How Capitalism Destroys Itself Using Monopolies

In April 2016, oil giant Halliburton announced it would fight Department of Justice efforts to stop its merger with fellow oil giant Baker Hughes.

These are two of the largest corporations in the industry. The merger is valued at $35 billion, and would leave Halliburton-Baker Hughes in control of a huge percentage of the market share. As U.S. Attorney General Loretta Lynch said, “The proposed deal between Halliburton and Baker Hughes would eliminate vital competition.”

The march toward monopolization (the ownership of an industry by one company) is a self-destructive inevitability of capitalism. The unregulated pursuit of profit destroys competition itself. This is the natural trend of capitalism throughout its history, of larger firms taking over smaller firms to increase their share of a market.

To quote French politician and economist Pierre-Joseph Proudhon, the first self-described anarchist: “Competition kills competition” (see Guerin, Anarchism). 

And once the competition is devoured or driven out of business, prices can be raised and even more profit can be made. Further, innovation and quality can decline, and workers won’t be able to find higher wages for the same positions at competitors because there are none.

Howard Zinn wrote in A People’s History of the United States of the monopolization of the Industrial era:

And so it went, in industry after industry—shrewd, efficient businessmen building empires, choking out competition, maintaining high prices, keeping wages low, using government subsidies. These industries were the first beneficiaries of the “welfare state.” By the turn of the century, American Telephone and Telegraph had a monopoly of the nation’s telephone system, International Harvester made 85 percent of all farm machinery, and in every other industry resources became concentrated, controlled. The banks had interests in so many of these monopolies as to create an interlocking network of powerful corporation directors, each of whom sat on the boards of many other corporations… [J.P.] Morgan at his peak sat on the board of forty-eight corporations; [John D.] Rockefeller, thirty-seven corporations.

Even Woodrow Wilson—no anti-capitalist—lamented in his time that his country was “a very different America from the old…no longer a scene of individual enterprise…individual opportunity and individual achievement.” But rather, “small groups of men wield a power and control over the wealth and the business operations of the country” (Chomsky, Hopes and Prospects).

A 2011 Monthly Review article, “Monopoly and Competition in Twenty-First Century Capitalism,” points out, “Wherever one looks, it seems that nearly every industry is concentrated into fewer and fewer hands. Formerly competitive sectors like retail are now the province of enormous monopolistic chains; massive economic fortunes are being assembled into the hands of a few mega-billionaires sitting atop vast empires.” Economic recessions, we must note, provide an even easier opportunity for the largest, richest firms to swallow up smaller ones in dire financial straits. Fewer and fewer companies control all sectors of production.

By the 1970s, 100 companies owned nearly 50% of industrial assets in the U.S., and 100 companies controlled the same in Britain (Harman, Economic of the Madhouse).

In 2000 the Global Policy Forum found that the largest 200 international corporations accounted for more than a quarter of humanity’s economic output, greater than the economies of 182 nations combined. The top five auto manufacturers had a 60% global market share; the top five oil companies 40%; the top five steel companies 50%.

No one argues this trend isn’t dangerous. The elimination of competition prompts governments to pass legislation, such as the U.S. Sherman Anti-Trust Act, to ban monopolies. But regulations are not nearly strict enough. Just ask the six banks that now control 74% of banking resources in the U.S. Or the four major airlines in this country, down from 10 in 2000, which see 83% of air traffic. Or ask Disney, GE, CBS, Time Warner, Viacom, or Newscorp. These six corporations own and control 90% of what we read, listen to, and watch. Newscorp, chaired by conservative billionaire Rupert Murdoch, owns Fox News, The Wall Street Journal, The New York Post, Harper-Collins books, Zondervan (look at your Bible), The Times (London), and many more. Murdoch also owns 21st Century Fox. Six percent of U.S. companies make 50% of U.S. profit.

The existence of global corporations, which have no borders, make the problem of regulation even more difficult.

The crisis of monopoly is worsened through private industry-driven economic planning. Michael Harrington wrote in Socialism: Past and Future, “By the end of the nineteenth century, laisser-faire—where entrepreneurs obeyed the ‘invisible hand’ of the market—turned into corporate capitalism, where the ‘visible hand’ of professional executives sought, with assistance from the government, to dictate to markets rather than to follow them.”

In pursuit of profit, corporations lobby to undercut the free market. Economist Garrett Baldwin writes, “While traditional lobbying once centered on altering tax rates and encouraging legislation to liberalize and deregulate the economy, it has now evolved into a competitive weapon for companies trying to box out competitors and raise barriers to entry in their markets.” People often complain (rightly) that the government makes it excessively difficult for new businesses to get off the ground, and this is largely due to bigger, established corporations influencing government policy. 

Monopolization makes economic crises (recessions) worse. Competition over time eradicates small businesses in a given market. A few corporate giants increasingly dominate each sector of the economy. Harman writes:

If any one of these giant firms goes bust, there is enormous damage to the rest of the economy. Banks that have lent it money are very badly hit. So too are other industrial firms which expected to sell it machinery and raw materials or to sell consumer goods to its workers. Suddenly their profits are turned into loses. Such is the scale of the damage that the ability of other firms to buy up machinery and raw materials on the cheap does not nearly begin to compensate for it. Instead of the destruction of some firms benefiting others, what threatens to develop is an economic black hole that sucks into it profitable and non-profitable firms alike…each giant that collapses knocks over others in a domino effect.        

We saw this very recently with the 2008 housing market crash. Banking giants saw huge loses as borrowers couldn’t repay their subprime loans, which meant banks couldn’t repay their debts, and thus began to fall by the hundreds: Lehman Brothers, Wachovia, Washington Mutual, all bankrupt. Other banks bought up some failed banks, but this did not ease the crisis. The stock market crashed, and trillions upon trillions of dollars disappeared as company stocks became worthless. Banks could no longer offer loans to consumers, and thus industrial powers such as the auto manufacturers no longer had a credit bubble on which to reap profits. General Motors and Chrysler went bankrupt, and their collapse would have cost the nation millions of jobs. The government spent trillions in taxpayer funds to prop up both the big banks and the auto industry, in hope of avoiding economic collapse.

The concentration of production into monopolistic entities indeed created a black hole, a situation that severely damaged nearly every economic sector of American society and dragged the economies of the world down with it, leading everywhere to spikes in unemployment and poverty, and at the same time slashes to vital social welfare programs.

Surely even free market conservatives can support the role the State must play if monopolies (and their predecessors, oligopolies) are to be avoided. Without strong anti-trust laws, capitalism can reach a point where competition dies and the free market becomes the market of corporate kings.