Big retailers like Walmart could afford to sell items below cost to drive smaller retailers out of business, before then raising prices even higher.
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Paul Constant is a writer at Civic Ventures and cohost of the "Pitchfork Economics" podcast.
A recent episode dove into how big retailers like Walmart and Amazon dominate retail business in the US.
Antitrust laws could level the playing field and give local businesses a chance to serve their communities.
For Americans who were born in the 1970s, 80s, and 90s, corporate market consolidation might feel like the natural order of things. We grew up in a country where Walmarts and other big box stores dotted rural and suburban landscapes, and the surge in Amazon's prominence over the last two decades has felt in some ways like the organic continuation of that trend – an even-larger fish eating the smaller fish in the pond, as nature intended.
But there's nothing natural about that progression. In fact, the consolidated market power of corporations in the retail, banking, and food and farming sectors over the past four decades is the end result of policy choices our leaders made in the 80s and 90s. Those choices have systematically driven down worker wages and wiped out small businesses from coast to coast, while enriching a handful of CEOs, shareholders, and executives.
Through most of the 20th century, a robust suite of antitrust laws ensured that there were many competitors in industries and regions around the country. Stacy Mitchell, the co-director of the Institute for Local Self-Reliance, joined David Goldstein on this week's "Pitchfork Economics" podcast to explain how the American landscape has changed for the worse, and what can be done to revive it.
Mitchell blames corporate consolidation on "a series of policy decisions that undermined our antitrust laws and helped consolidate the banking system." These trickle-down laws "were embraced by both Republicans and Democrats," under the philosophy that efficiency and low prices, not competitiveness, were the most important benchmark for a business's success.
"Walmart came along and took advantage of those changes in antitrust policy by engaging in rampant, predatory pricing," Mitchell said. The retailer would sell items below cost to drive smaller retailers out of business, and then they would raise prices even higher (and keep worker pay artificially low) after their competitors closed.
"Walmart won not by being better, necessarily, or even being more efficient, but simply using its raw financial and market muscle to get its way at the expense of competing businesses, particularly independent retailers," Mitchell said. Amazon has basically followed the same game plan as Walmart, only in about half the time, by opening warehouses in rural areas that pay a fraction of what local factories used to pay 50 years ago.
As Walmart and other companies gained economic power, they began to flex their political power, influencing lawmakers in state houses and Congress to further "rewrite regulation to favor their own interests." Soon, their already unfair competitive advantage became enshrined in law.
Now, "there are fewer and fewer companies that control more and more of our industries," Mitchell explained, which means "those companies are putting their higher-wage jobs and their facilities in relatively few places."
As a result, "lots of smaller and mid-size companies have simply disappeared," particularly in the vast swaths of America that aren't wealthy coastal cities like New York and San Francisco.
"The advertising company that was a regional company in St. Louis, Missouri is now gone," Mitchells said. "The mid-size manufacturer that had its base of operations in rural North Carolina has now been swallowed up, and that facility has been closed."
As those independent small businesses have shuttered, good-paying jobs dried up, and rural areas and second-tier cities have been economically hollowed out. "We have a lot of regions that are really hurting and being left behind, where people can't find good jobs," Mitchell explained. "They can't succeed in starting businesses. There's no way to get into the middle class."
If Walmart had to compete on even ground with small businesses from day one, America's highways and downtowns would likely look very different right now. Mitchell says our leaders need to reform antitrust laws to place competitiveness at the center of the equation again, and to give small businesses a decent opportunity to serve their communities.
"I think that we need to split Amazon up into several companies," Mitchell continued. If Amazon's shipping, online shopping platform, online infrastructure provider, logistics network, and generic products manufacturer services were divided into separate corporations that had to compete with similar businesses, all five organizations would likely thrive. But consumers would thrive, too, as they comparison-shopped between multiple providers offering different prices, quality, and services.
The standard trickle-downer refrain that antitrust regulations are anti-capitalism has it exactly backwards: Capitalism, in its truest form, is about offering consumers a variety of options and allowing them to decide. When that happens, we all win.
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