From rural farms to inner cities, small is losing the war against big. And we don’t see it getting better.
By Ross Baird and Ben Wrobel
When I (Ross) travel to rural parts of the United States, I sometimes stop at the local McDonald’s, which photojournalist Chris Arnade calls “the glue that holds communities together.”
I once stopped for coffee at McDonald’s in the town of Orange, Virginia, population 4,700. Five regulars were seated at a semi-circular table, each with a one-dollar unlimited-refill coffee. Others dropped in and out as we spoke.
The regulars asked what I did, and I told them I run a firm that funds small businesses — specifically, high-growth startups. One man pointed out the window at a nearly deserted clapboard Main Street and said, “Small business, man, that’s all we got. We used to have the hardware store there; when they opened the Lowe’s twenty miles away, well, that went under. The Walmart in Locust Grove killed off a few more. Now, McDonald’s is all we have.”
The most basic American rights — which the authors of the Declaration of Independence called “inalienable” — are life, liberty, and the pursuit of happiness. The American promise is equality of opportunity. These rights weren’t universal when Thomas Jefferson first inked these words in 1776.
And while, at first glance, America has become more free for women, people of color, and others who weren’t landed gentry in 1776, I’d argue that thanks to monopolies, American freedom is quickly in decline — and because of the unchecked power of big enterprise, we’re on the road to serfdom.
It’s never been better to be a big company in America, but it has rarely been a worse time to be an entrepreneur.
According to the nonpartisan Economic Innovation Group, fewer Americans are starting successful firms than at any point in the last century. In 1980, nearly half of American firms were five years old or younger. By 2015, that number had fallen to one-third. Although a new business starts every two minutes in this country, another firm closes its doors every eighty seconds — the highest rate of firm death in the past fifty years.
America promises a right to compete, but across industries, that right is quickly defaulting. The causes are numerous: lax antitrust regulation, to aggressive mergers, to the general hollowing out of middle American cities. Taken together, the effect is stunning. Five tech companies — Apple, Alphabet, Microsoft, Amazon, and Facebook — are far and away the most valuable businesses in the US economy. There are four major airlines, three major drug stores, and two major toothpaste manufacturers. According tothe Economic Innovation Group, twenty-five percent more Americans work for big companies today than three decades ago.
It’s economic concentration, stupid
What will jobs look like in the future? This rightly dominates political and economic conversations today. The most frequent topics of conversation — automation and globalization — are real issues. But I’d argue that we’re underestimating the role that monopolies and economic concentration play in limiting opportunity for most people. And there is absolutely something we can do about it.
Rural America is getting killed. The Orange, Virginia story I told is more rule than exception. Big companies are hollowing out farmers, ranchers, and agricultural workers. In a 2016 article, “Big Food Strikes Back,” best-selling Omnivore’s Dilemma Michael Pollan highlighted how President Obama won the 2008 Iowa caucuses, in part, on an anti-concentration-in-agriculture message. But the Obama Administration did little to solve the problems, and since 2013 — in just four years! — the average family farmer’s incomedeclined by 50%. In 2016, President Trump won Iowa by ten points.
People of color are seeing opportunities quickly dry up. As Brian Feldman outlines, the Great Recession increased concentration among big banks and insurance companies. The small and medium sized ones either didn’t receive bailouts, or had to merge with big ones. The number of black-owned banks have declined 67% since 1985, and only 4% of the black-owned insurance companies that existed in 1985 still remain.
And while automation and offshoring gets all the attention, it’s economic concentration that may be contributing the most to job and wage loss. Economist Simca Barcai estimates that economic concentration has cost the average worker $14,000 a year in take-home pay over the past thirty years.
From rural farms to inner cities, small is losing the war against big. And we don’t see it getting better. Amazon, which is noted for ruthlessly pressuring suppliers on price, just acquired Whole Foods, who has given thousands of entrepreneurs their first purchase orders, and paid farmers well. That’s likely to change.
America’s biggest companies have never been bigger, but all too many people are sitting in a McDonald’s, drinking coffee and wondering where their town went.
“We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” – Justice Louis Brandeis
The “stagnant pool” of American entrepreneurship
Even the entrepreneurial landscape in America favors a few big winners versus a democratic, competitive arena.
Last year Silicon Valley entrepreneur Peter Thiel wrote in the Wall Street Journal that “competition is for losers. If you want to create and capture lasting value, build a monopoly.”
Most people don’t even have the opportunity to compete. From telecommunications to healthcare to retail, we’ve heard hundreds of stories from entrepreneurs who have tried to compete in a free market, only to see larger incumbents leverage advantages that aren’t related to the quality of the product or the company. We’ve seen big companies engage in predatory pricing, selling products below market value for a short-term loss in order to drive out a young upstart. They can threaten costly lawsuits, as health entrepreneur Lillian Salerno wrote about in her powerful Washington Post piece about her experience trying to sell a safer syringe. And they can exert power up and down the supply chain, as some vertically-integrated retailers have been accused of doing.
And technology startups, on a deeper level, are having their entire innovation agenda set by big corporations. When an investor looks to back your company, they ask, “What’s your exit strategy?” which has come to mean, “Who’s going to buy you?” If there’s not a clear view into who will buy you among a few top players (Google, Amazon, Apple, Facebook and Microsoft have bought more than 500 firms in the past decade), it’s hard to raise funding.
This has a chilling effect on true innovation and creativity: Silicon Valley, a national treasure, has become outsourced R&D for America’s monopolies.
It’s why we’re seeing many apps to help you park your car, and fewer solutions that can solve thornier problems like health, energy, education, agriculture, and financial services.
To be clear, big companies are not inherently bad. Most big companies were once startups: Google started as a fever dream on the Stanford campus, and Microsoft began in a garage in Albuquerque. It’s not entrepreneurs that are the villains; it’s the system of thought we’ve chosen to allow to to take hold in this country, that bigger is better and monopolies are not a problem.
And it has been a choice.
Moving Towards a Right to Compete
“The citizens of the United States must effectively control the mighty commercial forces which they have called into being… I believe in shaping the ends of government to protect property as well as human welfare.” -Theodore Roosevelt, 1912
How did we get here to begin with? In the early 20th century, trust-busting Presidents Theodore Roosevelt and William Howard Taft took an economy that was more unequal than any time in recent history (with the exception of today), instituted laws that allowed great ideas from small and medium-sized producers to compete with large monopolies, and ushered in the greatest era of American dynamism we’ve seen.
In the 1970s, though, we saw the definitional shift of a “free market” — on both sides of the aisle — move from “competitiveness of producers” to “consumer price.” We turned from a nation of producers into a nation of consumers, and we’re still feeling the effects.
Today, most people in Wall Street, Silicon Valley, or Washington don’t care whether one company owns an entire category: for example, Amazon seeks to become the “everything store,” where everyone goes to “buy stuff,” so long as people get low prices. That seems great, until your entire town is hollowed out, and you sit around drinking crappy coffee.
And the winners of our monopoly culture have only one solution — that doesn’t get at the problem.
Our innovation economies have become such an echo chamber among a few very powerful people that among the challenges we have, the only idea that gets serious airtime is universal basic income (for more on this, see an article I (Ross) wrote with Lenny Mendonca: Silicon Valley’s Unchecked Arrogance). The premise of UBI supposes a future where monopolies are inevitable: a few major winners will automate the rest of the world out of work, and a tiny percentage of the spoils will take care of the rest. In the eyes of society, the fundamental identity of an individual becomes a dependent consumer — a payment recipient.
This future provides staggering limits to nearly everyone’s freedom. The idea is designed to create dependency on a central government and the good will of a few big winners. To Silicon Valley, Universal Basic Income is the “obvious conclusion.”
But Silicon Valley has come to believe, in nearly all aspects of life, that concentrated power in the hands of a few people, even if they are benevolent, is a fundamentally good thing.
We need to bring back the right to compete that is a fundamental precondition for life, liberty, and the pursuit of happiness, and a little competition can go a long way.
If you like beer, you’re probably much happier with your selection today than you would have been at the turn of the century. Fifteen years ago, 96 percent of beer produced in the US came from two companies. Today, that number is down to 85 percent (and that’s still highly concentrated!) but the offerings are so much better.
This ten percent shift in market concentration created the entire “craft beer revolution”, boosting economies in small cities like Richmond, VA. American breweries and wineries alone now employ over 80,000 people — more people than work in the entire U.S. coal industry.
Yet the power of monopoly has created a world where even success stories are tenuous: today, the craft brewing industry today is at risk of being overtaken by a few major companies buying up small local brewers.
What can we do if we want to live in a world where all entrepreneurs, makers, and doers have a right to compete?
The rise of monopolies didn’t happen by accident. It’s intentional. It’s the result of decades of political maneuvering by large companies and their supporters in Congress, and it’s only accelerated in the past few years. But that also means that there’s nothing natural about monopolies — we can push back on economic concentration, if we decide we want to.
We’ve responded below with a few ones that are meant to start a conversation. We’d love to hear more ideas from all of you.
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