The Threat of the Big Business Economy
By OREN M. LEVIN-WALDMAN

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Oren M. Levin-Waldman will discuss his most recent  article: “The Threat of the Big Business Economy” – http://www.YonkersTribune.com/?p=40053 on Wednesday, June 20, 2018th at 10am EDT on the Westchester On the Level radio broadcast. Listen “Live” or “On Demand”. Use the following hyperlink — http://tobtr.com/s/10819391 to listen to this segment from 10:00-11am. To participate, please call 347-205-9201. Please note that the hyperlink code is activated only within 5 minutes prior to the broadcast’s start.

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The Threat of the Big Business Economy                                      By Oren M. Levin -Waldman

Oren M. Levin-Waldman, Ph.D.

In An Inquiry into a Wealth of Nations Adam Smith talks about competition as the invisible hand that maintains a fair economy, ensures opportunity, and regulates those who would seek to take advantage of others. After all, if the market is truly competitive, those who misbehave will be punished by the market place. Of course, all of this assumes a market place driven primarily by small businesses and/or enterprises. But what happens in an economy where the small mom and pop operation no longer exists and it is dominated by big business?

With increased globalization, we seem to be headed towards even bigger business. Smith most likely could never have imagined the world of big business that we currently live in. Big business by its very nature limits competition. On the topic of competition, Smith was quite clear. Government had an obligation to break up monopolies in restraint of free trade, or which would limit competition, in order to maintain a competitive market.

In all fairness Smith believed that monopolies would enable those firms to exploit customers by raising prices, and in the absence of competition there would be nothing to stop them. When consumers shop at big box stores like Walmart, Target, Lowes, and Home Depot, they are getting goods often at lower prices because of economies of scale. It is the small mom and pop store that can’t compete because it cannot lower its prices to the box store level. As a result, the small mom and pop operation is driven out of business.

In the early part of the Twentieth Century during a period of acquisitions and mergers in restraint of competition, the Federal government entered the private marketplace with antitrust legislation intended to restore competition. The objective was to break up the trusts in order to have a competitive marketplace. Ironically, however, it was business that requested to be regulated. The creation of trusts arose from a competitive marketplace where successful firms could buy smaller and less successful ones. Firms that had acquired others also understood that they could be acquired too.

Why, one might ask, is a competitive marketplace so important? And why has bigness become such a threat that most of us cannot see it? Bigness really limits freedom because it creates asymmetrical power relations in the marketplace. When both consumers and workers deal with small businesses they are in a better position to bargain and negotiate either price or wages. In the world of big business, big firms have all the power and both price and wages are set by those with market power. The consumer cannot simply walk away from a price not liked because there is no other place to go. And the worker whose only option is to take a job from the big business firm has no other place to go for better wages.

It is in the labor market that the effects of bigness are most often felt. It is no doubt true that the decline of the American middle class has much to do with the changing economy generally and the decline in manufacturing particularly. But that is only part of the story. Big business has largely been able to shape the labor market, and not in ways that favor workers. A company like Walmart is able to dictate to its suppliers what their wage rates will be, or risk losing the contract to supply their stores. Now the supplier feels pressured to locate its operations offshore just to maintain the contract. On one level, this may reflect the general anti-labor ethos of Walmart. But on another level, it reflects the power of bigness which ultimately threatens not only competition, but freedom too.

For the consumer, this may seem fine because the consumer can continue to obtain cheap goods from Walmart and other box stores. Of course, the consumer whose own wages have been cut because of the labor market dictated by bigness may have no choice but to shop at these stores because that is all that s/he can afford. But because the worker’s wages have been reduced, that worker does not enjoy the same freedom that s/he might enjoy if s/he were earning higher wages.

Again, the worker has no bargaining power in an economy dominated by big business. One of the biggest failings of the neoclassical economics model is that it doesn’t recognize the power dynamic in the economy. Employers and employees are assumed to be equal in their ability to bargain over their wages and other conditions of employment. In the real world, the only voice the worker has is to accept or reject, and rejection is tantamount to starving. The employer can wait it out until compliant workers come along and accept their terms. The employer, after all, is a wants trader, and the bigger the firm, the more resources, i.e. reserves there are, the longer that employer can wait it out.

Bigness has also corrupted the political system in ways that nobody imagined either. Big government usually goes along with big business. In fact, it is perhaps necessitated by big business. Remember in Smith’s world government isn’t needed to regulate the marketplace because the invisible hand of competition will regulate the misbehavior of producers who attempt to overcharge or even sell substandard products. Consumers will simply purchase elsewhere, thereby putting the bad firm out of business.

In the economy dominated by big business where competition is limited, or where shoddy products are obscured by cheap prices, government is forced to play the role of arbiter and regulate on behalf of citizens because there is no longer an invisible hand of competition. And in a world of asymmetrical power relations, government is often again needed in order to ensure that workers are treated fairly, which may also include ensuring that they are paid decent livable wages.

At the same time, in our economy dominated by big business where the wages of workers have been declining, government has had to offer more social supports to compensate for their low wages. Of course, these big firms then use their power to lobby for low taxes and less regulation, which, if going to pay for needed social supports, will only hurt the workers more. So when big business rails against big government, it is effectively assaulting the poor, workers and the middle class who now need big government to protect them. Big business certainly has no interest in returning to an era of small business, because that would adversely affect them.

The irony, then, is that to return to small government would require returning to an era of small business. And yet, the further irony is that the supporters of big government are perfectly content to have an economy dominated by big business. Competition, after all, might imply alternatives to government power. That is, competition is neither good for big business nor big government. But then it was Lord Acton who famously said that while power corrupts, absolute power corrupts absolutely.

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Restoring the Middle Class through Wage / Oren M. Levin-Waldman / Palgrave MacMillan

 https://www.palgrave.com/us/book/9783319744476

This book makes the case for minimum wage as a way to improve well-being of middle-income workers, reduce income inequality, and enhance democracy….

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Minimum Wage: A Reference Handbook / ABC – CLIO

https://www.abc-clio.com/ABC-CLIOCorporate/SearchResults.aspx?type=a

The Minimum Wage: A Reference Handbook By Oren M. Levin-Waldman. As of 2014, the minimum wage in Seattle is $15 an hour — double the federal minimum wage.

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“Wage Policy, Income Distribution, and Democratic Theory” By Oren M. Levin-Waldman

 

Read the review of the just published “Wage Policy, Income Distribution, and Democratic Policy By Oren M. Levin-Waldman. http://www.routledge.com/books/details/9780415779715/#reviews

http://www.routledge.com/books/details/9780415779715/#reviews

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Oren M. Levin-Waldman, Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School.

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Oren M. Levin-Waldman, Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email olevin-waldman@mcny.edu

 

eHeziThe Threat of the Big Business Economy
By OREN M. LEVIN-WALDMAN

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