America has always been internationally recognized as the leading example of a free-market economy. The United States continues to produce the highest level of economic output in the world economy. Based on a 2022 estimate the United States held $25 trillion of the total $101.6 trillion global economy, ranking it number one in the world.[1] The free-market, free trade, and capitalism were largely responsible for transforming the U.S. from, “a minor British colony in the 1700s into a global economic superpower and the world’s largest economy, with individual US states producing the equivalent economic output of entire countries.” [2] However, today there are signs that this “world-class productivity” is beginning to shift.[3] The current realities in the U.S. demonstrate that there is a growing monopoly problem in most sectors of society and increased cronyism. Evidence shows that the US economy is becoming less dynamic and more concentrated. If these trends continue, the supply and demand economy based on limited government regulation will not prosper.
American Capitalism Suffers from Cronyism and Lacks Healthy Competition
The current system in America can be more precisely identified as a mixed economy that embraces the free market yet also depends on government regulation when necessary. Free markets are an essential part of capitalism, the economic system in the U.S. However, neither free markets nor capitalism can function in corruption. Today, the main problem capitalism in America faces is the growing lack of competition mainly fueled by cronyism. In crony capitalism, the government favors specific businesses at the expense of others because of their connections or power. Companies will lobby the government which then, “picks winners” and thereby also “picks losers”, “on the basis of political influence rather than merit.”[4]
This favoring can look like: receiving special subsidies, trade protection, blocking competitors from entering the market, and tax preferences. When the government regulates an industry, those who are not well-connected must spend a considerable amount of money to keep up with the new political regulations. For example, a small start-up company cannot afford the vast amount of lobbyists and lawyers companies such as Google have. In the end, this creates significant barriers to entry and compliance costs which discourages smaller and less wealthy businesses from ever entering the market. Simply put, in cronyism the system is rigged to reduce competition and favor the politicians’ and bureaucrats’ selected businesses. As a result, the businesses that benefit from cronyism end up serving the elite who fund them and not the consumers who purchase the products. A further implication is that all of society becomes robbed of various potential creations and innovations that could have come into being. In crony capitalism, only the elite benefit.
Today, major tech companies have their offices located in Washington D.C. and spend tens of millions of dollars on attorneys and lobbying. Ultimately, this started because the following businesses had to protect themselves from having the government destroy them; however, the government eventually began to grant these companies special favors. Laws were enacted which provided more favorable conditions for these dominant corporations and harmful regulations were established to stop any potential competitors from entering the market. Modern-day cronyism typically looks like “obscure tax provisions inserted in must-pass legislation, the award of no-bid contracts or through political favors that reward supportive constituencies.” [5]
The major tech and commerce companies are no strangers to these accommodations. For example, “Amazon is shielded from consumer product safety and liability risk by Section 230 of the Consumer Decency Act.” [6] Amazon also received “billions of dollars in subsidies and tax credits from New York City, Arlington, VA., and their state governments to locate new headquarters there.”[7] Furthermore, a lawsuit filed by the Federal Trade Commission in 2012 against Google for the abusive practice of “burying competitors in their search results” was mysteriously dropped.[8] The outcome was a simple “letter from Google saying they won’t do it again. No lawsuit. No binding consent decree.” [9] Lastly, despite Facebook’s various scandals, the company has also managed to avoid repercussions multiple times.
All these laws, regulations, and favors create a world where entrepreneurs will look to heed the needs of the government instead of the consumer. The result of this is that “it’s become easier for businesses to profit through the halls of Congress rather than the marketplace.” [10] The massive economic power of dominant corporations allows them to continue to gain political influence over “how markets are organized, maintained, and enforced”, which only leads to their further economic power.[11] They then are able to consume the smaller companies and continue acquiring properties. It has become “easier and cheaper to buy competitors rather than out-innovate them.” [12] In addition, in industries where the manufacturers compete for customers, such as the automobile business, monopolies will simply buy and control the entire (or majority) supply chain, a process also known as vertical integration. In the example of automobiles, monopolies can buy out everything, from the production of interior components such as the car seat and dashboard to engine components such as the alternators and piston rings.
Although these actions seem illegal, major corporations can dodge anti-trust laws by maintaining the highest level of power without technically being considered a monopoly under the law. Regardless, antitrust today has been “taken over by an army of economists and lawyers” who follow their own rules.[13] If this trend of less innovation and competition continues, the American economy will stagnate. It should be remembered that “Amazon itself was once a small business, a small business that could have never survived competing against the likes of something as … dominant as the Amazon of today.” [14] Even if these corporations are bigger because they’re better in quality and service, their dominance can stop smaller businesses, startups, and potential Amazon #2 or Facebook #2 from ever having a chance.
Monopolies are Destructive for the Free-Market
In a truly capitalist, profit-and-loss market economy, there is a healthy level of competition. However, in America, the last decade has seen a growing monopoly problem. In the United States, eleven giant companies control virtually all the food, drink, and consumer goods Americans purchase. These corporations are Kellogg’s, General Mills, Kraft-Heinz Company, Mondelez International, MARS, Coca-Cola, Unilever, Procter & Gamble, PepsiCo, Johnson & Johnson, and Nestle.
Source: Capital One. “These 11 Companies Control Everything You Buy – Capital One Shopping.” Capital One Shopping: Best Coupons, Loyalty, and Deals, 2023. https://capitaloneshopping.com/blog/11-companies-that-own-everything-904b28425120.
However, the dominance doesn’t stop there, seven major corporations own 182 beauty companies; this includes Johnson & Johnson, Shiseido, Coty, Procter & Gamble, Unilever again, L’Oreal, and Estée Lauder.
Source: Taylor, Kate. “A Handful of Companies Control Almost Everything We Buy – and Beer Is the Latest Victim.” Business Insider. Business Insider, August 24, 2017. https://www.businessinsider.com/companies-control-everything-we-buy-2017-8.
This quasi-monopolistic power continues into the health care system, the clothing industry, the media, agriculture, airlines, and even the beer business. Furthermore, as mentioned, no one can deny the ever-growing significance of big tech such as Google, Meta (Facebook), Apple, and Amazon. A majority of Americans, about 55%, reported that they “begin their product search on Amazon.” [15] In addition, 18% of Americans say YouTube (Google) is the first stop where they get their news while 45% of Americans say Facebook is the first site they check for daily news.[16] Further, Google and Facebook control 78% of the U.S. digital advertising market space which is valued at $80 billion.[17]
Further examples of monopolization in America encompassing various industries include:
- The 4 largest food companies control 82% of beef packing, 85% of soybean processing, 63% of pork packing, and 53% of chicken processing.
- 4 airline carriers American, Delta, United, and Southwest control nearly 80% of the market.
- Walmart controls 72% of all supercenters.
- 70% of toothpaste sales belong to two companies – Crest and Colgate.
- Luxotica manufactures 80% of all sun and eyeglasses. From average sunglasses to luxury brands, it turns out the manufacturer is the same.
- Two companies administer all cat food sales — MARS and Nestle.
- Drug companies pay the producers of generic drugs to delay producing cheaper versions. This practice is illegal in the European Union.
- Google is the main search engine for 64% of desktops and 94% of tablet and mobile searches.
- There are only two companies for buying hotels and flight tickets. Expedia and Priceline.com.
- AT&T, Comcast, Time Warner Cable, and Verizon are the four dominant cable and internet services.[18] [19]
Analysis from The Economist further confirms that market concentration is increasing. The following graph has divided the economy into 893 industries which are grouped by sector. The results show that about two-thirds of the listed sectors increased in concentration from 1997 to 2012. The results further confirm that “the weighted average share of the top four firms in each sector has risen from 26% to 32%.”[20] In addition, the share of revenues for concentrated industries rose from 24% to 33%.[21]
Source: The Economist. “Too Much of a Good Thing.” The Economist. The Economist Newspaper, March 26, 2016. https://www.economist.com/briefing/2016/03/26/too-much-of-a-good-thing.
Signs of Hope
Despite the evidence of quasi-monopolistic power growing in the U.S., there are also promising signs that prove conditions are not so bleak. New business applications have increased by 60% since 2019.[22] During the first six months of 2021, 2.8 million new firms were established.[23] Further, a data firm known as CB Insights reported in 2019 that only five unlisted firms a month became “unicorns.” (Unicorn is a term given to companies that are valued at $1 billion or more having not been listed on the stock market.) Luckily since 2020, that number has now increased to 12 per month.[24] In addition, cheap capital has encouraged American companies to spend more on equipment, structures, and software. Spending in these three areas “grew at an annualized rate of 13% in the first half of the year (2021), the fastest since 1984.”[25]
What Can Be Done?
Most products and services in America come from a handful of dominant firms. These corporations have control over what ingredients are in consumer goods to how the media we consume is perceived. The solution to fighting cronyism and monopolies (or monopolistic power) is less government involvement, greater transparency, and separating the economic system from the state. Increasing government control on businesses will only exacerbate the problem as firms will respond by “shifting more of their resources towards influencing the government to intervene in their favor.”[26] Further, specific anti-trust laws should be reinvigorated, and dominant firms need to be held accountable for their corruption and monopolistic actions. However, this will be difficult as the “web of corruption” begins in the halls of Congress among both political parties.
The optimal economic model will promote free-flowing competition between companies without the bureaucrats “picking winners.” A true free-market economy has a healthy amount of competition, low barriers to entry, follows contracts, respects private property, and regulates the redistribution of wealth and profits. In a corrupted system, the rule of law favors the bureaucrats in D.C., and companies ultimately accumulate more profits than they can reinvest into society. This corruption is what American society is experiencing more of every day. The United States cannot allow these corporations to dominate more of the economic or political sphere.
Using the example of crony capitalism, democratic socialists such as Bernie Sanders and AOC have pushed the message that capitalism breeds greed, economic inequality, and an unjust society. It must be clarified that the two are different and cannot be regarded as interchangeable terms. Cronyism is immoral because the government has been bought off. True capitalism is moral because it creates wealth for each party involved and transactions won’t occur if both parties don’t benefit. Cronyism is a prominent issue and capitalism has its flaws, yet capitalism and the free-market economy have achieved the best prosperity for all walks of life better than any other economic and social system has. This all proves that economics should be left in the hands of the consumers, not in the hands of the government. Less government involvement is the solution to saving the free-market economy in America.
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[1] Avery Koop. “Top Heavy: Countries by Share of the Global Economy.” Visual Capitalist, December 30, 2022.https://www.visualcapitalist.com/countries-by-share-of-global-economy/#:~:text=Currently%2C%20the%20largest%20slices%20of,than%20half%20of%20global%20GDP.&text=Just%20five%20countries%20make%20up,Japan%2C%20India%2C%20and%20Germany.
[2] Mike J Perry, “Putting America’s Enormous $21.5T Economy into Perspective by Comparing US State GDPs to Entire Countries,” American Enterprise Institute, February 5, 2020, https://www.aei.org/carpe-diem/putting-americas-huge-21-5t-economy-into-perspective-by-comparing-us-state-gdps-to-entire-countries/.
[3] Ibid.
[4] CED, “Crony Capitalism: Unhealthy Relations between Business and Government,” Committee for Economic Development, October 14, 2015, https://www.ced.org/reports/crony-capitalism-unhealthy-relations-between-business-and-government.
[5] Issue One, 2023, https://www.issueone.org/wp-content/uploads/2017/04/cronyism-factsheet.pdf.
[6] Jason Boyce, “Why We Need Government Action on Amazon,” The Social Media Monthly, December 4, 2020, https://thesocialmediamonthly.com/why-we-need-government-action-on-amazon/.
[7] Veronique De Rugy, “Amazon Wins, the Public Pays: This Is Cronyism in Action,” New York Daily News, November 20, 2018, https://www.nydailynews.com/opinion/ny-oped-amazon-wins-the-public-pays-20181120-story.html.
[8] Investor’s Business Daily, “Google Has No Power over Consumers without Government Help,” Investor’s Business Daily, March 31, 2015, https://www.investors.com/politics/editorials/companies-seek-political-favor-from-government/.
[9] Phil Kerpen, “Google Cronyism,” American Commitment, January 11, 2013, https://www.americancommitment.org/google-cronyism-0-2/.
[10] FW Staff Admin, “Big Corporations and Big Government Go Hand in Hand,” FreedomWorks, June 29, 2022, https://www.freedomworks.org/big-corporations-and-big-government-go-hand-in-han/.
[11] The Monopolization of America, YouTube (YouTube, 2018), https://www.youtube.com/watch?v=KLfO-2t1qPQ&t=130s.
[12] John Mauldin, “America Has a Monopoly Problem,” Forbes (Forbes Magazine, October 12, 2022), https://www.forbes.com/sites/johnmauldin/2019/04/11/america-has-a-monopoly-problem/?sh=132d7b312972.
[13] Joseph E. Stiglitz, “America Has a Monopoly Problem-and It’s Huge,” The Nation, October 26, 2017, https://www.thenation.com/article/archive/america-has-a-monopoly-problem-and-its-huge/.
[14] Jason Boyce, “Why We Need Government Action on Amazon,” The Social Media Monthly, December 4, 2020, https://thesocialmediamonthly.com/why-we-need-government-action-on-amazon/.
[15] The Monopolization of America, YouTube (YouTube, 2018), https://www.youtube.com/watch?v=KLfO-2t1qPQ&t=130s.
[16] Ibid.
[17] Breaking the Monopolies of Facebook, Google, and Amazon, YouTube (YouTube, 2018), https://www.youtube.com/watch?v=k4m-phHynmE&t=155s.
[18] The Monopolization of America, YouTube (YouTube, 2018), https://www.youtube.com/watch?v=KLfO-2t1qPQ&t=130s.
[19] Open Markets Institute, “Monopoly by the Numbers,” Open Markets Institute, 2023, https://www.openmarketsinstitute.org/learn/monopoly-by-the-numbers.
[20] The Economist. “Too Much of a Good Thing.” The Economist. The Economist Newspaper, March 26, 2016. https://www.economist.com/briefing/2016/03/26/too-much-of-a-good-thing.
[21] Ibid.
[22] Ibid.
[23] Ibid.
[24] Ibid.
[25] Ibid.
[26] Sam Dugan, “You Can’t Regulate Crony Capitalism Away,” Foundation for Economic Education, December 29, 2018, https://fee.org/articles/you-cant-regulate-away-crony-capitalism/amp.
