Starting well before the 2016 presidential campaign and accelerating rapidly in its wake, there has been an earnest debate in the Democratic party about how best to restore economic growth that yields widely shared prosperity for middle and working-class Americans. And the prevailing view, best captured in the “Better Deal” plan put forward last summer by the party’s leaders in Congress, is that a key part of the policy formula should be “cracking down on corporate monopolies.” This is on the theory that increased corporate concentration has led to higher prices, stagnant wages, and greater income inequality.
But it turns out that many of the underlying arguments in the case for a more vigorous antitrust enforcement policy fall apart on close inspection. In fact, as the Senate Judiciary Antitrust Subcommittee prepares for a Nov. 15 hearing on competition and the consumer welfare standard, Democrats would be well-advised to consider that when it comes to advancing shared prosperity — and the cause of progressive economic values more broadly — it is large corporations that do the most good for both consumers and workers, not the small businesses we often romanticize.
When you dig into the data on this question, the pattern is abundantly clear. As Michael Lind and I highlight in our forthcoming book "Big Is Beautiful: Rebutting the Myth of Small Business," large companies outperform small businesses on virtually every economic and social indicator that Democrats care about. On average, they are significantly more productive than small firms, which translates into lower prices for consumers. Meanwhile, they pay their workers more and provide more and better benefits, including health care, overtime pay, and retirement benefits. Workers at large companies are less likely to be injured on the job and less likely to be fired or laid off than are workers in small companies. Large companies invest more in training their workers, and they are more likely to employ a unionized workforce than small companies. Their workers also are more diverse, with large companies employing a higher share of women, minorities, and veterans than small companies. And contrary to the prevailing narrative that small companies are the source of most new jobs, big companies actually create more jobs on a net basis.
What about income inequality? Well, it turns out large corporations aren’t the problem there, either. As the Urban Institute found in a 2008 study, “Low-income workers are disproportionately likely to work in smaller firms.” At the same time, data from the Bureau of Labor Statistics shows that the ratio of compensation for the top five percent of earners compared to the bottom 10 percent was no different in small establishments with fewer than 50 workers than in large establishments with 500 or more.
In fact, University of Michigan professors Gerald Davis and Adam Cobb found that between 1950 and 2006 there was a strong negative correlation between the annual change in the share of the U.S. labor force employed by the top 100 largest U.S. corporations and income inequality. They argue that this is because large corporations tend to employ more middle-income workers, compared to either firms like investment banks at the top or small mom-and-pop companies at the bottom. As Davis writes, “Small is beautiful … if you love inequality.”
Liberal icon Robert Reich, hunting for examples of big companies overcharging for goods and services, argues that “antitrust laws have been relaxed for corporations with significant market power, such as big food companies, cable companies facing little or no broadband competition, big airlines, and the largest Wall Street banks. As a result, Americans pay more for broadband Internet, food, airline tickets, and banking services than the citizens of any other advanced nation.” Except, we don’t. According to the OECD, U.S. broadband prices are higher than those of some countries but lower than those of at least eight other OECD nations, including the Netherlands and France — no mean feat, given that the United States is the second-least densely populated nation in the group, which makes deploying broadband expensive. The United States does not even make the list of the 10 countries with the highest food costs. According to the 2017 Kiwi Aviation Cost Index, which covers 80 nations, the United States has the 30th-cheapest air travel. And the consulting firm Oxera finds that of 11 major developed nations, U.S. banking costs for consumers are the second-lowest.
None of this is to say that competition policy should not continue to vigorously police the market, including limiting highly concentrating mergers and rigorously monitoring dominant firms to identify and prosecute unfair conduct that limits competition. But is important to remember that U.S. antitrust law rightly reflects the understanding that in some industries, particularly innovation-based industries, high levels of concentration are often pro-consumer and pro-growth, and that companies should not be punished for gaining market share as long as they do so legally.
At the same time, as the antirust scholar and former Obama administration economic advisor Carl Shapiro writes in a new paper titled “Antitrust in a Time of Populism,” “while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill-suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation. Campaign finance reform, tax policy, labor, education, and other policies are far better suited to address those critical public policy goals.” Those are words that Senate Judiciary Committee members should take to heart as they examine the role of antitrust in today’s economy. The facts show that breaking up large companies would make America less progressive, not more.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation, a leading tech-policy think tank. He was formerly chair of the National Surface Transportation Infrastructure Financing Commission.