Tuesday, June 14, 2011

John Bellamy Foster, Robert W. McChesney and R. Jamil Jonna: Monopoly and Competition in Twenty-First Century Capitalism

Monopoly and Competition in Twenty-First Century Capitalism
by John Bellamy Foster, Robert W. McChesney and R. Jamil Jonna
Monthly Review


The evidence we have provided with respect to the U.S. economy suggests that economic concentration is greater today than it has ever been, and it has increased sharply over the past two decades. Why then is this not commonly acknowledged—and even frequently denied? Why indeed have so many across the political spectrum identified the past third of a century as an era of renewed economic competition? There are several possible explanations for this that deserve attention. For starters, the past three decades have seen dramatic changes in the world economy and much upheaval. Four major trends have occurred that, individually and in combination, have appeared to foster new economic competition, while at the same time leading inexorably to greater concentration: (1) economic stagnation; (2) the growth of the global competition of multinational corporations; (3) financialization; and (4) new technological developments.

The slowdown of the real growth rates of the capitalist economies, beginning in the 1970s, undoubtedly had a considerable effect in altering perceptions of monopoly and competition. Although monopolistic tendencies of corporations were not generally seen in the economic mainstream as a cause of the crisis, the post-Second World War accommodation between big capital and big unions, in manufacturing in particular, was often presented as a key part of the diagnosis of the stagflation crisis of the 1970s. Dominant interests associated with capital insisted that the large firms break loose from the industrial relations moorings they had established. The restructuring of firms to emphasize leaner and meaner forms of competition in line with market pressures was viewed by the powers-that-be as crucial to the revitalization of the economy. The result of all of this, it was widely contended, was the launching of a more competitive global capitalism.

The giant corporations that had arisen in the monopoly stage of capitalism operated increasingly as multinational corporations on the plane of the global economy as a whole—to the point that they confronted each other with greater or lesser success in their own domestic markets as well in the global economy. The result was that the direct competitive pressures experienced by corporate giants went up. Nowhere were the negative effects of this change more evident than in relation to U.S. corporations, which in the early post-Second World War years had benefitted from the unrivaled U.S. hegemony in the world economy. Multinational corporations encouraged worldwide outsourcing and sales as ways of increasing their profit margins, relying less on national markets for their production and profits. Viewed from any given national perspective, this looked like a vast increase in competition—even though, on the international plane as a whole, it encouraged a more generalized concentration and centralization of capital.

The U.S. automobile industry was the most visible manifestation of this process. The Detroit Big Three, the very symbol of concentrated economic power, were visibly weakened in the 1970s with renewed international competition from Japanese and German automakers, which were able to seize a share of the U.S. market itself. As David Harvey has noted: “Even Detroit automakers, who in the 1960s were considered an exemplar of the sort of oligopoly condition characteristic of what Baran and Sweezy defined as ‘monopoly capitalism,’ found themselves seriously challenged by foreign, particularly Japanese, imports. Capitalists have therefore had to find other ways to construct and preserve their much coveted monopoly powers. The two major moves they have made” involve “massive centralization of capital, which seeks dominance through financial power, economies of scale, and market position, and avid protection of technological advantages…through patent rights, licensing laws, and intellectual property rights.”13

One of the most important historical changes affecting the competitive conditions of large industrial corporations was the reemergence of finance as a driver of the system, with power increasingly shifting in this period from corporate boardrooms to financial markets.14 Financial capital, with its movement of money capital at the speed of light, increasingly called the shots, in sharp contrast to the 1950s and ’60s during which industrial capital was largely self-financing and independent of financial capital. In the new age of speculative finance, it was often contended that an advanced and purer form of globalized competition had emerged, governed by what journalist Thomas Friedman dubbed “the electronic herd,” over which no one had any control.15 The old regime of stable corporations was passing and, to the untrained eye, that looked like unending competitive turbulence—a veritable terra incognita.

Technological changes also affected perceptions of the role of the giant corporations. With new technologies associated in particular with the digital revolution and the Internet giving rise to whole new industries and giant firms, many of the old corporate powers, such as IBM, were shaken, though seldom experienced a knockout punch. John Kenneth Galbraith’s world of The New Industrial State, where a relatively small group of corporations ruled imperiously over the market based on their own “planning system,” was clearly impaired.16

All of these developments are commonly seen as engendering greater competition in the economy, and could therefore appear to conflict with a notion of a general trend toward monopolization. However, the reality of the case is more nuanced. Most of these skirmishes were being fought out by increasingly centralized global corporations, each aiming to maintain or advance its relative monopoly power. Such globalized oligopolistic rivalry has more to do, as Harvey says, with constructing and conserving “much-coveted monopoly powers” than promoting competition in the narrow sense in which that term is employed in received economics. Twentieth-century monopoly capitalism was not returning to its earlier nineteenth-century competitive stage, but evolving into a twenty-first-century phase of globalized, financialized monopoly capital. The booming financial sector created turmoil and instability, but it also expedited all sorts of mergers and acquisitions. In the end, finance has been—as it invariably is—a force for monopoly. Announced worldwide merger and acquisition deals in 1999 reached $3.4 trillion, an amount equivalent at that time to 34 percent of the value of all industrial capital (buildings, plants, machinery, and equipment) in the United States.17 In 2007, just prior to the Great Financial Crisis, worldwide mergers and acquisitions reached a record $4.38 trillion, up 21 percent from 2006.18 The long-term result of this process is a ratcheting up of the concentration and centralization of capital on a world scale.

Chart 4 shows net value of acquisitions of the top five hundred global corporations (with operations in the United States and Canada) as a percentage of world income. The upward trend in the graph, most marked since the 1990s, indicates that acquisitions of these giant multinational corporations are centralizing capital at rates in excess of the growth of world income. Indeed, as the chart indicates, there was a tenfold increase in the net value of annual global acquisitions by the top five hundred firms (operating in the United States and Canada) as a percentage of world income from the early 1970s through 2008.


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