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Is Antitrust Policy Killing Small Business?

Locavesting Staff | August 11, 2016

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It’s almost cliché to say that small businesses make up the lifeblood of the economy. But study after study underscore the truth of that old chestnut: small businesses create the bulk of new jobs, increase innovation and economic resilience, improve the health and well being of their communities and encourage a strong middle class.

So why then do our policies always seem to undermine them?

That question has been at the heart of a lot of the work at the Institute for Local Self Reliance (ILSR), which has looked at rising commercial rents, economic development incentives, big box retailersbanking consolidation and other developments negatively affecting the nation’s small businesses. The group’s latest report takes on antitrust policy—or rather, the lack of.

New business formation has been on a downward trend for 20 years, although that has begun to tick upward in the past two years. Independent businesses, in particular, have been fighting for survival. The numbers are stark:

In a span of just 15 years, from 1997 and 2012, the number of local retailers declined by about 108,000—a 40% drop relative to population, according to the report. During the same period, small manufacturers fell by more than 70,000. As recently as the 1980s, independent retailers supplied about half of the goods Americans bought in stores; today their share is down to about one quarter.

retail-decline

Similarly, the study points to a drop in the number of community banks and credit unions, from 26,000 to 13,000 since 1995.  These local financial institutions held nearly half of bank assets 20 years ago, but today they control just 23 percent.

All told, between 1997 and 2012, the share of total business revenue going to firms with fewer than 100 employees fell by nearly one-fifth, from 29% to 24%.

What’s behind the precipitous drop? Stacy Mitchell, ILSR and author of the report, Monopoly Power and the Decline of Small Business, argues that despite the accepted narrative that bigger companies are more efficient, the opposite is true. Instead, she blames the decline in large part on a pervasive bias toward big business among the nation’s policy makers and an increasingly lax attitude among antitrust enforcers whom, over the past few decades, have become more concerned with efficiency than fairness.

Drawing on examples in pharmacy, banking, telecommunications and retail, the study finds that big companies routinely use their size and their economic and political power to undermine their smaller rivals and exclude them from markets, while antitrust enforcers look the other way.

“An economy in which power and ownership are broadly distributed also tends to more broadly distribute income.”

As small business has declined, economic power has become concentrated in the hands of a few. Across almost every industry, including banking, pharmaceuticals, retail and even beer, a handful or less of giant companies control the market.

From the report: In retail, Walmart now captures one of every four dollars Americans spend on groceries, including more than half of grocery sales in 40 metropolitan areas. Online retail is even more consolidated. Amazon accounts for more than 35 percent of online sales in the United States and is rapidly expanding its share. In 2015, Today Amazon captures almost half of all new book sales.

Just two companies make 70 percent of our beer; one company processes more than one-third of U.S. milk; and four companies slaughter and process over eighty percent of U.S. beef. In finance, the share of banking assets held by megabanks rose from 17 percent in 1995 to 59 percent.

(For another interesting take, see this).

There’s more at risk than fewer options to shop local. An ailing small business sector hurts consumers and threatens innovation, shared prosperity and democracy itself, as giant corporations consolidate power and influence, according to Mitchell.

You could call it a trickle down economy.  “An economy in which power and ownership are broadly distributed also tends to more broadly distribute income. Indeed, after more than thirty years of consolidation premised on the idea that bigger companies would generate more prosperity, most Americans are not in fact better off,” writes Mitchell.

What’s the prescription?

Mitchell lays out several steps that can be taken, including returning to the broader set of aims that once guided anti-trust policies, revisiting merger guidelines and stepping up enforcement of laws already on the books. She also calls for closer examination of digital platforms such as Amazon as well as the finance sector.

Related: A Report Examines How Rising Rents Are Hurting Small Businesses, And What to do About it

In a separate piece, she notes that, for the first time in 28 years, the Democratic Party platform calls for vigorous, stepped-up enforcement of our anti-monopoly laws, arguing that concentrated corporate power is “corrosive to a healthy democracy.”

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