Monsters   /   Spring 2020   /    Book Reviews

The Means of Production

Tackling concentration and the lack of competition in the American economy.

Bradley Babendir

Walmart truck on the road; Zoonar/Michael Rosebrock/Alamy Stock Photo

The American economy feels clogged up. Fewer and fewer companies take up more and more space. Three new books—The Great Reversal by Thomas Philippon, United States v. Apple by Chris Sagers, and The People’s Republic of Walmart by Leigh Phillips and Michal Rozworski—tackle the issue of concentration and lack of competition in the American economy from different angles. Is it really happening? What do we do about it if it is? Could the great size of companies like Apple and Walmart actually be a good thing?

Philippon, a professor of finance at New York University who sits on the Monetary Policy Advisory Panel of the Federal Reserve Bank of New York, is the only one of these writers who treats the possibility of a crisis of anticompetition in the American economy as an open question. In his book’s conclusion, he writes that after extended study he was “surprised by how fragile free markets really are.” (Perhaps economists do not get outside much.) He elaborates that, in his view, “free markets are supposed to discipline private companies but today, many private companies have grown so dominant that they can get away with bad service, high prices, and deficient privacy safeguards.”

The Great Reversal is fair-minded, sometimes tediously so, exploring with great generosity a number of competing theories on the current curtailed state of competition. Philippon considers hypotheses such as “Industry concentration measures are meaningless because industry codes are too coarse and because markets are local” and “The Internet makes price comparisons easier, and this leads to winner-take-all outcomes.” The explanation for competitive decline to which he gives the most credence is the “Hypothesis of the Rise of Superstar Firms,” which posits that “concentration reflects the increasing productivity of industry leaders.” The seeming ubiquity of firms such as Amazon, Walmart, and Disney makes this feel true. They tend to be perceived as companies whose size was earned through logistical skill and innovation, and Philippon makes clear that in in the 1990s “the retail trade industry became substantially more concentrated and more productive.” As concentration subsequently increased, however, this stopped being true. “In fact,” Philippon writes, “between 2000 and 2015, we find a negative (but somewhat noisy) relationship between changes in concentration and changes in productivity.”

Philippon dismantles each of the hypotheses with a similar level of magnanimity and attention, leaving little doubt by the end of The Great Reversal that the American economy has become pervasively anticompetitive. However, he does not let himself or his colleagues off the hook, writing that “there is fairly strong evidence that economists fail to provide timely advice.” He slyly gives himself a bit of an out by mentioning that as early as 2008 he wrote a paper in which he observed that “finance had not actually become more efficient”; had his paper been published earlier than its eventual appearance in 2015, he avers, his work might have staved off the whole catastrophe.

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