Taking on the ‘fearsome foursome’ and ‘market power’

Last Thursday, the US-based global tech giants reported their quarterly earnings simultaneously.  On the same day, the US economy recorded the biggest quarterly contraction in national output ever (-9.5% yoy or -32.9% annualised).

In contrast, the ‘fearsome foursome’: Alphabet (Google) – the world’s largest search engine; Amazon – the world’s largest online distributor; Apple – the world’s largest computer and mobile phone manufacturer; and Facebook – the world’s largest social media provider, posted double-digit revenue growth for the three months ended in June, raking in a combined $33.9 billion in profit in the second quarter alone. While the US and world economy have been plunged into the deepest slump since the 1930s by the lockdowns from the COVID-19 pandemic, the world’s most prominent tech companies have prospered.

Revenues are up across the tech board and the price of their shares (market cap) rose $178bn in the following day, taking their stock market value to $5trn, or 25% of US GDP.  Amazon CEO Jeff Bezos saw the largest single-day increase in wealth ever recorded for any individual. In just one day, his fortune increased by $13 billion. On current trends, he is on track to become the world’s first trillionaire by 2026.

At the same time as these results came out, the fearsome foursome were ‘grilled’ by a US Congressional Committee about their nefarious practices in dealing with competitors; and their increasing ‘market power’ and ever-growing monopoly position in the most profitable sector of the US economy.  The Judiciary Committee published 1300 documents that supposedly showed their attempts to crush competitors, buy them out or exclude them from markets.

Amazon’s Jeff Bezos, Apple’s Tim Cook, Google’s Sundar Pichai and Facebook’s Mark Zuckerberg

For example, Facebook chief Mark Zuckerberg mailed that he saw “acquisitions as an effective way to neutralise potential competitors”, and how many start-ups fear that if they reject a Facebook buyout he will go into “destroy mode” against them. Apparently, Google insiders worried about how to fend off competition on the way to erecting what critics called a “walled garden”. As one executive opined: “The open web we knew and loved is going away.” There is a mounting campaign to curb or break up these ‘super-star’ companies and end their monopoly market power.

But this is not new in the history of capitalism.  Successful companies in new expanding fields of capitalist accumulation have grown from small to large and eventually to ‘monopoly’ positions: railways, oil, motor vehicles, finance and telecoms.  In 1911, Standard Oil was broken up into 34 companies by Congress.  Rockefeller ran the company as its chairman until his retirement in 1897. He remained the major shareholder and after 1911, with the dissolution of the Standard Oil trust into 34 smaller companies, he stayed as the richest person in modern history, as the initial income of these individual enterprises proved to be much bigger than that of a single larger company. Its successors such as ExxonMobilMarathon PetroleumAmoco, and Chevron are still among the companies with the largest revenues in the world.

In the 1984, AT&T was the main ‘monopoly’ telecoms provider and so was broken up into seven regional companies.  But AT&T continued to make huge profits as did its regional monopoly successors.  The break-up of ‘market power’ made little difference to improving competition or productivity or, most important, labour incomes.

The ending of monopoly ‘market power’ will not turn round the low productivity of the US economy and its current collapse into a deep slump, or for that matter, reduce inequality of incomes or wealth in the US.  Recent research by IMF economists found that the downward trend in the labour share of global income since the early 1990s was mainly due to ‘technological progress” as workers were replaced by labour-saving technology, particularly in so-called ‘routine occupations’. “The empirical analysis points to a dominant role of technology and global integration in this trend, although to different degrees between advanced and emerging market economies. Technological progress, reflected in the steep decline in the relative price of investment goods, has been the key driver in advanced economies, along with high exposure to routine occupations that could be automated, with global integration also playing a role, albeit a smaller one.”  Rising inequality is the result of ‘normal’ capitalist accumulation and the appropriation of profit through the exploitation of labour and labour-saving technology.

And yet the concept of ‘market power’ persists in left economics as the dominant explanation of what is wrong with American capitalism and globally. Take this recent article in Jacobin by rising star economic journalist, Grace Blakeley. “Many of the world’s largest tech companies have become global oligopolies and domestic monopolies. Globalization has played a role here, of course — many domestic firms simply can’t compete with global multinationals. But these firms also use their relative size to push down wages, avoid taxes, and gouge their suppliers, as well as lobbying governments to provide them with preferential treatment.”

Blakeley argues that Amazon has become America’s largest company through ‘anti-competitive practices’ that have landed it in trouble with the European Union’s competition authorities. The working practices in its warehouses are notoriously appalling. And a study from last year revealed Amazon to be one of the world’s most “aggressive tax avoiders.” Part of the reason Amazon has to work so hard to maintain its monopoly position is that its business model relies on network effects that only obtain at a certain scale, argues Blakeley. Tech companies like Amazon make money by monopolizing and then selling the data generated from the transactions on their sites.

And the rising market power of a small number of larger firms has actually reduced productivity. “This concentration has also constrained investment and wage growth as these firms simply don’t have to compete for labour, nor are they forced to innovate in order to outcompete their rivals.”

Much of what Blakeley says here is true.  Undoubtedly, much of the mega profits of the likes of Apple, Microsoft, Netflix, Amazon, Facebook are due to their control over patents, financial strength (cheap credit) and buying up potential competitors.  Indeed, take the latest case.  Microsoft is now in talks to purchase TikTok, which is owned by China’s ByteDance, with the aim of weakening this latest big rival to the super star companies. But the market power or monopoly explanation goes too far. Technological innovations also explain the success of these big companies.

Marx considered that there were two forms of rent that could appear in a capitalist economy.  The first was ‘absolute rent’ where the monopoly ownership of an asset (land) could mean the extraction of a share of surplus value from the capitalist process without investment in labour and machinery to produce commodities.  But the second form Marx called ‘differential rent’.  This arose from the ability of some capitalist producers to sell at a cost below that of more inefficient producers and so extract a surplus profit – as long as the low cost producers could stop others adopting even lower cost techniques by blocking entry to the market, employing large economies of scale in funding, controlling patents and making cartel deals.  This differential rent could be achieved in agriculture by better yielding land (nature) but in modern capitalism, it would be through a form of ‘technological rent’; ie monopolising technical innovation.

The history of capitalism is one where the concentration and centralisation of capital increases, but competition continues to bring about the movement of surplus value between capitals (within a national economy and globally). The substitution of new products for old ones will in the long run reduce or eliminate monopoly advantage.  The monopolistic world of GE and the motor manufacturers did not last once new technology bred new sectors for capital accumulation.  The oil giants are also now under threat from new technology. The world of Apple will not last forever.

Moreover, by its very nature, capitalism, based on ‘many capitals’ in competition, cannot tolerate any ‘eternal’ monopoly, a ‘permanent’ surplus profit deducted from the sum total of profits which is divided among the capitalist class as a whole.  The endless battle to increase profit and the share of the market means monopolies are continually under threat from new rivals, new technologies and international competitors.

It’s certainly true that accumulation of capital takes the form of increased concentration and centralisation of capital over time.  Monopolistic tendencies are inherent, as Marx argued in Volume One of Capital 150 years ago.  However, ‘market power’ may have delivered rental profits to some very large companies in the US, but rents to the few are a deduction from the profits of the many. Monopolies redistribute profit to themselves in the form of ‘rent’ but do not create profit.

Kathleen Kahle and Rene Stulz found that slightly more than 100 firms earned about half of the total profit made by US public firms in 1975. By 2015, just 30 did.  Now the top 100 firms have 84% of all earnings of these companies, 78% of all cash reserves and 66% of all assets. The top 200 companies by earnings raked in more than all listed firms, combined!  Indeed, the aggregate earnings of the 3,500 or so other listed companies is negative – so much for most US companies being awash with profits and cash.

Profits are not the result of the degree of monopoly or rent seeking, as neo-classical and Keynesian/Kalecki theories argue, but the result of the exploitation of labour.  Marx’s law of profitability is still central to a capitalist economy. Just before the COVID-19 pandemic hit the world economy, the major capitalist economies were already heading into a new recession, the first since the Great Recession of the 2008-9.  The profitability of capital was near all-time lows; up to 20% of US and European companies were making only enough profit to cover the interest on their debt, with none to spare for new investment.  Real GDP growth rates had dropped to their lowest rates since 2009 and business investment was stagnating.  A global recession was coming; and it had little to do with the ‘market power’ of the FAANGs sucking up all the profits; much more to do with the inability of capital to exploit labour enough.

But that is something mainstream economics (both neoclassical and Keynesian) never wants to consider.  For the mainstream, if profits are high, then it’s ‘monopoly power’ that does it, not the increased exploitation of labour.  And it’s monopoly power that is keeping investment growth low, not low overall profitability.  But if the ‘market power’ argument is accepted over a Marxian analysis of capital, then it implies that all that needs to be done is to weaken ‘market power’; or break up the monopolies and restore ‘competition’, not end the capitalist mode of production.

In her Jacobin article, Blakeley perceptively concludes that The only real way to tackle these inequities is to democratize the ownership of the means of production, and begin to hand the key decisions in our economy back to the people.”  Yes, but I’m not sure what she means specifically: workers on the boards – German style?; shares for employees?; regulation? All those measures have failed in the past to ‘hand key decisions back to the people’.  In the article, Blakeley advocates a wealth tax. But such a tax would do little to ‘democratize ownership of the means of production’.

The real solution to the market power of the likes of Apple, Microsoft, Amazon, Facebook, Google, Netflix etc is to bring them into public ownership to be run by democratically elected boards and managers drawn from the workers in these companies, consumer bodies, trade unions and government.  The fearsome foursome’s rule would then be ended. The billions they ‘own’ through their shares would be lost to them overnight. The nefarious practices of these companies would then be stopped and the social media scandals ended.  And most important, the key services that these companies provide (as the pandemic has revealed only too well) can then be supplied (at low cost without adverts!) to meet social needs, not deliver mega profits.

17 Responses to “Taking on the ‘fearsome foursome’ and ‘market power’”

  1. vk Says:

    “Marx’s law of profitability is still central to a capitalist economy.”

    And will always be. Marx’s value theory (and thus of profit) was scientifically demonstrated by logic. It can already be considered an absolute truth by all standards.

    I think the author of this blog should be more assertive with scientific certainties. Otherwise, he’ll just give fuel to the postmodern hyper-relativistic charlatans that plague today’s Western academic landscape.

  2. ucanbpolitical Says:

    Hi Michael,

    We always need to be cautious with these companies. Far from being rentiers they are actually quite shaky or in decline. I will only look at two, Amazon and Apple. Amazon only made the profit it did for one reason, cutting back on Technology Content and Marketing courtesy of a captive Covid audience (a-one-off). That saved it $3.996 billion or $1.378 billion more than the difference in net income compared to last year of $2.618 billion. Its operating margin fell to under 4% on its main business, that is selling and delivering parcels. Really, if it paid proper taxes it would be bankrupt.

    Click to access a77b5839-99b8-4851-8f37-0b012f9292b9.pdf

    As for Apple its share price should not detract from the fact that its pinnacle was in 2018. If we compare the recent quarter to that of 2018, it earned $11.519 billion then and now only $11.253 a real 6% fall in profit despite the fact that revenue had increased by double that or 12%. Serious slippage on margin. It goes without saying that despite these fundamentals Apple’s share price is now double what it was two years ago. The fact that Apple has had to juggle its iPhone range three times in as many years shows that it has lost its footing.

    Click to access FY20-Q3_Consolidated_Financial_Statements.pdf


    Click to access Q3FY18ConsolidatedFinancialStatements.pdf

  3. Charles A. Says:

    Your solution has two elements: one, “bring them into public ownership to be run by democratically elected boards and managers drawn from the workers in these companies, consumer bodies, trade unions and government,” and two, “the key services that these companies provide can then be supplied to meet social needs.” The first element does not guarantee the second! Instead of an overall economic vision and basic principles of a socialist economy, democratic socialists make a vague allusion to doing it all “democratically.” The fact is that not populism, not socialism, but communism will get it done.

  4. rogeriomaestri Says:

    Michael.
    .
    From the monitoring of the articles written on your blog, I was inspired to write an article that touches more or less on the same points of yours. As I sent it on the 31st and it was published on the 1st, I am pleased to see that I managed to get ahead of my mentor in a few hours, even without the master’s brilliance and knowledge.
    .
    However, I will raise some points that you can read in my article. The name of the article is: ” A concentração de riqueza é o caminho natural do capitalismo, mas o malthusianismo será a última etapa” (The concentration of wealth is the natural path of capitalism, but Malthusianism will be the last step.) https://jornalggn.com.br/artigos/a-concentracao-de-riqueza-eo-caminho-natural-do-capitalismo-mas-o-malthusianismo-sera-a-ultima-etapa-por-rogerio-maestri/ (it is in Portuguese, but the NSA paid for a good translator on Google!).
    .
    Perhaps as you live in an English-speaking country, which still maintains a policy of Imperialism, it has not highlighted some factors that I think are extremely important for dependent countries, the attack and the extermination of national capitalism itself in the tertiary sector.
    .
    For several decades, an extremely important factor has started for the success of Amazon-type companies and, to a lesser extent, the others FAANGs. The success was obtained through extermination of the large chains of national magazines (by companies such as Zara, C&A, McDonalds…). Companies like Amazon can only penetrate markets like Brazil simply because the door has been opened by traditional multinational networks. These networks are able to establish themselves in the dependent countries due to two things, the homogenization of the consumer market and the possiblity of distance management in the tertiary sectors.
    .
    For me, FAANGs are nothing new or even innovative in terms of product commercialization, they are simply the expansion of the Imperial domain to a sector that was already beginning to be shaken by the international networks that had existed for decades. The main difference is simply the ability to directly manage a small fast food restaurants, hamburger or even a small food delivery company that uses a bicycle as a work tool for thousands of kilometers.
    .
    The possibility of remotely managing any activity in the tertiary sector, provided by the Internet and modern computing means, will cause a true dystopian scenario. Such scenario is created by a systemic unemployment for more than 50% of the world population (and I am not saying an exaggeration). If the same process of unemployment that has already happened in the industrial and agrifood sector happens in the tertiary sector, it will be a catastrophe.
    .
    The fight against the monopoly that the American constituents think to have control over it’s a “Dream on a summer night”, since the monopolies mentioned as examples at the beginning of the text have become oligopolies, as in the oil sector. Instead, they will not only be regional, but international.
    .
    Another important factor is the cultural domain that leads to the homogenization of the consumer market, that is, using tennis shoes from an international brand has become the consumption dream of many teenagers and currently young adults . This homogenization allows economies of big scale that ends up removing the capacity of manufacturers’ resistance to economic blackmailing. There is simply a transfer of income from the industrial sector, to the commercial sector, in the end reaching the major shareholders.
    .
    If I would have ended my line of reasoning here, I’d have entered an eternal depression. However, the fact that this whole structure is increasingly fragile keeps me hopeful. If you’d like to know why, I will write an article about it soon. And if you want me to send it to you, I can. But if you find it not significant, nevermind.

    Translated by my intelligent and caring youngest daughter Carla.

  5. LTVE Says:

    The monopoly/competition debate within Marxism continues to confuse me. Shaikh (and I believe Wallerstein too with some qualifications) seems to point to continuing primacy of competition while the Baran&Sweezy school seems to base everything on monopoly. Which is the case?

    How do we square “The history of capitalism is one where the concentration and centralisation of capital increases” and “It’s certainly true that accumulation of capital takes the form of increased concentration and centralisation of capital over time. Monopolistic tendencies are inherent, as Marx argued in Volume One of Capital 150 years ago.”

    vs.

    “The substitution of new products for old ones will in the long run reduce or eliminate monopoly advantage.”

    Which of these tendencies dominate?

    How can the ultimate tendency logically be towards “In a given society this limit would be reached only when the entire social capital was united in the hands of either a single capitalist or a single capitalist company.” (Vol.1) when old monopolies seem to be temporary due to emergence of young sectors?

    “The smaller capitals, therefore, crowd into spheres of
    production which large-scale industry has taken control of only
    sporadically or incompletely. Here competition rages in direct pro-
    portion to the number, and in inverse proportion to the magnitude,
    of the rival capitals. It always ends in the ruin of many small
    capitalists, whose capitals partly pass into the hands of their con-
    querors, and partly vanish completely.”

    How can we have both liquidation of monopolies in mature industries by young substitute industries and a secular tendency towards concentration and centralization at the same time? It seems we should rather have a fluctuating level of monopolization around a constant level rather than a slow secular trend towards complete monopolization. And yet we seem to observe the latter, that is concentration seems to be the outcome to the extent a laissez-faire approach is taken to markets.

    • michael roberts Says:

      Very well posed! Any comments?

      • mandm Says:

        Maybe we can frame the question around Samir Amin’s “Modern Imperialism, Monoply Finance Capitalism, and Marx’s Law of Value.” Amin argrues that his argument is the product of the logical extention of Marx’s under current conditions. All commentators here (except maybe UcanB) seem influenced by Amir, but his name is never mentioned.

    • ucanbpolitical Says:

      There are a large number of studies looking at the churn rate for the Dow Jones. There are now no original corporations left as the last one, General Electric has fallen out. Churn rates depend on whether markets are on the up or down. On the up and with sufficient demand market prices accommodate the less efficient producers (vol 3 chapter 10) lowering the investment threshold. Thus as a result of globalisation from the early 1990s to 2014-6 we have seen more large corporations emerge, particularly in China than ever before. With the exception of Microsoft, 30 years ago the monopolies Michael refers to barely existed. What allowed them to grow so quickly was very liquid credit markets in the USA especially venture capitalists where single successes more than compensate for ten failures

    • stevenjohnson Says:

      Because the rise of substitute industries is the expression of concentration and centralization of capital? Possibly even the fullest? A set of permanent monopolies is not generally deemed to be proper capitalism, especially if they are state enforced. That sort of thing is supposedly mercantilism and anti-capitalist (except that real mercantilism was very much about a state creating a national market and a national currency and driving peasant households into the labor market and the landed estates in to market production, so yeah, mercantilism is a form of capitalism in that epoch of development.

      Besides, putting monopoly versus competition is more metaphysical thinking. Seeing the historical interaction is the sort of thing people usually mean by “dialectics.” I think.

    • vk Says:

      Competition is relative to the movement of capital.

      You can have, at the same time, both concentration and centralization. On one side, the organic composition of capital generally rises as the development of the productive forces of capitalism advance in history. On the other side, bigger individual capitals absorb the smaller individual capitals, which leads to the previous consideration and so on (dialectical movement).

      In this sense, competition has two aspects: inter and intra sector. On one side, individual capitals from the bigger and more lucrative sectors absorb the individual capitals from the smaller and less lucrative sectors (this results in the tendency of the financial sector to dominate the other sectors in capitalism). On the other side, bigger and more lucrative individual capitals absorb the smaller and less lucrative individual capitals from the same sector, which generally leads to a development of the productive forces (even if just by pure economy of scale) and an obvious rise in OCC.

      That way, we have both concentration and centralization of capital concomitantly, through competition (which is just part of the nature of the movement of capital).

      Vulgar economists (bourgeois) generally treat intra-sector competition as the “healthy” version of competition, and inter-sector competition as “unhealthy” version of competition. When both reach extreme levels, vulgar economists call the first as “monopoly” and the second as “financialization”. But both are just scholastic abstractions that are devoid of scientific meaning; instead, they just describe an ideological position of the academic (invariably, a vulgar economist).

      It’s also important to highlight that use value is still at the base of capital. Use value is the “support for the trade value” (“Träger des Tauschwerts”): even when a sector absorbs another sector, the absorbed sector still exists (only now under just one individual capital). The material world still has to exist in order for capital to exist. We will never reach a stage where human beings eat, walk over and breath money, as it’s use value is just to serve as the universal commodity in the sense it can be exchanged for every other commodity in existence.

      Sectors can and do go extinct, but new sectors are always created. This is a tendency from the development of the productive forces, which form a dialectical unity with the relations of production (“society”): as it advances, so do the relations of production get more complex, therefore expanding the technical and hierarchical division of labor, thus expanding the number of sectors of a capitalist society (“the anatomy of the human reveals the anatomy of the monkey, but not vice-versa”).

  6. LTVE Says:

    “Moreover, by its very nature, capitalism, based on ‘many capitals’ in competition, cannot tolerate any ‘eternal’ monopoly, a ‘permanent’ surplus profit deducted from the sum total of profits which is divided among the capitalist class as a whole.”

    But the ruling class is ultimately not dedicated to capitalism as an ideal. If the system is transitioning towards a monopolistic neo-feudalism, with the same ruling class transformed along with it (without being overthrown) they would be fine with it, or enthusiastric rather. The “intolerance” of smaller capitals would not matter, and neither does capitalism as a system, since it is a historic, transitory system like any other, has any “say” over what happens.

  7. Dionysios Perdikis Says:

    Dear Michael,

    allow me to stress/disagree on some of the points you are making.

    1. Technological rents due to more productive techniques is what is traditionally “marxian”. However, such rents are supposed to be temporary because competitors are allowed to invest to adopt the most productive technique. This is a story of within branch competition, i.e. competing on similar commodities, in terms of the means/method of production.

    Instead, what we have today is competing over different commodities, with distinct qualities and therefore use-values, which are produced as monopolies due to patents’ protection. Once competition by copying or other means arrives to the same point, new more advanced commodities are introduced to the market using technology also protected by patents.

    When the commodity is a consumption commodity (i.e., mobile phones etc), the technological rents in question are monopoly and not differential rents.

    Even in the case where the commodity is a means of production, though, there are differential rents for those who are going to buy them and use them in the production of another commodity, and monopoly rents for those that produce the means of production of advanced technology, which they also protect with patents.

    2. Rents due to patents, unlike the ones due to higher productivity, refer to the ownership of capital, the political power it entails, and the state institutions (military included) that can guarantee the rights of ownership (over capital, trademarks, patents etc). Therefore, although it is true that every 10 or 20 or 30 years the composition of monopolies might change, there is little change to the fact that a class of super-capital owners will be gathering superprofits for decades, no matter if they do so via the ownership of Microsoft or ATT or Standard Oil stocks, or via monopoly technology or energy rents.

    Instead, what is common in monopoly capitalism is the prevalence of incomes that come via rents, not profits, i.e., via redistribution of profits, and are supported by the modern imperialistic capitalistic state.

    3. Finally, if we look at where the additional profits really are produced, then I know that you already are very knowledgeable of the work of Smith and Hιgginbottom on superexploitation.

    All in all we have monopolies and associated imperialist states that the original link in a chain of violent economical as well as institutional social relationships and practicies that lead to the increase of surplus value via superexploitation, and its distribution via monopoly competition, i.e., competition for monopoly rents.

    This is modern monopoly capitalism or imperialism at the world scale.

    And it is orthodox – albeit non dogmatic- marxian and leninist capitalism!

  8. ucanbpolitical Says:

    Let’s be clear. All five tech giants benefited in one way or another from the pandemic. Because of greater dependency on the Internet more hardware and software was used and more home deliveries. Can it last. No. These tech giants had an initial fillip but they cannot remain insulated indefinitely from the general economic conditions.

    • marthajpc Says:

      We should also be clear about their organic connection with the state–that is, with the US miliitasry/industrial conmplex which created digital technology and the internet, as well as the decaying, US centered , financialized imperial system, of which are are the calcitfying brains and the global south the restive, super-exploited body.

      • marthajpc Says:

        The last clause should read: “… of which THEY are the calcifying brains and the global south the restive, super-exploited body”.

  9. Anti-Capital Says:

    Where is the data to back up DP’s assertions?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.


%d bloggers like this: