolists in places such as Taiwan and South Korea. The numbers are stark, as the ranks of leading semiconductor makers in the U.S. shrunk from 25 in 2002 to just three in 2016, according to Capital Group.
Worse, the chokepointing of chip manufacturing has triggered a cascading series of shortages and price hikes in other industries. One result is a massive cut in the production of automobiles, with Ford’s output down 50 percent in Q2 and Toyota’s down 40% in Q3. This means higher prices for what cars do reach dealers. And it means higher prices for used cars. It also provides a huge opportunity for rental car corporations to pile up cash, a fact made easier by the consolidation of that industry under the control of Hertz, Enterprise, and Avis-Budget, which together control 95% of the market. Hertz, in bankruptcy only two years ago, saw record-setting profits in October.
Then there’s the meat industry, where an oligopoly of processors has discovered it can raise prices with increasing impunity. In America today, four meat processors control 55 to 85 percent of the beef, poultry, and pork market. And these figures dramatically understate the degree of real concentration over farmers and eaters, as these corporations routinely enjoy close to complete concentration in certain regions. Since the beginning of the pandemic, Tyson, JBS, Marfrig, and Seaboard have recorded a 120% increase in gross profits and a 500% increase in net income.
The good news is the White House now understands the source of the problem and has ordered investigations of both the meatpacking and oil and gas industries. Members of Congress have called on the Biden administration to also take action against nurse staffing agencies, and clothing industry groups have asked the president to investigate gouging by shipping companies.
Lynn Testifies on Supply Chain Crisis
Barry Lynn last week testified before the Senate Subcommittee on Fiscal Responsibility and Economic Growth at a hearing titled “PromotingCompetition, Growth, and Privacy Protection in the Technology Sector.” His testimony was mentioned in Politico, Law 360, Lawfare Blog, and Washington Business Journal. His testimony also provided the basis for a letter from Sen. Elizabeth Warren (D-Mass.) to Commerce Secretary Gina Raimondo, as covered in this CNN story.
In his testimony, Lynn wrote: Over “the 22 years since the earthquake in Taiwan first revealed the extreme concentration of the capacity to produce certain types of semiconductors, the problem has become only worse. As was true in 1999, the world today remains just as vulnerable to disruption… as there has been no effort whatsoever to distribute capacity or ownership. Worse, monopolistic manufacturers like Taiwan Semiconductor Manufacturing Corporation (TSMC) have become increasingly tempted to exploit their chokepoints for profit. The result… has been a slow but steady choking off of production in an ever-widening range of industries.” You can watch Lynn’s testimony here.
Goldstein Testifies on the Risks of Cryptocurrency Stablecoins
This week, Open Markets Financial Policy Director Alexis Goldstein testified at the U.S. Senate Banking Committee’s hearing titled “Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?” In her testimony, Goldstein addressed the ways that stablecoins are used for speculation today, not as a payment mechanism, and also highlighted the fact that the top two stablecoins — Tether and USDC — cannot be redeemed for dollars by U.S. retail investors; they can only be traded for dollars on cryptocurrency exchanges.
During the hearing, Goldstein discussed how using stablecoins as remittances are often impractical due to the high total cost, which is the result of the many steps required and multiple fees incurred. In response to a question from Sen. Mark Warner (D-Va.) about how certain stablecoin issuers can turn a profit if they only hold cash and Treasuries, Goldstein noted that Circle’s investor materials show they want to offer services connecting customers to DeFi — the piece of the cryptocurrency markets with the least regulatory compliance. “Today, the cryptocurrency market is not that entangled with the mainstream financial system, but if Wall Street and the cryptocurrency industry have their way, it will be,” Goldstein said.
Goldstein’s testimony was mentioned in The New York Times’ DealBook and featured on Cheddar News and Yahoo! Finance. You can watch the complete hearing video here and read Goldstein’s written testimony here.
🔊 ANTI-MONOPOLY RISING:
The Federal Trade Commission (FTC) announced last week that Vyera Pharmaceuticals and its parent company Phoenixus AG must pay $40 million to victims of a drug price-gouging scheme. The FTC alleges that Vyera and its former CEO Martin Shkreli violated antitrust laws by raising the price of the lifesaving drug Daraprim by 4,000% from $17.50 to $750 per tablet. The company used anti-competitive tactics to delay and slow the entry of generic drugs into the market, according to the FTC. (Axios)
Last week, Italian antitrust officials announced a fine of $1.28 billion on Amazon for breaking antitrust laws. The Italian Competition Authority claims that Amazon favored its own logistics services, Fulfillment by Amazon, by engaging in special deals with third-party merchants choosing to use its warehouse and delivery system. Italian officials also are now requiring Amazon to allow outside vendors that do not use its fulfillment service to access the same deals and visibility opportunities that those using the service received. (The New York Times)
FDIC board members Rohit Chopra and Martin Gruenberg voted earlier this week to begin a review of bank merger policy. The review involves more scrutiny into whether these mergers impact financial stability and protect consumers. The review would also lead to a moratorium on approval of current bank mergers that would lead to combined assets over $100 billion. (American Banker) See the Open Markets statement applauding the vote here. The statement was published in Common Dreams.
📝 WHAT WE'VE BEEN UP TO:
Open Markets released a statement in response to Amazon Web Services’ massive outage and deal to host NASDAQ, highlighting the urgent need for strict regulation. The statement references Open Markets' recent letter calling for U.S. financial regulators to regulate AWS as a Systemically Important Financial Market Utility. “The message we’ve been sending about the need for enhanced regulation of AWS was made crystal clear yesterday: If AWS hiccups, the rest of the economy can suffer a stroke.”
Open Markets released a statement lamenting Professor Saule Omarova’s withdrawal of her nomination to head the Office of the Comptroller of the Currency. “I have worked with Professor Omarova for more than a decade, and she has long served on the Open Markets advisory board. I know through personal experience that Professor Omarova is a true patriot who has dedicated her life to protecting the American people against dangerous concentrations of power, at home and abroad. It is unfortunate that entrepreneurs, communities, families, and consumers across the United States will not have Professor Omarova to defend against reckless Big Banks.”
Sandeep Vaheesan spoke at a Justice Department and Federal Trade Commission workshop on “Making Competition Work: Promoting Competition in Labor Markets.” “Section 6 of the Clayton Act does not distinguish between employees and independent contractors. This law was passed not so much to legalize primary strikes and boycotts by unions but to permit secondary strikes and boycotts by unions. So a group of workers striking their employer was never prosecuted under federal antitrust law.”
Jody Brannon provided a prediction for Nieman Lab about the future of journalism in 2022: “I expect more institutions and journalistic enterprises to build on efforts to protect democracy.”
Daniel Hanley and Sally Hubbard were both quoted in a Vox Recode article about Apple’s App Store monopoly. ’What Apple realized is that if they could control the App Store, they really control the rest of the game,’ Hanley told Recode. The article mentioned Hubbard’s book Monopolies Suck and noted that Hubbard had “described Apple as a ‘warm and fuzzy monopolist’ when compared to Facebook, Google, and Amazon, the other three companies in the so-called Big Four that have been accused of being too big.”
Nikki Usher’s book News for the Rich, White, and Blue continued to receive coverage. including in Columbia Journalism Review, Nieman Lab, and Deseret News. “Nikki Usher’s recent book, News for the Rich, White, and Blue helps to explain why these trends might have contributed especially to the alienation of conservatives from the news, as many of the leading (and surviving) legacy news organizations have identified white, affluent, and liberal people as their core target audience, producing journalism that is most attuned to the tastes and preoccupations of this group.”
Open Markets’ concentration data was cited in The New Republic in an article about how the car company Hertz went from bankruptcy to buybacks in six months. “The case that Hertz is a fabulously successful company begins with the fact that its market share is a very healthy 15 percent, according to a 2018 calculation by the Open Markets Institute.”
Johnny Ryan and his group, the Irish Council for Civil Liberties, received in-depth coverage from Yahoo! Finance for their work to hold Europe’s ad industry to account. “Ryan ended his statement by saying that he hopes that the final decision, when it is released, ’will finally force the online advertising industry to reform.’” Ryan received similar coverage in the Silicon Republic.
Daniel Hanley commented on the relationship between Amazon’s worker surveillance and unions in an article co-published by Newsweek and Capital & Main. “The key, according to Hanley, is to incorporate workers into the decision-making process. ‘What are their health and safety concerns? Maybe they say, you know what? This technology, we actually could use it,’ said Hanley. ‘But that’s for them to decide.'”
Open Markets’ letter to financial regulators sounding the alarm about Facebook’s crypto-asset pilot project was referenced in Truthout. “Considering ‘Facebook’s track record of violating user privacy, and Facebook’s ongoing need to find new profit centers,’ the Open Markets Institute warned, ‘there is absolutely no reason to believe its promises today that it will not find a way to monetize its digital assets pilot project.'” It was also mentioned in a Nairametrics article.
📈 VITAL STAT: 40.4%
Amazon’s share of U.S. e-commerce sales in 2021 (Business Insider)
📚 WHAT WE'RE READING:
"Facebook’s ethical failures are not accidental; they are part of the business model” (AI and Ethics, David Lauer): Lauer explains how the problems Facebook creates — such as the proliferation of extremism, bullying, hate speech, disinformation, conspiracy theory, and rhetorical violence — are not a technology problem. Rather, all of these problems derive from Facebook’s business model.
Nikki Usher’s New Book:
News for the Rich, White, and Blue: How Place and Power Distort American Journalism
Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.
Open Markets Employment Opportunities
You can find the full job listings here.
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