Joe Biden has, pretty much since the start of his administration, taken a tougher stance on competition policy than any US president in memory. He has set up antitrust attorneys at the Federal Trade Commission, the Justice Department and the White House. He issued an executive order tackling corporate concentration last July, containing 72 different provisions designed to limit the influence of giant corporations.
Much of Biden’s fight has been to elevate the position of working people in the US economy and create a fairer level playing field for small and medium-sized innovators. But the administration has also begun to argue for the link between inflation, currently at its highest level in 40 years, and corporate power.
In July 2021, the White House asked the Federal Maritime Commission to investigate price increases by major shipping companies. In December, he asked the US Department of Agriculture to investigate whether big meat packers were driving up food prices, create a web portal for producers to report unfair trade practices, and invest $1 billion. US bailout dollars to help small independent producers.
More recently, Senator Elizabeth Warren asked Federal Reserve Chairman Jay Powell about the role corporations play in inflation. “Market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins,” she said at her second nominating hearing last week. Biden himself lashed out at the meatpacking industry, saying, “These companies can use their position as middlemen to overburden grocery stores and, ultimately, families.”
This is an easy case to make. Meatpacking in particular, but big farming in general, has become highly concentrated in recent decades, spurred on by Wall Street and the USDA’s own mission to keep food prices low (a holdover Depression-era politics). Covid has shed light on how an industry that claims to be driven by efficiency has created two separate supply chains, one for groceries and another for restaurants – part of the reason people were lining up at restaurants. stores and food prices rose even as farmers had to throw away goods.
Supply chain disruptions, not just in food but across many industries, are contributing to inflation. But the direct causality between corporate concentration and inflation is more difficult to prove. There is good research from academics including Steven Salop and Fiona Scott Morton that shows how consolidation can lead to disruptions in times of stress, causing shortages and price spikes. This is exactly what we have seen over the past two years. But there are many other counter-trends, such as the deflationary impact of Big Tech platforms such as Amazon (although you could argue, as I did, that monopoly power and falling prices can coexist).
I wonder if, when pointing out the relationship between today’s price pressures and the influence of big business, the Biden administration is really looking at something more complicated than inflation dynamics – at know how the last half-century of globalization is disrupted.
As TS Lombard’s chief U.S. economist Steven Blitz wrote last week: argument dismisses the underlying problem that itchs the Fed. tighten – revive middle-income wage growth by keeping the prices of goods high and, therefore, headline inflation as well.
As Blitz rightly points out, this group has suffered over the past decades as a strong dollar coupled with technology investments have made “possible and profitable offshore production of goods and services and reduced labor for national production”. This in turn has resulted in government policies that support more domestic labour, greater union power and decoupling. More regionalization, localization and even vertical integration of supply chains in some companies is happening.
“We had an anti-worker policy in the name of low inflation,” says Blitz. The problem is that changing that approach — exactly what Biden, who has a bust of workers’ rights activist Caesar Chavez in his office — wants — may prove somewhat inflationary in the short to medium term. Stronger wage growth, which many economists and business leaders expect in 2022, could create more demand, driving up prices.
Some of this inflation will subside as the Covid supply chain dislocations come to an end. But for all sorts of reasons, from the US-China decoupling to the shift to a low-carbon economy to the rise of decentralized technologies like 3D printing, we’re not going back to the 1990s, when cheap goods were the compensation for zero inflation. for the rising cost of housing, as well as education and health care.
No one on either side of the political spectrum wants to declare war on wage increases. So we’re likely to focus more on prices and what companies are doing to inflate them.
Corporate concentration and inflation can be correlated, especially when demand greatly exceeds supply. It is no coincidence that phenomenal profits are being reported in some of the industries most vulnerable to choke points, including shipping and semiconductors.
But there is an even bigger change happening here: the end of neoliberal globalization. Its effects on businesses, workers and inflation are just beginning to be felt.