Mon. Oct 18th, 2021


US economy updates

For the past 40 years in America, competition policy has revolved around the consumer. This is partly the legacy of jurists Robert Bork, whose book from 1978 The antitrust paradox was of the opinion that the main purpose of the antitrust policy should be the promotion of ‘business efficiency’, which has been measured in consumer prices since the 1980s. It is seen as the fundamental measure of consumer well-being, which in turn was the center of economic well-being.

But things are changing. A White House executive order on competition policy, signed last month, contains about 72 discrete measures aimed at removing competition restrictions in nearly every part of the U.S. economy. But prices are not as low as higher wages.

Like the Reagan-Thatcher Revolution, which took over the power of unions and loosened markets and corporations, Biden’s executive order can be remembered as a major economic turning point – this time, away from neoliberalism with its focus on consumers, and on employees as the primary interest group in the US economy.

In some ways, it matters more than the details of certain parts of the order. Many commentators have suggested that these measures alone will not achieve much. But executive orders are not necessarily about the details – they are about the direction of a government. And this one takes us completely away from the Bork era by focusing on the relationship between market power and wages, which no president has so explicitly acknowledged in the past century.

“If there are only a few employers in the city, workers are less likely to negotiate a higher wage,” Biden said in his announcement. He noted that in more than 75 percent of U.S. industries, a smaller number of large enterprises now control more business than 20 years ago.

Its solutions include everything from cumbersome licensing requirements for half of the private sector to banning and / or restricting non-competitive agreements. Businesses in many industries have used such agreements to prevent top employees from working for competitors, as well as to make it harder for employees to share wage and benefits information – something that Silicon Valley did dangerously.

It gets to the heart of the American myth that employees and employers stand on equal footing, a lie that is reflected in Orwellian labor market terms as the ‘right to work’. In the US, it does not refer to any kind of equality in the workplace, but rather to the ability of certain states to prevent unions from representing all workers in a given enterprise.

But apart from the explicitly labor-related measures, the president’s order also comes with the greater connection between not only monopoly and prices, but concentration of the enterprise and the share of labor.

As economist Jan Eeckhout explains in his new book The profit paradox, rapid technological change since the 1980s has improved business efficiency and dramatically increased corporate profitability. But it has also led to an increase in market power that is detrimental to people at work.

As his research shows, in the 1980s, businesses made an average profit that was one-tenth of the payroll costs. By the mid-2000s, the ratio had risen to 30% and in 2012 to 43%. this in parts of the digital economy that do not work on dollars, but on exchanges of personal data).

While technology can ultimately lower prices and thus benefit everyone, it “only works well when markets are competitive. This is the profit paradox, ”says Eeckhout. He argues that when businesses have market power, they can keep competitors that can offer better products and services. They can also pay workers less than they can afford, as there are fewer and fewer employers taking up the service.

The latter issue is called monopsony, and it is something that the White House pays particular attention to.

‘What happens to workers with the increase in [corporate] concentration, and what it means in an era without so much union power, is something I think we need to hear more about, ‘said Heather Boushey, a member of the President’s Council of Economic Advisers, who recently spoke to the Financial Times has how the White House sees the economic challenges of the country.

According to the Biden administration, the most important challenge is shifting the balance of power between capital and labor. It is responsible for the emerging ideas on how to approach competition policy. There are many who regard the move away from consumer interests as the focus of antitrust policy as dangerously socialist – a reflection of the Marxist assertion that demand shortages are inevitable when the labor force falls.

But one can also look at the approach as a return to the origins of modern capitalism. As Adam Smith remarked two centuries ago, “Labor was the first price, the original purchase – money paid for everything. All wealth of the world was originally obtained through gold or silver, but through labor. “It’s a good thing to re-prioritize it.

rana.foroohar@ft.com



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