December 19, 2012

How small business (and jobs) got done in

Just caught Barry C. Lynn on the Peter Dominick show and it's nice these days to hear someone make so much sense. You read his whole thesis in his book, Cornered.
Barry C. Lynn, Washington Post, 2010 - Where the independent pharmacist counted pills, we see a CVS employee. Where family livestock farms dotted the landscape, we see immense operations run by Smithfield and Tyson. Where the button makers of New York and Los Angeles sold their wares, we see the imported products of Li & Fung. Where our community bank stood, we see Bank of America. Where the local grocer marketed local fruit, we see Wal-Mart. Where the local general-merchandise store stacked jeans, we see, well, Wal-Mart again.

It's not only mom-and-pop operations that are vanishing. It's also smaller advertising agencies, law firms and medical offices. It's happening, too, in the pharmaceutical and software industries, which only a decade ago displayed vibrant competition among upstart ventures. One recent study, based on data compiled by the Organization for Economic Cooperation and Development, placed the United States second to last out of 22 rich nations in the percentage of workers who run their own businesses. Only Luxembourg ranked lower.

The American small business is increasingly becoming an American myth: Self-employment in non-farm businesses has fallen by nearly half over the past 50 years.

....Ask an economist why so many small businesses have given way to giant chains, and you'll hear a lecture on the dynamics of capitalism and free markets, and how the creative destruction of small, independent businesses is a natural and benign process. Yet specific political moves and decisions in Washington over the past several decades have made it much easier for the people who control large-scale corporations to displace small proprietors.

One of the most important was a radical change in 1981 in the enforcement of U.S. antitrust laws. Until then, small entrepreneurs were protected by a legal framework created during the Second New Deal, which began in 1935. Many histories of the era focus on the FDR administration's initial decision to all but suspend antitrust laws. But after the Supreme Court declared the National Industrial Recovery Act unconstitutional, the administration (along with numerous populist allies in Congress) reversed course and adopted a very aggressive competition policy designed to protect citizens against excessive corporate concentration.

 For instance, the Roosevelt, Truman and Eisenhower administrations all took action against the A&P grocery chain, the Wal-Mart of mid-century America. The populists also promoted competition through such all-but-forgotten market laws as the Robinson-Patman and Miller-Tydings acts, which limited the ability of large trading companies to use pricing power to exert control over producers and thereby gain an advantage over smaller retailers.

...Although Americans began to hear the term "deregulation" when President Jimmy Carter dismantled the Civil Aeronautics Board, what Carter-era reformers envisioned was a shift of regulatory power from micromanaging agencies to more-hands-off antitrust officials. Soon after President Ronald Reagan took office, however, officials in his administration made clear that, to them, "deregulation" meant shifting that power from public to private hands.

Instead of protecting competitive markets, Reagan officials said they would use anti-monopoly laws to promote "consumer welfare," which they defined largely as lower prices. It no longer mattered how much power was consolidated, as long as the consolidation appeared to result in the delivery of less-expensive goods.

A generation after the introduction of this approach, the result is clear. The seemingly endless variety of products in our stores is controlled by an ever smaller number of immense trading companies that, increasingly, charge us higher prices. And we have witnessed the greatest consolidation of economic power since the days of J.D. Rockefeller and J.P. Morgan.

....For more than two centuries, small businesses have been a prime source of wealth and well-being in America, creating jobs, bringing better ideas to market, building middle-class communities and, in the case of many immigrants, instilling the practices and values of American society. Today, we can recover the right to make a living by serving our own neighbors and our own communities through our own open markets. We may have to adapt some of our laws to account for new conditions, but the basic models we need await us in our own recent past.

Barry C. Lynn is a senior fellow at the New America Foundation and the author of "Cornered: The New Monopoly Capitalism and the Economics of Destruction."

1 comment:

Capt. America said...

Taking in each other's laundry is no solution to unemployment. A 30 hour work week, with all the changes necessary to make it work, is the only stopgap answer. Technology is making work disappear. It has done so for centuries, at an accelerating rate. The consequence should be obvious, even to an economist.