Joe Biden has, pretty much since the beginning of his administration, taken a stronger stand on competition policy than any US president in memory. He’s put antitrust advocates in place at the Federal Trade Commission, the Department of Justice and the White House. He issued an executive order tackling corporate concentration last July, containing 72 different provisions designed to curb the influence of giant companies.
Much of Biden’s fight has been about elevating the position of workers in the US economy and creating a more even playing field for small and midsized innovators. But the administration has also begun making a case for the connection between inflation, currently at a 40-year high, and corporate power.
In July 2021, the White House asked the Federal Maritime Commission to investigate price increases by large shipping companies. In December, it told the United States Department of Agriculture to look into whether big meatpackers were driving up food prices, creating a web portal for producers to report unfair trade practices and putting $1bn from the American Rescue Plan into helping smaller independent producers.
Most recently, Senator Elizabeth Warren grilled Federal Reserve chair, Jay Powell, on the role that companies are playing when it comes to inflation. “Market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins,” she said, at his second term nomination hearing last week. Biden himself took aim at the meatpacking industry, saying, “These companies can use their position as middlemen to overcharge grocery stores and, ultimately, families.”
It’s an easy case to make. Meat-packing specifically, but Big Agriculture in general, has become highly concentrated in recent decades, driven by Wall Street and the USDA’s own mission to keep food prices low (a policy holdover from the Depression era). Covid has spotlighted how an industry that claims to be driven by efficiency created two separate supply chains, one for grocery stores and another for restaurants — part of the reason people lined up at shops and food prices rose even as farmers were having to throw away goods.
Supply chain disruptions, not only in food but many industries, are contributing to inflation. But direct causation between corporate concentration and inflation is harder to prove. There is some good research by academics including Steven Salop and Fiona Scott Morton that shows how consolidation can lead to disruption in times of stress, causing shortages and price spikes. This is exactly what we’ve seen in the past two years. But there are plenty of other counter trends, such as the deflationary impact of Big Tech platforms such as Amazon (although you may argue, as I have, that monopoly power and lower prices can exist in tandem).
I wonder if, when it points to the relationship between today’s price pressures and the influence of big corporations, the Biden administration is really looking at something more complicated than inflation dynamics — namely the way in which the past half century of globalisation is being disrupted.
As TS Lombard’s chief US economist, Steven Blitz, wrote in a note last week: “One can say current goods price inflation is the unfortunate consequence of high demand meeting constrained supply, but this argument shoves aside the underlying issue that has the Fed itching to tighten — revived middle-income wage growth keeping goods prices high and, in turn, overall inflation as well.”
As Blitz rightly points out, this group suffered in recent decades as a strong dollar teamed with technological investment made “possible, and profitable, offshore production of goods and services and reduced labour input for domestic production.” That has in turn resulted in government policies that support more domestic labour, greater union power and decoupling. More regionalisation, localisation and even vertical integration of supply chains in some companies is now happening.
“We’ve 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 the workers’ rights activist César Chavez in his office, wants — may prove somewhat inflationary in the short to midterm. Stronger wage growth, which many economists and business leaders expect in 2022, may create more demand, raising prices.
Some of that inflation will abate as the Covid supply chain dislocations end. But for all sorts of reasons, from US-China decoupling to the shift to a low-carbon economy to the rise of decentralised technologies like 3D printing, we aren’t going back to the 1990s, when cheap goods were the zero-inflation offset for the rising cost of housing, as well as education and healthcare.
Nobody on either side of the political spectrum wants to declare war on rising wages. So we’re likely to see more focus on prices, and on what companies are doing to inflate them.
Corporate concentration and inflation may be correlated, particularly at times when demand wildly outstrips supply. It’s no accident that there are phenomenal profits being reported in some of the industries most vulnerable to chokepoints, including shipping and semiconductors.
But there’s an even bigger change going on here: the end of neoliberal globalisation. Its effects on corporations, workers and inflation have only just begun to be felt.