When Donald Trump denounced AT&T's planned $109-billion (U.S.) takeover of media giant Time Warner, he emerged, encouragingly, as a trustbuster in the making. Could it be that the future president-elect understood that waning competition, partly the result of big companies using endless mergers and acquisitions to neutralize their rivals, was pushing prices up and wages down?
Mr. Trump sounded like he would kill the deal, as did his Democratic rival Hillary Clinton. Putting the two companies together, which would see a telecom company buy a content supplier – vertical integration – would put "too much concentration of power in the hands of too few," he thundered.
Game over for AT&T's media ambitions?
Maybe not. Mr. Trump barely mentioned rising corporate power in his campaign and the Republican platform did not specifically mention the issue. Regulation in general was dismissed as the "quiet tyranny," even if the Republicans favoured "prudent regulation" of at least one industry – banking.
As if to confirm that Mr. Trump will probably take a hands-off approach to corporate concentration, the shares of broadband and cable-TV companies such as Comcast surged ahead after the Nov. 8 election. It looks like what economist Paul Krugman called the "robber baron" era won't die any time soon.
To be sure, the Democrats under President Barack Obama were not exactly fire-breathing foes of corporate power, even if they did kill a few deals such as the proposed merger of Sprint and T-Mobile and fully endorsed "net neutrality," which meant that Internet providers could not charge different fees for zapping different types of content into the home.
But at least the Democrats, unlike the Republicans, had come around to the view that waning competition, while great news for shareholders, was damaging society. Truly competitive markets trigger competition for labour and talent, lifting wages which, in real terms, have been stagnant for more than three decades. Strong competition reduces prices for consumers and boosts labour mobility, giving workers more employment options. It encourages companies to invest capital to make their businesses more productive.
Strong anti-trust authorities also act as deterrents. If deals are blocked because they are deemed anti-competitive, CEOs are less likely to risk pursuing similar deals down the road. The European Union's competition czar, Denmark's Margrethe Vestager, is setting the global trust-busting standard by going after big-name targets such as Google (now Alphabet), Russia's Gazprom, Europe's biggest truck makers and, lately, Apple.
In the Apple case, she ruled that the Irish government's ridiculously low tax deal – less than 1 per cent – with the iPhone maker was an illegal subsidy in disguise and ordered the company to pay €13-billion in taxes to the government. You can bet other companies looking for similar sweetheart tax arrangements will back off.
The rise of Godzilla companies makes strong-willed anti-trust advocates more essential to an open and competitive economy than ever. In the 1980s and 1990s, corporate giants, among them the old AT&T, were broken up, opening the market to new competitors, especially of the tech variety. Today, the biggies are back and they're bigger than ever.
A recent report in the Economist on "superstar" companies noted that the share of nominal gross domestic product generated by the Fortune 100 – the top American companies – reached 46 per cent of GDP in 2013, up from 33 per cent in 1994. Over the same period, the share of revenues of the Fortune 100 among the Fortune 500 companies went to 63 per cent from 57 per cent. The management consultant McKinsey calculated that the top 10 per cent of global companies generate 80 per cent of all profits.
Some of the market shares approach obscene levels. Google controls more than two-thirds of the world's search activity. Google and Apple, according to the Economist, provide the operating systems for 90 per cent of all smartphones. The five largest American banks control 45 per cent of total U.S. banking assets, up from 25 per cent in 2000.
No wonder profit margins are rising and corporate cash piles are turning into mountains. Investors are in pig heaven. They want the cash returned to them in the form of lavish share buybacks and dividend hikes. Their demands are being met, and then some.
The White House's Council of Economic Advisers, led by the economist Jason Furman, has gone on something of a crusade to tout the benefits of competition as the corporate giants rise.
"Competitive markets promote economic efficiency and growth," the council said in an April report. "The benefits can include lower prices and better products for consumers, greater opportunities for workers … When firms take action to impede competition, through anti-competitive mergers, exclusionary conduct, collusive agreements with rivals or rent-seeking regulation to restrict entry, their profitability may increase but at the cost of even greater reductions in consumer welfare and societal benefits."
The AT&T-Time Warner merger would create a content and delivery behemoth that could restrict customer viewing choices. If Mr. Trump wanted to deliver the message that stronger competition would juice up the U.S. economy as readily as the $1-trillion (U.S.) in infrastructure spending he has promised, he would kill the deal. If he doesn't, the robber barons will keep winning.