Why do big corporations continue to win while workers get shafted? It all comes down to power: who has it, and who doesn't.
Big corporations have become so dominant that workers and consumers have fewer options and have to accept the wages and prices these giant corporations offer. This has become even worse now that thousands of small businesses have had to close as a result of the pandemic, while mammoth corporations are being bailed out.
At the same time, worker bargaining power has declined as fewer workers are unionized and technologies have made outsourcing easy, allowing corporations to get the labor they need for cheap.
These two changes in bargaining power didn't happen by accident. As corporations have gained power, they've been able to gut anti-monopoly laws, allowing them to grow even more dominant. At the same time, fewer workers have joined unions because corporations have undermined the nation's labor laws, and many state legislatures – under intense corporate lobbying – have enacted laws making it harder to form unions.
Because of these deliberate power shifts, even before the pandemic, a steadily larger portion of corporate revenues have been siphoned off to profits, and a shrinking portion allocated to wages.
Once the economy tanked, the stock market retained much of its value while millions of workers lost jobs and the unemployment rate soared to Great Depression-era levels.
To understand the current concentration of corporate power we need to go back in time.
In the late nineteenth century, corporate power was a central concern. "Robber barons," like John D. Rockefeller and Cornelius Vanderbilt, amassed unprecedented wealth for themselves by crushing labor unions, driving competitors out of business, and making their employees work long hours in dangerous conditions for low wages.
As wealth accumulated at the top, so too did power: Politicians of the era put corporate interests ahead of workers, even sending state militias to violently suppress striking workers. By 1890, public anger at the unchecked greed of the robber barons culminated in the creation of America's first anti-monopoly law, the Sherman Antitrust Act.
In the following years, antitrust enforcement waxed or waned depending on the administration in office; but after 1980, it virtually disappeared. The new view was that large corporations produced economies of scale, which were good for consumers, and anything that was good for consumers was good for America. Power, the argument went, was no longer at issue. America's emerging corporate oligarchy used this faulty academic analysis to justify killing off antitrust.
As the federal government all but abandoned antitrust enforcement in the 1980s, American industry grew more and more concentrated. The government green-lighted Wall Street's consolidation into five giant banks. It okayed airline mergers, bringing the total number of American carriers down from twelve in 1980 to just four today. Three giant cable companies came to dominate broadband. A handful of drug companies control the pharmaceutical industry.
Today, just five giant corporations preside over key, high-tech platforms, together comprising more than a quarter of the value of the entire U.S. stock market. Facebook and Google are the first stops for many Americans seeking news. Apple dominates smartphones and laptop computers. Amazon is now the first stop for a third of all American consumers seeking to buy anything.
The monopolies of yesteryear are back with a vengeance.
Thanks to the abandonment of antitrust, we're now living in a new Gilded Age, as consolidation has inflated corporate profits, suppressed worker pay, supercharged economic inequality, and stifled innovation.
Meanwhile, big investors have made bundles of money off the growing concentration of American industry. Warren Buffett, one of America's wealthiest men, has been considered the conscience of American capitalism because he wants the rich to pay higher taxes. But Buffett has made his fortune by investing in monopolies that keep out competitors.
– The sky-high profits at Wall Street banks have come from their being too big to fail and their political power to keep regulators at bay.
– The high profits the four remaining airlines enjoyed before the pandemic came from inflated prices, overcrowded planes, overbooked flights, and weak unions.
– High profits of Big Tech have come from wanton invasions of personal privacy, the weaponizing of false information, and disproportionate power that prevents innovative startups from entering the market.
If Buffett really wanted to be the conscience of American capitalism, he'd be a crusader for breaking up large concentrations of economic power and creating incentives for startups to enter the marketplace and increase competition.
This mega-concentration of American industry has also made the entire economy more fragile – and susceptible to deep downturns. Even before the coronavirus, it was harder for newer firms to gain footholds. The rate at which new businesses formed had already been halved from the pace in 1980. And the coronavirus has exacerbated this trend even more, bringing new business formations to a standstill with no rescue plan in sight.
And it's brought workers to their knees. There's no way an economy can fully recover unless working people have enough money in their pockets to spend. Consumer spending is two-thirds of this economy.
Perhaps the worst consequence of monopolization is that as wealth accumulates at the top, so too does political power.
These massive corporations provide significant campaign contributions; they have platoons of lobbyists and lawyers and directly employ many voters. So items they want included in legislation are inserted; those they don't want are scrapped.
They get tax cuts, tax loopholes, subsidies, bailouts, and regulatory exemptions. When the government is handing out money to stimulate the economy, these giant corporations are first in line. When they've gone so deep into debt to buy back their shares of stock that they might not be able to repay their creditors, what happens? They get bailed out. It's the same old story.
The financial returns on their political investments are sky-high.
Take Amazon – the richest corporation in America. It paid nothing in federal taxes in 2018. Meanwhile, it held a national auction to extort billions of dollars in tax breaks and subsidies from cities eager to house its second headquarters. It also forced Seattle, its home headquarters, to back away from a tax on big corporations, like Amazon, to pay for homeless shelters for a growing population that can't afford the city's sky-high rents, caused in part by Amazon!
And throughout this pandemic, Amazon has raked in record profits thanks to its monopoly of online marketplaces, even as it refuses to provide its essential workers with robust paid sick leave and has fired multiple workers for speaking out against the company's safety issues.
While corporations are monopolizing, power has shifted in exactly the opposite direction for workers.
In the mid-1950s, 35 percent of all private-sector workers in the United States were unionized. Today, 6.2 percent of them are.
Since the 1980s, corporations have fought to bust unions and keep workers' wages low. They've campaigned against union votes, warning workers that unions will make them less "competitive" and threaten their jobs. They fired workers who try to organize, a move that's illegal under the National Labor Relations Act but happens all the time because the penalty for doing so is minor compared to the profits that come from discouraging unionization.
Corporations have replaced striking workers with non-union workers. Under shareholder capitalism, striking workers often lose their jobs forever. You can guess the kind of chilling effect that has on workers' incentives to take a stand against poor conditions.
As a result of this power shift, workers have less choice of whom to work for. This also keeps their wages low. Corporations have imposed non-compete, anti-poaching, and mandatory arbitration agreements, further narrowing workers' alternatives.
Corporations have used their increased power to move jobs overseas if workers don't agree to pay cuts. In 1988, General Electric threatened to close a factory in Fort Wayne, Indiana that made electrical motors and to relocate it abroad unless workers agreed to a 12 percent pay cut. The Fort Wayne workers eventually agreed to the cut. One of the factory's union leaders remarked, "It used to be that companies had an allegiance to the worker and the country. Today, companies have an allegiance to the corporate shareholder. Period."
Meanwhile, as unions have shrunk, so too has their political power. In 2009, even with a Democratic president and Democrats in control of Congress, unions could not muster enough votes to enact a simple reform that would have made it easier for workplaces to unionize.
All the while, corporations have been getting states to enact so-called "right-to-work" laws barring unions from requiring dues from workers they represent. Since worker representation costs money, these laws effectively gut the unions by not requiring workers to pay dues. In 2018, the Supreme Court, in an opinion delivered by the court's five Republican appointees, extended "right-to-work" to public employees.
This great shift in bargaining power from workers to corporate shareholders has created an increasingly angry working class vulnerable to demagogues peddling authoritarianism, racism, and xenophobia. Trump took full advantage.
All of this has pushed a larger portion of national income into profits and a lower portion into wages than at any time since World War II.
That's true even during a severe downturn. For the last decade, most profits have been going into stock buybacks and higher executive pay rather than new investment.
The declining share of total U.S. income going to the bottom 90 percent over the last four decades correlates directly with the decline in unionization. Most of the increasing value of the stock market has come directly out of the pockets of American workers. Shareholders have gained because workers stopped sharing the gains.
So, what can be done to restore bargaining power to workers and narrow the widening gap between corporate profits and wages?
For one, make stock buybacks illegal, as they were before the SEC legalized them under Ronald Reagan. This would prevent corporate juggernauts from siphoning profits into buybacks, and instead direct profits towards economic investment.
Another solution: Enact a national ban on "right-to-work" laws, thereby restoring power to unions and the workers they represent.
Require greater worker representation on corporate boards, as Germany has done through its "employee co-determination" system.
Break up monopolies. Break up any bank that's "too big to fail", and expand the Federal Trade Commission's ability to find monopolies and review and halt anti-competitive mergers. Designate large technology platforms as "utilities" whose prices are regulated in the public interest and require that services like Amazon Marketplace and Google Search be spun off from their respective companies.
Above all, antitrust laws must stop mergers that harm workers, stifle competition, or result in unfair pricing.
This is all about power. The good news is that rebalancing the power of workers and corporations can create an economy and a democracy that works for all, not just a privileged few.