What’s in it for me? Learn about the history and problems of economic concentration.

In recent decades, industrialized nations have witnessed the reemergence of an economic problem that once seemed like a thing of the past – the problem of economic concentration. This refers to the process by which industries become dominated by a smaller and smaller number of companies, which grow bigger and bigger, until just a handful of corporate giants reign supreme.

Today, the most visible giants are those of the tech industry, such as Amazon, Facebook and Google. But those are just the tip of the iceberg. In the United States, for example, more than 75 percent of all industries have seen increasing economic concentration since the year 2000.

In these blinks, we’ll look at how and why this problem first emerged in the late nineteenth century, subsided in the early to mid-twentieth century and then reemerged in the late twentieth century. While taking this whirlwind tour of economic, political and legal history, we’ll also look at the troubling consequences of economic concentration, as well as some possible solutions.

Along the way, you’ll learn

the counterintuitive arguments in favor of monopolies;

the compelling arguments against monopolies; and

the important figures and movements who made those arguments.

The story of economic concentration began in the Gilded Age – the period of American history that ran roughly from the 1870s to 1900. In recounting this story, we will focus primarily on developments in the US, which exemplified the trends that were unfolding in industrialized economies all over the world.

At this time, the overall trend could be described as economic concentration on steroids. During the Gilded Age, the industrialized economies became tremendously concentrated, as one company after another merged into larger and larger corporations. These were called trusts. Between 1895 and 1904, about 2,274 American manufacturing companies consolidated into just 157 trusts.

Many of those trusts became dominant players within their particular industries. Out of the 93 major consolidations of the era, 72 of the resulting trusts captured market shares of more than 40 percent, and 42 of them reached more than 70 percent.  

Beyond those heights, the most dominant of the dominant trusts became monopolists. A monopolist is a company that has gained almost total control over an entire industry – a condition that is called a monopoly. The word “monopolist” can also refer to the leaders of those monopolistic companies.

However, the most successful monopolist of them all was the banker JP Morgan, who achieved monopolies in a range of industries. These included the Northern Securities Company (a railroad trust), the International Mercantile Marine Co. (a shipping trust), AT&T (a telecommunications trust) and US Steel, a steel trust that he formed by fusing together hundreds of steel companies and then buying out his chief rival, the Carnegie Steel Company, in 1901.

Together, Morgan, Carnegie and Rockefeller became the main proponents of the pro-monopoly trust movement

Traditionally, competition has been viewed as one of the cornerstones of capitalism. It forces companies to continuously strive to raise the quality and lower the prices of their products and services. If they succeed in doing so, they can take their rivals’ customers. If they fail, they may lose their market share. Thus, they must innovate to survive and thrive – and everyone benefits as a result. Or at least that’s how the traditional thinking about competition goes – but monopolies run directly counter to that thinking. After all, by definition, monopolies eliminate competition.

But the monopolists of the Gilded Age were unapologetic in their opposition to this idea. Instead, they believed that monopolies were a superior form of economic organization, which would usher in the next stage in the evolution of capitalism. Advocates of this view became collectively known as the trust movement.   

Far from viewing competition favorably, the trust movement’s members blamed it for the economic turmoil that had shaken the industrialized economies of the 1890s. Too much competition had led to prices falling too fast and too low, which had bankrupted hundreds of companies, they claimed.

To them, competition was a form of chaos. It meant distributing the market for a product or service between many small companies. These companies then fought against each other in a never-ending struggle for survival at each other’s expense. The result was constant turbulence.

That’s because larger companies can achieve economies of scale – meaning they can reap the cost-saving benefits of mass production.

These benefits follow from the fact that production costs tend to go down when producing on a large scale. For example, it’s cheaper to build an additional car on an assembly line than in a neighborhood garage. By creating a more efficient, stable and orderly version of capitalism, the trust movement viewed itself as heralding a new dawn for humanity

When companies compete over a market, there are winners and losers. Some companies win greater shares of the market, while others lose their shares and are put out of business or swallowed up in mergers or buyouts. Either way, competition results in fewer competitors commanding larger percentages of the market.

Eventually, this process leads to a single, gargantuan company emerging as the supreme winner and establishing a monopoly. From this perspective, a monopoly can be seen as both the logical conclusion and just reward of capitalist competition. The trust movement argued that by winning out over their competitors, the monopolists had proven themselves to be the most capable, effective and resilient companies in their respective markets.

hands-off approach to the market is called laissez-faire economics. In advocating for this, the trust movement argued against nearly all forms of governmental intrusion into the economy on behalf of the public. Motivated by the social Darwinistic principle of letting the weak perish, the trust movement even fought against child labor bans and working-hour limits.

There was one notable exception to the social Darwinists’ resistance to government intervention. Some of them supported campaigns for government-led eugenics programs, taking the idea of letting the weak and poor perish one step furthe

However, when a company gets too big it starts suffering from diseconomies of scale – its operations become less efficient as it gets bigger.

That’s because the bigger a company gets, the more complex it becomes. It needs more employees, which means more managers and more complicated hierarchies. On top of that, bigger companies are less adaptable to changes in the market. With more moving parts, corporate behemoths are simply less nimble than smaller companies. If becoming an economic giant comes with such disadvantages, why would a company want to become one in the first place? Well, there are also advantages to becoming so big. Unfortunately, they come at the expense of everyone else.

The bigger and stronger a company gets, the more power it has over workers and consumers. After all, it’s hard for workers to reject the working conditions imposed on them if there are no other companies in the industry that they can turn to for employment

big companies create barriers to entry into their markets. If there’s a scarce resource or type of infrastructure that companies must access to compete, the big company can take control of it.

For example, Rockefeller convinced railroads to guarantee him a special discounted rate for shipping his oil. He also made them charge higher rates to his competitors. With the threat of those rates, he forced his competitors to let him buy them out at favorable prices.

He also artificially lowered his prices to the point where no other company could compete. He could do this only because he had enough capital to subsidize the prices. This allowed him to temporarily sell at a loss until his rivals went out of business, at which point he could dramatically increase prices.

In order to carry out their more dubious schemes, the big companies of the Gilded Age needed the government to turn a blind eye – or, even better, lend a helping hand. To that end, they used their economic clout to exert influence over the government.

For example, when pipelines started replacing railroads as the way to transport oil, Rockefeller convinced the government to withhold the permits that would-be competitors needed to build oil pipelines in many areas. And when they did manage to build pipelines, he worked to bankrupt them and then buy them out by using tactics like overpaying for crude oil in certain markets, while artificially lowering its prices in others.

For instance, an oligopoly might lobby the government with aligned interests in mind, rather than continuously striving to put each other out of business. The rewards of doing this can be enormous, as the contemporary US pharmaceutical industry amply demonstrates.

In 2013, the pharmaceutical industry spent $116 million on lobbying Congress to prohibit the federal insurance program Medicare from negotiating lower drug prices when purchasing medicine. That’s a lot of money – but it’s pocket change compared to the payoff, an estimated $90 billion per year in additional revenue

The fewer companies there are, and the more their interests are aligned, the easier it is for them to cooperate.

That helps to explain why oligopolistic and monopolistic companies have so much power compared to ordinary citizens. It’s not just their money and resources; it’s also the basic mathematics of the organization involved. It’s much easier to organize an oligopoly of three like-minded companies than a nation of millions of diverse citizen

Increased economic concentration led to civil unrest starting around the 1880s and extending to the 1900s. Workers went on strike, an Anti-Monopoly Party was formed and the populist Democrat William Jennings Bryan ran for president three times. Meanwhile, over in Europe, there were socialist, communist and anarchist movements afoot, portending the possibility of even greater unrest and revolution if things didn’t change.

Within this context, the first anti-monopoly law – more commonly referred to as an antitrust law – was passed: the Sherman Act of 1890. The law strongly condemned monopolies, declaring the formation of them a felony and banning trusts or any other combination of companies that was “in restraint of trade.”

After McKinley was assassinated in 1901, however, Theodore Roosevelt took office, and things began to change. Roosevelt saw monopolies as a threat to democracy for two reasons. First, they had too much power and influence. They represented a form of private power that rivaled and was on the verge of overwhelming the public power of the state. Second, they were giving rise to an economic situation in which people were miserable and desperate, which might lead them to join their European counterparts in looking for more extreme solutions, like a communist revolution.

Hence, aiming at giants such as JP Morgan’s Northern Securities Company and Rockefeller’s Standard Oil, Roosevelt’s administration filed 45 antitrust lawsuits in total

In 1911, Standard Oil was broken into 34 separate companies, some of which remain some of the most powerful companies in the US today, such as Exxon, Mobil and Chevron

That exception was the Great Depression, particularly around the early 1930s. During that time, Congress suspended antitrust laws, hoping this would help jumpstart the economy.

But after the Great Depression and World War II, the US government returned to its trust-busting ways with renewed fervor. Part of that was because they’d seen what those monopolies could do if left unchecked, as had happened in imperial Japan, fascist Italy and Nazi Germany leading up to and during the war

It was a matter of avoiding the dangers of fascism and communism, and it was pursued with renewed vigor. In 1950, Congress passed the Anti-Merger Act (also known as the Celler-Kefauver Act), enabling the government to prevent, control or even reverse mergers that might lead to monopolies. This way, it could nip monopolies in the bud, rather than waiting for them to grow

Created by JP Morgan, the telecommunications corporation AT&T was the largest company in the world in 1974, and it had been a monopoly for six decades. In fact, by the 1970s, it wasn’t just monopolist – it was a “super monopolist,” controlling six or seven monopolies at once. These were in industries such as local telephone service, long-distance telephone service, physical telephones and telephone accessories.Under President Nixon, the Justice Department initiated antitrust lawsuits against the company in 1974. By the early 1980s, the company was broken up into seven separate regional telephone companies.

Bork was a legal scholar who studied law at the University of Chicago, which became a hotbed of conservative economic, political and legal thought from the 1950s onward. Bork became one of the institution’s main legal thinkers in the 1960s, especially with the publication of his landmark 1966 paper, “Legislative Intent and the Policy of the Sherman Act.”

The paper basically argued for an extremely narrow interpretation of the Sherman Act. Rather than broadly aimed at monopolies and their pernicious effects on a macroeconomic, political and societal level, it claimed that the act was targeted at one thing and one thing alone – consumer welfare. The paper proposed a simple litmus test for whether a monopolistic company ran afoul of the Sherman Act – did it raise consumer prices? If not, there was no reason to break up the company.

Lawyers and judges liked Bork’s interpretation of the Sherman Act because of the simplicity and its apparent scientific rigorousness. They no longer had to deal with politically thorny, philosophically complex issues like the tensions between public and private power. Instead, they could just focus on narrow, quantifiable matters like prices

In the 1990s, the Clinton Administration initiated a major antitrust suit against Microsoft, but it proved to be the last hurrah of the trust movement’s legacy.

Winding through the court system, the suit against Microsoft seemed to be heading toward a big breakup – but before it could get there, George Bush was elected president, and the Justice Department decided to settle the suit.


In the 2000s, the eight parts into which AT&T had been split reformed into two giants, Verizon and AT&T. The latter then bought the cable and satellite television providers DirecTV and TimeWarner, growing even bigger

Airlines were allowed to merge until there were just three major companies, which have worked together to shrink seat sizes, introduce new fees and make record profits.

From 2005 to 2017, the international pharmaceutical market has gone from about 60 companies to ten. In the US, monopoly pricing has allowed companies to raise the prices of drugs by as high as 6,000 percent

Well, the merger of Anheuser-Busch, InBev and SABMiller has resulted in a conglomerate that controls 2,000 brands of beer, including Budweiser, Corona and Stella Artois, accounting for 70 percent of beer sales in the US.  

Meanwhile, if you go online or buy a technology product, you’re confronted with one giant company after another – Google, Amazon, Facebook, eBay, Apple – the list goes on and on. In becoming as big as they are today, many of these companies swallowed up their competitors, while the government just stood by and watched. For example, Facebook bought up WhatsApp and Instagram, while Google acquired YouTube.

Instead of a consumer welfare litmus test, the government can institute a “protection of competition test.” The aim here is to broadly encourage and preserve competitive markets, rather than narrowly focus on prices.

Well, if left unchecked, the private power of concentrated industries may overwhelm the public power of democratic governments. What’s needed, therefore, is a return to the tradition of trust-busting.

Economic concentration arose with the trust movement of the late nineteenth century, receded with the antitrust movement of the early twentieth century and returned with the demise of the antitrust movement’s legacy in the late twentieth century. This is a troubling development because monopolies and oligopolies have pernicious effects on the economy and society at large. The government should, therefore, return to its former tradition of trust-busting in order to safeguard democracy from the dangers of concentrate

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