Rebuild the American Jobs Machine: Break the Mega-Corporations

We've heard it a million times: most new jobs are created by small businesses. It's been true since the dawn of the modern economy in the 17th century.

But not this time. This time, when the giant corporation shuts down its local factory and moves overseas, there's nothing left to take up the slack - those small local businesses that do all the hiring have long since disappeared.

We were right all along: it's WalMart's fault. Or rather, the anti-regulators who enabled WalMart and its monopolistic, job-killing brethren.

Barry C. Lynn and Phillip Longman explain:

If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs.

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But while the mystery of what killed the great American jobs machine has yielded no shortage of debatable answers, one of the more compelling potential explanations has been conspicuously absent from the national conversation: monopolization.

The word itself feels anachronistic, a relic from the age of the Rockefellers and Carnegies. But the fact that the term has faded from our daily discourse doesn’t mean the thing itself has vanished—in fact, the opposite is true. In nearly every sector of our economy, far fewer firms control far greater shares of their markets than they did a generation ago.

Indeed, in the years after officials in the Reagan administration radically altered how our government enforces our antimonopoly laws, the American economy underwent a truly revolutionary restructuring. Four great waves of mergers and acquisitions—in the mid-1980s, early ’90s, late ’90s, and between 2003 and 2007—transformed America’s industrial landscape at least as much as globalization. Over the same two decades, meanwhile, the spread of mega-retailers like Wal-Mart and Home Depot and agricultural behemoths like Smithfield and Tyson’s resulted in a more piecemeal approach to consolidation, through the destruction or displacement of countless independent family-owned businesses.

It is now widely accepted among scholars that small businesses are responsible for most of the net job creation in the United States. It is also widely agreed that small businesses tend to be more inventive, producing more patents per employee, for example, than do larger firms. Less well established is what role concentration plays in suppressing new business formation and the expansion of existing businesses, along with the jobs and innovation that go with such growth.

Evidence is growing, however, that the radical, wide-ranging consolidation of recent years has reduced job creation at both big and small firms simultaneously. At one extreme, ever more dominant Goliaths increasingly lack any real incentive to create new jobs; after all, many can increase their earnings merely by using their power to charge customers more or pay suppliers less. At the other extreme, the people who run our small enterprises enjoy fewer opportunities than in the past to grow their businesses. The Goliaths of today are so big and so adept at protecting their turf that they leave few niches open to exploit.

Over the next few years, we can use our government to do many things to promote the creation of new and better jobs in America. But even the most aggressive stimulus packages and tax cutting will do little to restore the sort of open market competition that, over the years, has proven to be such an important impetus to the creation of wealth, well-being, and work. Consolidation is certainly not the only factor at play. But any policymaker who is really serious about creating new jobs in America would be unwise to continue to ignore our new monopolies.

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As we seek new ways to jump-start America’s job growth, we would be wise not to rely only on big government or big business to accomplish the task for us. Indeed, the new and better jobs of tomorrow will be created not by any such abstract powers but by very real people—such as our own more entrepreneurial neighbors, cousins, and children—working in big corporations made subject to competition and working in small ventures launched specifically to compete. These entrepreneurs will be able to do so only after we have used our antimonopoly laws to clear away the great private powers that now stand in their way.

The whole piece is long but well worth your time.