We live in an
age of giants. Unchecked, they stride across the earth consuming much that lies
in their path, leaving behind them great trails of destruction. This is not
pre-history I am describing, but today’s era of monopoly capitalism. There has
been no levelling off of the global economy, as economists predicted. Although
industrialisation has expanded to lesser-developed countries, it has generally
been along lines determined by global corporations based in advanced capitalist
countries. From colonialism, we have moved into the age of multinational
corporate domination. The world’s largest retailer, Wal-mart, raked in $405
billion in revenue last year – that’s enough to buy Bangladesh! They have over 7,500 stores
world-wide and employ 2 million people. Cargill, the world’s biggest company in
the food industry, is larger than the economies of two-thirds of the world’s
countries.
The world
economic crisis has claimed a few victims, especially in the dodgy financial
sector, such as the Lehman Brothers, but the process of monopolisation is
continuing unabated. T-Mobile have just announced they’re to merge with Orange to create the UK’s largest mobile phone service
provider, cornering 37% of the market. Japan’s Panasonic has just bought
Sanyo, giving them 38% of the rechargeable batteries market. America’s
Pfizer has just bought Wyeth for an amazing $68 billion, making the world’s
number one pharmaceutical company even larger. According to the Times Rich List
2008, in the UK
alone the top 200 companies have grown from a total value of £76 billion to
£280 billion in only ten years. This has given rise to a rich elite
unprecedented in history. Britain’s
50 richest people are collectively worth over £450 billion, up 26% from last
year. The world’s richest 50 individuals are worth over £720 billion, up 22%.
Early Capitalism
Capitalism
hasn’t always been like this. Throughout the 1800s, it was mainly dominated by
small family-owned firms. In 1830 the biggest company in the world was the
Cyfartha iron company, worth about $2 million, with 5,000 employees. A hundred
years later the biggest company, U.S. Steel, was worth $2.3 billion, and
employed 250,000 people. Today, the world’s largest company is the energy
producer Royal Dutch Shell. It raked in a staggering $458 billion in revenue
last year.
Most
industries are now dominated by just a few massive companies, referred to by
economists as ‘oligopolies’. We call them monopolies in the sense that they
collectively dominate the economy as a whole. In Britain, the top 100 manufacturing
companies were responsible for 47% of all output in 1948. By 1968, that had
grown to 69% (‘Industrial Organisation’, George Joll & Link 1992). Today,
it is estimated to have grown even further to around 85%. So, what is causing
this unprecedented concentration of power and wealth?
Economies of Scale
As small
companies compete, you naturally get market leaders. As these companies get
larger they become more efficient at producing goods and services. They invest
in mass production techniques in order to produce goods more cheaply than their
competitors. They buy raw materials at cheaper prices because they buy in bulk.
They expand specialization amongst their workforce. They also copyright and patent
their work, preventing rivals from using it. This is known as economies of
scale. The bigger you get, the easier it is to make money. Smaller companies
cannot compete. This is called a barrier-to-entry. If you wanted to compete
with Ford motor cars, for example, just one car plant would set you back around
$500 million.
When two
market leaders merge they achieve massive economies of scale. This forces
others to merge in order to compete, leading to ever greater concentration.
Monopolies often buy their rivals. Rupert Murdoch’s News Corp, the world’s
second largest media conglomerate (often referred to as the ‘Evil Empire’), has
just bought out competitor Floorgraphics, a company that was actually suing the
media giant for anti-competitive behaviour. That’s one way to win a court case!
In the UK,
throughout the second quarter of 2007, companies spent over £9.5 billion on
mergers and acquisitions, and a further £51 billion on mergers abroad.
Price fixing
Giant
corporations have learned that competing against each other on the basis of
price damages all parties. So they have learned to ‘cooperate’. Prices are set
as high as possible by the market leader. Competing corporations then round
their prices up in tandem, so they all rake it in. Competition between
companies is still fierce, but it’s now waged, for the most part, with
advertising and marketing, not prices. Companies pour vast amounts of money
into product differentiation in order to convince you, for instance, that Daz
washing up powder is better than Ariel. Consumers benefit less today from
competition between capitalists than ever. All we get is more advertising.
Competition
for profit means price wars do sometimes occur, often with workers footing the
bill. Tesco, which has 30% of the market, and Asda, with 17%, have hit the news
recently for their ‘banana war’. In an attempt to attract customers they’ve
repeatedly slashed their price. We know from bitter history that costs get
passed down the chain. Asda funded its 2002 banana war on the back of a global
deal with Del Monte. Fair trade groups documented the conditions that were
behind that price. In 1999, Del Monte sacked all 4,300 of its workers on one of
its biggest plantations in Costa Rica,
which supplies much of the UK.
They then re-employed them on wages reduced by 50%, on longer hours, with fewer
benefits.
So monopolies
also dictate the price at which they buy from producers. This has had a
devastating impact on Britain’s
farmers. They have been bullied by supermarkets into supplying at ever cheaper
prices. According to Defra, 63% of British farms are unable to make sustainable
profits. The number of dairy farmers in the UK has halved in a decade to
17,060, and farmers are quitting at an average rate of 14 a week.
There are some
industries where corporations meet secretly to conspire to fix prices. These
are called cartels. These are technically illegal, but the law is usually
impotent. The Organization of Petroleum-Exporting Countries (OPEC) is perhaps
the best-known example. OPEC meets regularly to decide how much oil each member
of the cartel will be allowed to produce, in order to keep prices and profits
high.
In 2004, when
demand was climbing, a number of UK energy companies held back
supplies because of "technical clauses" in the supply contracts,
which led to a price rise that cost British customers £1.4bn. Electronics
manufacturers Hitachi,
LG, Chunghwa, and Sharp have all been caught recently in cartel price fixing
rackets involving LCD screens. Another well-known cartel was the International
Coffee Agreement (ICA).
High prices
have a devastating effect on public services, such as the NHS. A 2005 report by
the Office of Fair Trading found that cartel pharmaceutical companies are
overcharging the NHS by as much as 10 times more than other treatments
considered to be as effective. This is estimated to be costing the NHS hundreds
of millions of pounds. In 2002, the NHS lost £100 million after two drugs
manufacturers formed a cartel to fix artificially high prices for the ulcer
drug, ranitidine. In 2008, drugs companies were found guilty by the Serious
Fraud Office of overcharging the NHS for antibiotics and anti-clotting drugs.
It is predicted that GlaxoSmithKline alone will make billions from the sale of
Swine Flu vaccines, which it is selling at six times the cost of production.
The company has already sold 60 million doses to the UK Government plus a
further 100 million to Europe and the U.S.
Predators
Some
multinationals use ruthless tactics to drive out competitors. The U.S. coffee
chain Starbucks uses a tactic known as ‘clustering’. They’ll build several
cafes right in the same area to obliterate competition. This costs a lot of
money, but they can afford it. They coined in $181 million in profits last
year. They even use a strategy called ‘predatory real estate’. They pay more
than market rate rents to keep competitors out of a location. David Schomer,
owner of Espresso Vivace in Seattle,
says Starbucks approached his landlord and offered to pay nearly double the
rate to put a coffee shop in the same building.
The company
now has over 16,600 stores worldwide. There are about 115 Starbucks within 3
miles of London’s
Bank of England, thought to be the world’s greatest concentration. They now
have about 30% of all coffee shops in the UK.
Finance capital
Monopolisation
of the financial sector has had a profound impact on the world’s economies. At
the end of 1985 there were 18,000 banks in the United States. By 2007, this had
been reduced to just 8,534, and since then has dropped further. As recently as
1990, the ten largest U.S.
financial institutions held only 10% of total financial assets. Today they own
50%. The largest five U.S.
banks now hold $9 trillion in assets. (Monthly Review Oct 2009).
As leading
financial analyst Henry Kaufman stated: “In a single generation, our financial
system has been transformed. It has melded together rapidly into a highly
concentrated oligopoly of enormous firms… When the current crisis abates, the
pricing power of these huge financial conglomerates will grow significantly.”
We are living through an epoch where the concentration of the world’s wealth
and power has reached proportions never experienced before in human history. As
we have tried to demonstrate, this is not an anomaly. The tendency of early capitalism
to develop into its monopolistic form is inherent in the system; a market
economy based on private ownership and competition for profit. But economic
tendencies alone are not sufficient to explain the extreme degree of
monopolisation. Political forces have also been at work to ensure the continued
domination of big business over parliament and state. This will be the subject
of my next article.
