Democratic Debate and Monopolies in the Military

Big issue, 6-27-2019

Hi,

Welcome to Big, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

I had planned on discussing the Democratic debates today and tomorrow. There’s really not that much to say, except to observe a few general trends.

First, monopoly is becoming a highly political subject again. Democrats had something on monopoly in their party platform from 1880 (“Free ships and a living chance for American commerce on the seas, and on the land no discrimination in favor of transportation lines, corporations, or monopolies.”) until 1988. Bill Clinton removed any mention in 1992, with Democrats adding it back in a modest way in 2016.

But you wouldn’t know that Democrats had ignored the problem for twenty five years from this debate. As Dave Dayen put it, there was “literally more monopoly discussion in the first 5 minutes of this debate than the past 50 years of presidential politics.” Elizabeth Warren and Cory Booker both came out of the gate talking corporate concentration and antitrust, with Warren pretty much starting off talking about the need for courage in taking on monopolies and Trump’s economy of “pure corruption.”

Second, many of the Democrats mentioned China as the biggest national security threat to the United States. This is also new, and reflects an emerging consensus on both sides of the aisle. We didn’t get much discussion of China, and it’s not clear that candidates understand the trade and monopolization aspects of the problem, but the mention is notable.

Three, Barack Obama basically never came up. The Democrats on stage and the moderators acted like their party hadn’t been in charge for eight years. Nearly every political assumption shared on stage, from monopoly to China to health care, reflects a stark break from the Obama years, and yet this went unacknowledged. Cognitive dissonance!

Tonight is the debate with Joe Biden, who will no doubt shift the dynamic on political economy questions, because he’s running as the third term of Obama.

Military Monopolies and the “Last Supper”

Speaking of China, Marine corps and Iraq/Afghanistan vet Lucas Kunce and I wrote a piece in The American Conservative on monopolization in our military supply chains, and how a combination of short-termism on Wall Street, weakness in antitrust enforcement, and Chinese strategic thinking has left America deeply vulnerable. It was a fascinating story to research, and intersects with my upcoming book.

The gist of the story is that in the 1990s, Bill Clinton unleashed the destructive force of financialization and monopolization into the defense base.

In 1993, Defense Department official William Perry gathered CEOs of top defense contractors and told them that they would have to merge into larger entities because of reduced Cold War spending. “Consolidate or evaporate,” he said at what became known as “The Last Supper” in military lore. Former secretary of the Navy John Lehman noted, “industry leaders took the warning to heart.” They reduced the number of prime contractors from 16 to six; subcontractor mergers quadrupled from 1990 to 1998. They also loosened rules on sole source—i.e. monopoly—contracts, and slashed the Defense Logistics Agency, resulting in thousands of employees with deep knowledge of defense contracting leaving the public sector.

In researching the story, I talked to a bunch of manufacturers who are terrified of how dependent we are on China, but of course, my favorite parts of the story come from how New Dealers addressed their similar challenge. I’ll tease you with a quote from antitrust enforcer Norman Littell in 1941, discussing how the Nazis used American corporate law to try and prevent the build-up of an armaments industry.

“The distinction between bombing a vital plant out of existence from an airplane and preventing that plant from coming into existence in the first place [through cartel arrangements] is largely a difference in the amount of noise involved.”

And indeed, domestic antitrust enforcers were a core part of how the U.S. became the ‘arsenal of democracy.’ I’ll be talking a lot more about this problem, because it’s a quiet crisis that could become not-so-quiet very quickly. In the meantime, here’s the piece.

Tomorrow, I’m going to look at discussions of monopolies the second Democratic debate. Next week, I’ll be continuing the series on why anti-monopoly politics is cool again, and I’ll have some observations about the relationship between Boeing, monopolization, and the 737 Max fiasco.

Thanks for reading. And if you liked it, share this issue of Big over email listservs, on Facebook, Twitter, or on message boards, or just let me know what you think. This is a story we’re discovering together, and if we know our history, I believe we can restore fair commerce, innovation and democracy.

cheers,

Matt Stoller

P.S. A few days ago, I asked when you woke up to the problem of monopoly. I got some interesting responses, so keep ‘em coming. Here’s one I particularly enjoyed.

Although my mind is not made up on the issue itself, I do have a particular moment where I  realized that something not-quite-right seemed to be going on:

My wife and I were going to the movies with my coworker and his fiancé. They’re big-time movie buffs, who carefully plan exactly how and when they’ll watch each new movie which comes out and we’d been meaning to get together outside work and watch something for a long while. I think the film we were seeing that night was Isle of Dogs, directed by Wes Anderson. The theater had elaborate decor and the comfy/worn vibe of independent film theaters which triggers my nostalgia; I worked at a similar theater in high school.

As we found my friends, who had arrived earlier than us (previews had not started, I cannot abide being late to a movie), they greeted us and the conversation went something like this:

“Isn’t this theater great?”

“Oh yes, reminds me of the theater I worked at in high school. Must be one of the indie groups?”

“Yes, one of the last ones in the city, it used to be owned by AMC, but became an indie theater in 2006 and couldn’t be bought. Some sort of antitrust lawsuit or something.”

“Oh huh, well glad that worked out then.”

“Yeah, I’m glad you got to make it here while it’s still like this, it’s being bought again.”

“Oh? By who?”

“Not sure, some big chain”.

I look it up on my phone. The theater had been acquired by a company, which was then being acquired by AMC. “So wait a minute”, I said, after telling them what I had found, “The theater is independent because AMC was forbidden from owning them, but now, just ten years later, it’s owned by AMC again?”.

Shrugs all around. The movie started, and I was left with a disquieting feeling that somebody had bided their time and gotten away with something while everyone else had forgotten the issue.