The Curse of Bigness summary

Traditionally, competition has been viewed as one of the cornerstones of capitalism. It forces companies to continuously strive to raise the quality and lower the prices of their products and services. If they succeed in doing so, they can take their rivals’ customers. If they fail, they may lose their market share. Thus, they must innovate to survive and thrive – and everyone benefits as a result. Or at least that’s how the traditional thinking about competition goes – but monopolies run directly counter to that thinking. After all, by definition, monopolies eliminate competition.

But the monopolists of the Gilded Age were unapologetic in their opposition to this idea. Instead, they believed that monopolies were a superior form of economic organization, which would usher in the next stage in the evolution of capitalism. Advocates of this view became collectively known as the trust movement.   

Although monopolies are antithetical to competition, they can also be viewed as the natural culmination of it – or so the trust movement argued.

The logic here is simple. When companies compete over a market, there are winners and losers. Some companies win greater shares of the market, while others lose their shares and are put out of business or swallowed up in mergers or buyouts. Either way, competition results in fewer competitors commanding larger percentages of the market.

For the trust movement, the enormous size of monopolist companies was a virtue, not a vice, since it enabled them to benefit from economies of scale. However, when a company gets too big it starts suffering from diseconomies of scale – its operations become less efficient as it gets bigger.

That’s because the bigger a company gets, the more complex it becomes. It needs more employees, which means more managers and more complicated hierarchies. On top of that, bigger companies are less adaptable to changes in the market. With more moving parts, corporate behemoths are simply less nimble than smaller companies. If becoming an economic giant comes with such disadvantages, why would a company want to become one in the first place? Well, there are also advantages to becoming so big. Unfortunately, they come at the expense of everyone else.

In order to carry out their more dubious schemes, the big companies of the Gilded Age needed the government to turn a blind eye – or, even better, lend a helping hand. To that end, they used their economic clout to exert influence over the government.

For example, when pipelines started replacing railroads as the way to transport oil, Rockefeller convinced the government to withhold the permits that would-be competitors needed to build oil pipelines in many areas. And when they did manage to build pipelines, he worked to bankrupt them and then buy them out by using tactics like overpaying for crude oil in certain markets, while artificially lowering its prices in others.

The effects of the trust movement didn’t go unnoticed. Indeed, there was significant dissatisfaction with monopolists and oligopolists among citizens and the government.

Increased economic concentration led to civil unrest starting around the 1880s and extending to the 1900s. Workers went on strike, an Anti-Monopoly Party was formed and the populist Democrat William Jennings Bryan ran for president three times. Meanwhile, over in Europe, there were socialist, communist and anarchist movements afoot, portending the possibility of even greater unrest and revolution if things didn’t change.

With one notable exception, the government kept busting the monopolies into the second half of the twentieth century. That exception was the Great Depression, particularly around the early 1930s. During that time, Congress suspended antitrust laws, hoping this would help jumpstart the economy.

But after the Great Depression and World War II, the US government returned to its trust-busting ways with renewed fervor. Part of that was because they’d seen what those monopolies could do if left unchecked, as had happened in imperial Japan, fascist Italy and Nazi Germany leading up to and during the war. For instance, prior to the rise of Adolf Hitler, the German Republic had tolerated monopolies in many of its major industries, leading to powerful monopolists such as the Krupp armaments company, the Siemens railroad and infrastructure conglomerate and the IG Farben chemical cartel. The latter became one of the main industrial hubs around which the Nazi war economy was organized.

Created by JP Morgan, the telecommunications corporation AT&T was the largest company in the world in 1974, and it had been a monopoly for six decades. In fact, by the 1970s, it wasn’t just monopolist – it was a “super monopolist,” controlling six or seven monopolies at once. These were in industries such as local telephone service, long-distance telephone service, physical telephones and telephone accessories.

In theory, it was a regulated monopoly, since its operations were subject to oversight from the government. But in reality, the relationship often worked the other way around, with the government regulating the telecommunications industry on the company’s behalf.

Just as the early twentieth century’s rise of the antitrust movement was led by trailblazers such as Theodore Roosevelt, the late twentieth century’s demise of the movement’s legacy also had its key figures. One of them was Robert Bork.

Bork was a legal scholar who studied law at the University of Chicago, which became a hotbed of conservative economic, political and legal thought from the 1950s onward. Bork became one of the institution’s main legal thinkers in the 1960s, especially with the publication of his landmark 1966 paper, “Legislative Intent and the Policy of the Sherman Act.”

After the triumph of Bork’s reinterpretation of the Sherman Act, trust-busting would never regain its former vigor. In the 1990s, the Clinton Administration initiated a major antitrust suit against Microsoft, but it proved to be the last hurrah of the trust movement’s legacy.

Winding through the court system, the suit against Microsoft seemed to be heading toward a big breakup – but before it could get there, George Bush was elected president, and the Justice Department decided to settle the suit. Under the Bush Administration, the Justice Department failed to pursue a single anti-monopoly case or block a single merger in eight years.

There are a few simple things the government can do about the dominance of monopolies and oligopolies. Instead of a consumer welfare litmus test, the government can institute a “protection of competition test.” The aim here is to broadly encourage and preserve competitive markets, rather than narrowly focus on prices.

That focus is a dead end, as witnessed in the legal arguments over the 2018 merger between AT&T and TimeWarner. Instead of talking about the public good and the dangers of concentrated private power, the lawyers ended up arguing over whether the merger might lead cable customers to pay an extra 45 cents per month for their cable service.