To level up, tackle monopoly power

The UK has just ordered the global breakup of Facebook. To be precise, our Competition and Markets Authority (CMA) has ordered the company, now rebranded as Meta, to sell off the short-video firm Giphy, which it recently bought. This is a breakup, and it is happening: the CMA just defeated Meta’s appeal.

The case is remarkable, for three reasons. First the UK absolutely can force a global breakup of these two stapled-together US firms. As veteran competition lawyer Tim Cowen said, the CMA can apply for a court order, which “brings the entire foreign judgements and enforcement system into play [that] is the basis of the world trade system.”

Second, the GAFAM companies (Google, Amazon, Facebook, Apple, Microsoft) have acquired some 1,000 firms in the past 20 years, and zero were blocked by any regulator, anywhere, worldwide. Except for one: the UK’s breakup of Meta/Giphy.

Third, this first global breakup of a big tech firm in decades should be big, big news - yet who outside the technocratic competition bubble even noticed?

Why the blindness?

Monopoly, monopoly, everywhere

Since 2015, 75-90% of time spent on social media by UK users went to the Meta companies (Facebook, Instagram, Whatsapp etc,) according to the CMA. So Meta is a monopolist. It makes money by taking our data for free, then using it to sell targeted advertising.

To make sense of Britain’s economic malaise, we must move beyond dictionary definitions of monopoly power, and see it not just where one seller dominates a market, but when any private firm enjoys excessive, concentrated economic power.

On this broader view, monopolists are all around us. From Too-Big-To-Fail banks, to the Big Four accounting firms, to Big Pharma, the Big Four (perhaps soon Big Three) network telcos, Big Retail, Big Tech, energy giants, dominant landlords, pubcos, and so on. These “superstar firms” do well themselves, but also exert a hefty and extractive gravitational pull over others in their orbit: suppliers, workers, small businesses, citizens, taxpayers and politicians. Overall, this reduces UK economic growth.

Dominant firms site astride chokeholds all across the economy, acting as private tax collectors milking wealth from the passing flows. A recent analysis of Amazon, for example, found that worldwide it keeps 30% of all sales in fees, earning it $60 billion in 2019. Sellers have to be on Amazon: that’s a chokehold.

Most research on market power focuses on the U.S., where the scale and damage is documented extensively. But new research is now revealing the UK’s monopoly problem. A major investigation by the IFS this year, for instance, finds that “almost all of the US trends are present in the British data”, with market power inflicting poor productivity, alongside weak entrepreneurship and poor wages, especially among small businesses and people trapped in the monopolists’ life-sapping gravitational pull.

Market power also drives inflation. New research by IPPR and Commonwealth, and by Unite, among others, show that the key driver of pandemic-era inflation is not wages, but surging corporate profits. The profits are driven substantially by monopolistic “price gouging”. Over the longer term, research by Jan de Loecker and Jan Eeckhout show that markups (ie ripoffs: how much firms charge above their production costs) have tripled since the 1990s.

Monopoly power always levels down

Monopoly power worsens inequality not just economically and politically, but geographically too. The winners, the monopolists, the extractors and their executives and shareholders, are disproportionately found in and around rich parts of London, or overseas or offshore. Meanwhile, the losers – the extracted-from smaller businesses, the squeezed workers and the ripped-off consumers – are spread widely across the UK. This is a formula for regional deprivation, as partly the flip side of metropolitan monopolists’ success. It is a geographical version of what the economist Jan Eeckhout calls “The Profit Paradox.”

The implications for levelling up – and for voting patterns - are obvious.

To level up, change the story

The Giphy case shows that the UK could lead the world, post-Brexit. (Europe’s historical record in this area is, contrary to common opinion, pathetic: for example, it has blocked fewer than 0.4 percent of mergers notified to it since 1990.)

But Giphy is a rare UK exception, driven by an activist (and brave) CMA. Monopolists still have the government’s ear. Plans to give statutory powers to a new, beefy Digital Markets Unit at the CMA to take on big tech firms were put on ice in May: top Downing Street official David Canzini said “Conservative governments don’t legislate for economic growth.” Andrea Coscelli, the CMA’s outgoing boss, now warns that the UK will now be “left behind” on regulating Big Tech, as the EU starts to flex new powers with its incoming Digital Markets Act.

The UK must now wake up, and shape up. There is a potentially transformative, pro-small business, pro-growth, pro-community, pro-levelling up agenda here, ripe for the grasping. Competition policy is potentially – arguably – the most powerful toolbox a government possesses. It can break up corporate giants, and restructure the economy wholesale.

But our government is still in thrall to a pro-monopoly world view, which emerged in Chicago in the 1970s then spread worldwide, opening the floodgates to a global merger mania. This view holds that big is good as it promotes ‘efficiency,’ and that competition policy should focus narrowly on promoting the interests of consumers – ignoring workers, citizens, the public interest – and power.

A radical transformation of this view is now underway in the United States, too, led by new Federal Trade Commission Chair Lina Khan, a former radical anti-monopoly activist. They are returning the focus to where it belongs: to break excessive concentrations of power, and regulate and restructure the economy in the wide public interest.

We can and must have this in the UK too. The key is not to push for just “more competition” (some competition is healthy, but some is harmful). We must focus on curbing excessive power that corrupts our economy and politics, reduces economic growth, and makes Britain ever more unequal.

To level up, we must first wake up to, and then directly tackle, the monopoly power all around us.

Read the last editorial 'A Labour covenant for Land and Nature' and the complete series here. To read Labour’s Covenant click here.

This editorial is in partnership with Balanced Economy Project which is a new anti-monopoly organisation based in the UK. www.balancedeconomy.net/