Denise Hearn | Anti-monopoly expert on Biden’s Executive Order on Competition

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Nina: Denise! I thought of you last week with Biden’s Executive Order on Promoting Competition in the American Economy . A lot of your research — brilliantly encapsulated in the book you co-authored with Jonathan Tepper, The Myth of Capitalism: Monopolies and the Death of Competition — talks about the harms of industry consolidation. What did you think of the order?

Denise: I'm truly amazed (and thrilled!) at Biden’s remarks and mandates on Friday. This marks a significant turning point in our modern economic and political zeitgeist. I don’t think it is an overstatement to claim that the neoliberalist paradigm that has dominated the last 40-50 years is firmly unseated with this order.?

In an incredible part of his speech , Biden stated: “We are now 40 years into the experiment of letting giant corporations accumulate more and more power. What have we gotten from it? Less growth, weakened investment, fewer small businesses, too many Americans who feel left behind, too many people who are poorer than their parents. I believe the experiment failed. We have to get back to an economy that grows from the bottom up and the middle out.”

This sentiment echoes what our research for The Myth of Capitalism showed: we reviewed hundreds of academic papers and news articles, and the data confirm that industry concentration is pervasive. Most people don’t understand the enormous scope of the problem, but the short of it is, when only a handful of companies dominate industries, it has many negative effects across the economy — from low worker’s wages and high consumer prices to lower productive investment by companies, less business dynamism, and arguably less innovation that can reach the marketplace. Ultimately, this creates higher inequality which is, itself, a symptom of the disease of industry concentration.

It’s amazing to see the administration acknowledging this and backing it up with a comprehensive mandate, which includes 72 initiatives by more than a dozen federal agencies. The order directly takes on airlines, tech, pharma, meat packers, and shipping. It also, importantly, deals with restrictions in labor markets like noncompetes and occupational licenses. While implementation will be challenging, this demonstrates that the administration sees industry concentration as a nation-wide structural problem that requires a "whole-of-government effort" to promote competition across the entire economy.

Nina: I love the line in Biden’s statement about an “economy that grows from the bottom up and the middle out.” How and why did we get to a place where today, it’s something like the opposite of that — let’s call it an economy that expands wealth at the top and shrinks it in the middle??

Denise: It’s an important question. For one, there was an intellectual capture beginning around the 1970s that elevated efficiency as our highest public good. This paradigm claimed that markets are esoteric, mystical entities outside the realm of public governance. Deregulation proponents argued that we should remove barriers that impede markets so they can price goods efficiently.?

But one person’s efficiency gains can be another person’s (or country’s or environment's) externalities. And markets are not some kind of supernatural force — they are means of exchange structured by rules: the only question is, who is setting those rules? When we abdicated our responsibility for democratically governing markets, we let the largest and most powerful companies and financiers do it for us.?

Waves of mergers and acquisitions in recent decades, lax antitrust enforcement, and a general lack of political will by both Democrats and Republicans to address corporate power has led to markets characterized by industrial concentration not seen since the Gilded Age.?

Nina: Both an anti-monopoly perspective and a stakeholder capitalism one argue for a fundamental power shift in our economic system. Do you see the two as connected?

Denise: In my view, those advocating for stakeholder capitalism must become anti-monopolists —?otherwise stakeholder capitalism’s agenda will fail to address structural power asymmetries for workers, smaller business owners and suppliers, and consumers.?

But I also don’t think that competition policy and better antitrust enforcement will solve all our problems — the movement doesn’t go far enough in designing new system incentives and paradigms. Anti-monopoly is much more than antitrust. It is a way of viewing the world through the lens of power: who has it, how it is wielded, and whether it's used to dominate or to partner. This frame helps cut through a lot of partisan politics, false dichotomies, and red herrings.?

Ultimately, anti-monopoly underscores a core idea: that every person has a right to self-determination in their myriad identities: as workers, consumers, entrepreneurs, care-givers and citizens. And this, in theory, is the same mantle of stakeholder capitalism.

Nina: Let’s break down the problems of power a bit then. The Myth of Capitalism mostly looked at large corporations consolidating power. But you recently launched a new initiative that now focuses on the flip side of the coin: entrepreneurs trying to grow in a marketplace that’s unfair. What is the purpose of the project??

Denise: Yes! The project is called Access to Markets and is an initiative of the Washington D.C.-based policy advocacy group, the American Economic Liberties Project . It starts with a simple problem: entrepreneurship and small business growth in America is declining.?

In part, this is because dominant corporations often use their power over markets to block entrepreneurs and business owners from competing with new and better products. If you sell medical supplies, it’s giant group purchasing organizations; in music performance, it’s Live Nation (which acquired Ticketmaster); for defense, it’s prime contractors; in breathable sportswear, it’s Gore-Tex; online consumer marketing, it’s Google & Facebook; app developers it's Apple, and so on.?

In each example, the dominant incumbent becomes a de facto private regulator, acting as a gatekeeper between companies and the market. These companies set market terms and prices. A prime example is Apple charging developers 15-30% of each app purchase and kicking them out of the App Store if they create their own in-app payment systems. We call this “The Other Red Tape .”?

We hear from businesses of all sizes — small, medium-sized, and even large businesses — that this is a problem for them. They tell harrowing stories of facing anticompetitive tactics like predatory pricing, copycatting, coercive contract terms, and other illegal behavior on a fairly regular basis.?

Nina: Does this just all boil down to a David versus Goliath argument, and the need to protect the little guy? Or is this too simplistic a view? How would you nuance it??

Denise: We do not begrudge anyone being successful, and no — there is nothing inherently wrong with being big. But when businesses abuse their market power in illegal and anticompetitive ways, to block others from getting a foothold, they need to be held to account. We believe public officials have a responsibility to ensure that markets are guarded vigilantly and operate on fair and legal terms. In our view, increased competition policy enforcement is pro-innovation and pro-entrepreneurship. It is pro-market and ultimately pro-business.?

As for the David versus Goliath framing of the problem, yes I think a nuanced answer is needed here. There are many benefits to economies of scale and even justification for some natural monopolies. I also think that large companies can be leverage points for shifting industry practices and standards.?

But a key question is whether they are incentivized to do so under current system conditions. And to answer that, we have to look at investor and shareholder incentives. This is too nuanced an argument to do justice to in this interview, but let’s just take ESG as a proxy for stakeholder capitalists who may be trying to express their values through ESG investing. Last year was a record for ESG inflows, but despite ESG’s recent rise in popularity, most investors still favor companies which can use their market power to generate high profit margins. Profits have to come from somewhere, and increasingly these profits are generated by extracting some kind of rent from suppliers, workers, or customers. Jan Eeckhout’s new book The Profit Paradox sums this up really nicely.?

Profits are clearly not always a result of rent-seeking, but the win-win narrative that has bolstered ESG’s rise to prominence has avoided thornier issues that some of the data raise. For example: companies which score highly on ESG ratings tend to employ fewer workers than disfavored stocks, have very low effective tax rates despite being highly profitable, and coalesce around highly concentrated industries. All of these factors arguably undermine some of the core objectives of ESG investors. Vincent Deulard and I wrote about this recently .?

ESG also relies on passive index fund providers that are concentrated. The “Big Three” asset managers — BlackRock, Vanguard, and State Street — manage over $15 trillion in combined global assets under management. For a sense of scale, that’s equivalent to over three quarters of U.S. GDP. And on average the Big Three own 22% of the typical S&P 500 company (Graham Steel has a great paper on this). The same trends of concentrated ownership and control show up in private markets, with PE now controlling double the amount of companies as public markets.?

So we essentially now have oligopolistic asset managers buying oligopolistic industries.?

Nina: Denise, we have been friends and colleagues for a long time now and I’ve always admired how you explore new edges of economic thinking and speak truth to power so gracefully. Can you share a bit about what edges you’re exploring these days.

Denise: Nina, you continue to inspire me with the work you do and the community you cultivate. And yes — I do have a life outside of anti-monopoly work! I’ve been reading about emergence and complexity science. Increasingly, I realize that life is emergent — which means that it displays properties as a whole that its fundamental or component parts do not display in isolation. I interpret this as: all the component parts of our lives (our experiences, the people we meet, the circumstances of our birth family and location, what we read, the interest areas that draw us, etc.) are constantly combining and re-combining into new versions of ourselves — generating something unexpected and nonlinear.?

In simpler terms, I would never have dreamed that I would be doing most of what I find fascinating now — like thinking about market structure, economics, or competition policy. I find the world infinitely interesting. In the near future, I hope to turn my side interest in biology, ecology, and complexity science into a more intentional through-line in my work. And up next on my agenda is launching a project called Embodied Economics —?more on that soon!

Denise Hearn is a Senior Fellow at the American Economic Liberties Project and co-Director of the Access to Markets initiative. She is co-author of The Myth of Capitalism: Monopolies and the Death of Competition — named one of the Financial Times’ Best Books of 2018. Denise is also board chair of The Predistribution Initiative . Find her at: denisehearn.com and on Twitter: @denisehearn_