Donald Trump, Apple CEO Tim Cook, Microsoft CEO Satya Nadella and Amazon CEO Jeff Bezos, 2017. Picture Credit: Chip Somodevilla/Getty Images

The Cosa Nostra in suits

Big business acts as a mafia, squeezing suppliers and raising prices for customers

This article is taken from the July 2022 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

The most entertaining cookbook in my (admittedly inextensive) collection is the Riverford Farm Cook Book — less for its recipes, which tend to be highly virtuous and dominated by vegetables, than for the inspired polemics of Riverford Farm’s Guy Singh-Watson.

In his brief memoir of “My loathing for supermarkets”, Singh-Watson recalls trying to sell produce to one major chain. When invited to a meeting the following Thursday, he asked if they could possibly make it Friday. The phone went dead. “I called back — ‘I’m sorry, I think we were cut off’ — and was met with the buyer’s immortal words: ‘No sonny, when we whistle, you jump.’”

As Singh-Watson recalls, supermarkets can ask almost anything of their suppliers. You might be paid well below the cost of production – only getting the full amount if your stuff sells well over the course of the year. Extra fees can be demanded for the privilege of getting one’s product on the shelf. “I was once asked to pay £1,000 to talk to a consultant who would advise me how to talk to Sainsbury. Does it sound like dealing with the Mafia? It is … One could always say no but, since one of the conditions of business is often that you supply only one or perhaps two of the major supermarkets, such outrageous reasonableness would spell the end.”

Comparisons with the Mafia appear rather often when small firms describe their dealings with big businesses. In 2014, Amazon told the publisher Hachette to lower its ebook prices. When Hachette demurred, Amazon sabotaged the publisher’s business model, instituting lengthy delays on orders of Hachette books and banning pre-orders. Another publisher, Dennis Loy Johnson of Melville House, mused to the New York Times: “How is this not extortion? You know, that thing that is illegal when the Mafia does it.”

A firm with a guaranteed stream of profits is easily tempted to stay where it is

A business that is big enough can make offers nobody can refuse: not competitors, not suppliers, not workers, not even consumers. Time and again, some thorny issue turns out to have, at its heart, a power imbalance.
Why are so many restaurants struggling? Not just because of the pandemic, but also because they have to be signed up to delivery apps which extract huge fees. According to Which?, every time you order from Deliveroo, up to 35 per cent of your money goes not to the restaurant, but to the app. George Kontakos from the Olive Grove restaurant in Cambridge told Which? he had no choice but to pay up: “Deliveroo has replaced the high street. Removing ourselves from Deliveroo would mean becoming invisible to online orders.”

Why has Britain been suffering a shortage of lorry drivers? Because the pay and conditions are frequently grim, and individual drivers or small agencies are in no position to negotiate with big customers such as supermarkets. Why are house prices out of control? Lots of reasons, but the economic journalist Liam Halligan, author of Home Truths, points to one above all: the housebuilding market is dominated by half-a-dozen firms who “hoover up permits and then sit on them, producing far fewer homes than are needed. The supply shortage and resulting pent-up demand keep prices rising, ensuring the developers make higher profits overall.” Halligan, incidentally, calls it a “housing mafia”.

If all this sounds sensationalist, here are two drier accounts. In 2017 the Social Market Foundation issued a report entitled “Concentration not competition” which concluded that eight major products — electricity, gas, current accounts, credit cards, groceries, broadband, phone contracts for mobiles and landlines — were “dominated by a small number of large companies”. (The report found two exceptions to the rule: cars and mortgages.)

In April, Andrea Coscelli, the interim head of the Competition and Markets Authority (CMA), wrote in the Guardian: “The level to which markets are dominated by a limited number of companies is higher than before the 2008 financial crisis,” with the results one would expect: firms protected by their sheer size from competition need not bother to “innovate and improve, or to keep quality high”.

The problem of bigness is not just about greedy fat cats squashing the little guy: it is also a matter of decadence and stagnation. Just as trust-fund kids often find it hard to motivate themselves, a firm with a guaranteed stream of profits is easily tempted to stay where it is, not bothering to take risks on new projects and ideas.

Dominant firms can also raise their prices at the drop of a hat. For the top ten per cent of firms, Coscelli observed, the last 20 years have been a boom time: the difference between the costs of production and the price for consumers has risen from 58 per cent to 82 per cent. Since the whole point of the CMA is to stop this kind of thing from happening, it was a notable admission.

In July, Coscelli will be replaced, probably by the government’s favoured candidate, the retired management consultant Marcus Bokkerink. So far there has been little scrutiny of Bokkerink’s candidacy; but then, the national conversation is generally uninterested in the question of bigness, of power imbalances, of the health of our institutions and our businesses. We prefer to keep things on the level of “How much will Rishi splash out?”, “Was it a work event?” and “Can Sir Keir define what a woman is?”

American hacks have gone after big business with crusading zeal

Similarly, there was scarcely any response in 2019 when the then chairman of the CMA, Lord Tyrie, complained in a scorching letter to the Business Secretary that the regulator was unable to do its job properly. In theory, competition law should prevent firms from abusing their power; but the law was in a state of confusion, and the tribunal that hears cases was easily bamboozled by “large teams of private-sector lawyers, deploying Byzantine procedural and technical complexity on behalf of their clients”.

Britain had acquired an international reputation, Tyrie noted, as “the best jurisdiction in the world to defend a competition case”. And the public was sensing that markets weren’t working for their benefit — a view for which, Tyrie noted, there was some decent evidence. It was time for the CMA to be given fresh powers and a newly formidable role.

The year after his letter, Tyrie stepped down because — a sad irony, this — he felt he could only properly make the case for stronger regulation when he wasn’t working for the regulator.

In a wistful footnote to his 2019 letter, Tyrie noted that the US was fast adapting its approach to competition. And so it is. Whereas Britain’s chief competition regulator is a suit in charge of an acronym, his American counterparts are “enforcers”, profiled in the magazines, smeared by their corporate enemies, and expected to use their “bully pulpit” to rally support.

While our parliament has said little about competition, the US Congress has summoned the most powerful CEOs in the world to answer questions. Whereas our media is dominated by Westminster gossip, American hacks have gone after big business with crusading zeal. And where Boris Johnson’s analysis of capitalism scarcely rises above some vague greed-is-good clichés at the back of his mind, Joe Biden — say what you like about him — has zeroed in on what he calls “capitalism without competition”, under which “big players can change and charge whatever they want and treat you however they want”.

People complain, rightly, that Britain is imitating the maddest aspects of American public life. But what really grates is that we aren’t imitating its outbreaks of sanity. The revival of anti-bigness politics has happened quite suddenly, and nothing exemplifies it better than the dramatic rise of Lina Khan (above). Khan is, by all accounts, a quiet, self-deprecating and rather geeky young woman who as a law student at Yale pursued an eccentric interest in the branch of US law known as “antitrust”.

The trusts, back around the turn of the 20th century, were the vast conglomerates owned by men like John D Rockefeller, and were paradigmatic examples of the dangers of bigness. Where Rockefeller’s Standard Oil faced rival oil companies, it would slash its prices to kill off the competition. Once the other firms were gone, prices went up. “Antitrust” reform was the response: a series of new laws which broke up Standard Oil and other behemoths, ensuring that they couldn’t dominate the market.

Khan noticed some contemporary parallels, and wrote about the most glaring of them in a paper for the Yale Law Journal entitled “Amazon’s Antitrust Paradox”. Antitrust law, she wrote, had been reformed since Rockefeller’s day, so that it focused on “consumer welfare” (are customers getting a good deal for their money?). But Amazon’s size was a problem even if it brought prices down.

Authors have fewer avenues to get published

For instance, Amazon became the world’s biggest bookshop by keeping prices low. But once it had acquired its dominant position, it began to reshape the entire book world. As the Hachette episode demonstrated, Amazon’s negotiating power was tremendous. So, to give themselves the best chance in negotiations, the largest players in publishing banded together — merging until the market had shrunk to a “Big Six”, then a “Big Five”: Penguin Random House, Hachette, Harper Collins, Simon and Schuster, Macmillan.

Now authors have fewer avenues to get published — and there is less competition for their books, so advances begin to shrink. Big publishers are less likely to take risks on strange or politically controversial books. The fizz starts quietly going out of literary life. The promotion tables in Waterstones start looking a bit samey.

Khan’s paper was about more than Amazon: it suggested current US law and politics failed to recognise “how dominant firms acquire and exercise power”, particularly in the internet age. Something about her argument, with its lucid prose backed up by 464 footnotes, caught the moment. It became as much of a sensation as an academic legal paper can. Last year Joe Biden nominated the 33-year-old to run the Federal Trade Commision and its team of 1,100 staffers. She plans to tighten the rules on mergers that could create disproportionate market power, and to mount legal challenges against such attempts.

Another Biden appointee, Jonathan Kanter, took over last year as head of the Department of Justice’s antitrust section. In his first few months Kanter has taken legal action against an attempted merger between two huge health providers and launched an inquiry into the link between supply chain problems and market power.

The most high-profile instance of the new anti-bigness politics is the House Antitrust Committee, which in 2020 summoned the heads of the “Big Four” tech firms (Apple, Amazon, Facebook and Google) to answer questions about their business models. Was it fair for Apple to charge 30 per cent commission for many apps on its App Store? Was it a sign of a healthy economy that Facebook, when threatened with competition from Instagram, simply bought it?

And so on. Legislating to narrow the giants’ power will be another matter, but they are clearly worried: last year the Big Four spent a record-breaking $55 million on lobbying the federal government. The tech hearings made for excellent political theatre, and everyone enjoys seeing the rich and powerful meekly answering questions. Yet the clearer cases of power imbalances are in the more mundane corners of the economy.

Britain has no equivalent, sadly, of the American Prospect, which publishes story after story on the market power wielded in such areas as (just to take the last six months) shipping containers, sports betting, agricultural fertiliser, meatpacking, music streaming, professional wrestling, tractor repair, pharmaceuticals, hospital beds, and spare parts for the US Air Force. In every case one finds the same pattern: a small number of huge firms doing outstandingly well at the expense of almost everyone else.

Thomas Jefferson wanted to put an anti-monopoly clause into the Constitution

Likewise, Matt Stoller’s influential and straightforwardly-titled newsletter BIG reads the US economy through the lens of economic power. The recent shortage of baby milk formula, he argues, came about because just two firms provide 80 per cent of the stuff, and when one of them hits a crisis (in this case a bacterial outbreak at a factory), the whole sector is in trouble. Warren Buffett, the twinkly-eyed investment guru and multi-billionaire is — according to Stoller — “America’s folksiest predator”: he has cannily placed his bets on companies set to become dominant, in industries from kidney treatment to credit rating, and reaped the benefits of their high prices.

Stoller has also, in his book Goliath, emphasised America’s long tradition of reining in oversized businesses. Thomas Jefferson wanted to put an anti-monopoly clause into the Constitution. Woodrow Wilson and the Roosevelts took a combative, and vote-winning, stance against the big trusts. In 1914 Congress passed a law that mergers that may “substantially lessen competition or tend to create a monopoly are illegal.”

It’s still on the books, and Khan and Kanter suspect it may have been rather neglected of late. It was only with the intellectual revolution of the 1970s, and the political and legal reforms of the 1980s, that the US became intensely relaxed about big firms gaining enormous power.

The new anti-bigness movement claims not only that it will remedy injustices, but that it will shake the US economy out of its sluggishness.

Yet it is also rooted in decades of political wisdom about keeping power in check. It has both the confidence of a traditional movement, and the sheer aggression of youth. And Britain has nothing to compare with it.

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