Monopoly, Organized Labor, and Antitrust - Wealth & Poverty Class 5

Monopoly, Organized Labor, and Antitrust - Wealth & Poverty Class 5

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[Music] well welcome back please come in take a seat don't sit in the aisles because uh you know we have fire hazards if there are too many people in the in the in the aisles but take a seat wherever you can no we're not in the classroom yet sadly wealth and poverty week number five i can't believe that five weeks has gone by already i mean really i hope you're well i hope you're safe uh this uh week we're going to be talking about bargaining power organized labor and anti-trust and to review to just review where we have been the reality of widening income and wealth at what point does it become a problem that was our first week and then why is this happening we began to look into why is it happening the necessity of maximizing shareholder returns that was a major topic in our second week and then we looked at technology and globalization in week number three and we looked at the sorting mechanism the kind of narrow economic rationality that is i don't want to share my my wealth or my income with anybody who is going to make a larger demand on that income and wealth but also racism we also looked last week at the sorting mechanism and behind that now actually there were two issues that i brought up that were more subtle or at least uh they were more philosophical one was the definition of my or our or the pronoun test what do we mean by my community my neighborhood my country and what do those affiliations actually concern themselves with what are those affiliations based on why do i consider some people part of my community and other people not part of my community how much of that is based on economics and again not wanting to share my limited income with a lot of people who are going to make a greater demand on that income and how much of it is prejudice or bigotry there was another issue kind of a philosophical issue underlying last week and that is how much of the sorting mechanism is personal choice and how much of it is reliant on political decisions we looked at for example personal choice if i want to live on the island of piedmont as we called it or i want to be in arinda california and i don't want anybody else who is not of my same wage group in arinda california or i want to be in oakland county county in michigan and not in detroit or in a gated community or if i want to leave a community that is becoming a more black or more latinx or i want to come to the united states or i want to keep people out of the united states uh how much of that is just personal choice well a lot of it is personal choice even insurance we didn't get into insurance but i want to make sure that you see the parallels between what we were talking about last week and insurance markets because it would be much much better for me if i can find myself if i were low risk if i were young and didn't have very much risk with regard to health insurance for example it's much better for me if i found a group of people that were all very low risk and very young and healthy and we all insured ourselves and each other and we got a health insurance program that only included us and excluded anybody who was likely to be more expensive anybody who is elderly for example uh well that's uh economics operating it's to some extent personal choice but what i want to emphasize with you and this is a big deal we're going to come back to it is that there are also political decisions underlying all of these choices what feels like just a free choice is actually determined by what the choice can be what the possibilities are of choice what the city boundaries are what the city when when do you have piedmont becoming oakland uh what at that moment that boundary could be drawn differently but the fact that it's there reflects political choices the same with oakland county and detroit that political boundary was a political choice it's not just about our personal choices as to where people want to live but the reason they have this personal choice or the reason they make that personal choice is that politics has set up and determined what the choices are the same with exclusionary zoning and by exclusionary zoning we talked about last week uh zoning that makes it very difficult for poor people to live in a an area a school district or a community uh because uh the zoning demands that you have a lot of acreage where it demands that you have a relatively few bedrooms or the zoning makes other demands that keep out that filter out poor people taxes taxes we're going to talk a lot about taxes in coming weeks they are also obviously political choices that determine personal choices uh segregationist redlining or desegregation and in terms of insurance whether you have an insurance market and government regulations that rule out and prohibit pre-existing conditions from being a determination in insurance markets today's outline we're going to start with market structure and bargaining power and look then look at anti-trust history and principles is it time for antitrust again and what about labor unions and finally labor law reform what we are doing together today this week is we're beginning to look more and more at law and politics as mediating what many of these choices and problems and challenges may be when we look at barkin market structure and bargaining let me just start off because the reason we're doing labor unions and anti-trust law today union law and antitrust law is not random the two are very much two sides of the same big ball of wax and they have to do with bargaining and market structure and intuitively you should understand that bargaining power is higher for the party able to reduce or limit the options available to other parties if i'm the only party that is that is selling uh orange juice in my town and there is a considerable demand for orange juice people really like orange juice and if i'm the only one and there is no other choice i'm going to be able to well not only determined a lot about the quality of that orange juice but i'm also going to be able to charge a lot more than if there are many other orange juice producers that are competing with me bargaining is lower and that bargaining power is lower for the party facing more competition and this usually gets into labor and labor union issues the reason you have labor unions is because in unity there is strength because if corporations if employers have to deal with an entire union they don't have a choice they can't pick off certain workers they can't make deals with certain workers they can't uh intimidate certain other workers if they have to deal with an entire union the workers have more power in dealing with that employer so what i really would like you to see is that the issues on one side the corporate side usually going under the term monopolization and we're going to come to that and the issues on the other side the employee side using usually talking about labor or labor unions those two issues are really about bargaining power and how much bargaining power one side or the other side is going to have because one side is either a monopolist and the other side is a union or the one side really has no monopoly power or workers have no union power this is not a new contest this is an old contest it has to do with the structure of the economy and it came to a head for the first time in the 19th century and in the united states and other industrialized or industrializing economies as factories and inventions that turn themselves or were were turned into automated equipment and all and mechanized equipment all of that began in the 19th century the bargaining power of corporations versus the bargaining power of workers corporate monopolies versus unions you had all of that coming to a political head in the 1880s 1890s you can see this fairly common cartoon the tournament of today a set to between labor and monopoly and labor didn't really have very much strength i mean you can see if you can see this up close labor is holding a tool and on the tool it says strike but labor doesn't look like it's very powerful here uh the horse or donkey uh is on its last legs but here here we have corporations with monopoly power and um and and how can you i mean look at look at that look at the disproportionate power as it was understood in the late 19th century and that's when in the late 19th century you had the first beginnings of political stirring on anti-monopoly and also on connecting workers together in labor unions and this uh 19th century era when this all began was characterized as the first gilded age late 19th century the 1880s 1890s that first gilded age really featured people that were called not in a friendly fashion robber barons these were the captains of industry who were in some ways responsible for keeping wages down and corrupting politicians and preventing a lot of health and safety uh legislation from being enacted widening inequality now in fairness a lot of these so-called robber barons like john d rockefeller and andrew carnegie they were themselves responsible for a lot of innovation a lot of new invention i mean andrew carnegie and steele uh john d rockefeller and oil you had all of these railroad magnates uh you had in the late 19th century the beginnings of a new industrial age that depended on the innovations that these robber barons were creating the problem is that with innovation came a lot of abuses and the question that ought to be in your minds right now maybe it already is is we are in another era of innovation a lot of invention uh now around digital technologies and we do have some people who might be considered to be the robber barons of this second gilded age like for example elon musk jeff bezos the political reaction to that first gilded age was the start to reforms that we now take for granted monopolization by businesses and the anti-trust response let me just make sure you have some definitions in your head a monopoly is a company that has total dominance over a particular product and that products market and oligopoly is a market in which you have not one firm but you have two three or four firms that gain their power because they can roughly coordinate their prices their output their working conditions their innovations with each other and because there are so few firms in that market that coordination becomes rather easy when i grew up there were three automakers and those three big three automakers they coordinated their prices they coordinated what they were going to offer their labor unions in terms of wages they every year the fins on the cars you know the the the cars models got different and longer but the models were basically the same in fact there was not very much innovation in those days monopsony is a term you may not be familiar with monopsity refers to the power that corporations exert either as individual corporations or as groups of companies in an oligopoly over their suppliers and workers monopsonistic power is the power over suppliers and workers not over consumers we'll come to all of this in more detail in a moment every capitalist system has to answer questions such as what is excessive market power uh what sorts of barriers to entry are illegal what are the remedies when should proposed mergers be stopped when should large companies be forced to split up what are other remedies to excessive market power now let me remind you we've talked about this before but i want to go back and remind you in order to have a an enterprise in order to have a a company and make a profit you have to have some entry barrier because if you have no entry barrier at all the first dollar you make some competitor can swoop in and be in your business and take over your business essentially and produce exactly the same things and provide exactly the same output so what distinguishes you from another business is your barrier to entry now the question is how high that barrier to entry is going to be if it's if there's no barrier to entry you don't have a business but if you have a very high entry barrier if your entry barrier is almost impossible and there's a lot of demand for your product or service well then you may not be working in the public interest maybe then you have a monopoly maybe that's an oligopoly or maybe that has monopsonistic consequences uh there's also a philosophical conflict in the united states an ongoing struggle between a kind of jeffersonian vision of small producers and state governments and public welfare through competition versus a kind of hamiltonian vision efficiencies from large size centralized government to counter balance and regulate and public welfare and public gains through large scale these philosophic differences have been there from the beginning of the republic and they play themselves out at different times in different ways what's the main downside of monopolies oligopolies and obsolete maps and monopolies we haven't gotten into it yet but just in terms of your general knowledge what do you think is it higher prices to consumers than if companies face more competition a or is it b more political power because they control so many jobs and have so much money or c is it low lower wages for workers due to fewer opportunities to leave one job for a better one uh or even have a bidding war for your services what do you think what's the main downside a b or c go okay let's let's just take a look at what you believe is the major downside well it's interesting because uh 24 of you say it's it's higher prices uh if you have monopolies the major downside or oligopolies or any of them the major downside is that kind of market power means consumers have to pay more uh but uh 53 percent of you more than half of you say it's about politics they're more powerful they have more political control they've control over a lot of jobs and they have deep pockets and then we've got 22 percent of you say the problem is lower wages because uh obviously with that kind of power there are fewer opportunities to leave one job and get another well it's interesting your response to this survey is interesting to me because of of how antitrust law has developed over time and i'll get to that right now there's the sherman antitrust law of 1890 that was the beginning this is right in the middle of the first gilded age it bars unreasonable restraints of commerce across state lines it was actually beginning in a farmer's rural populist movement against the railroads wanted to break them up they had too much power the sherman antitrust act of 1890 then found expression a slightly different way in a more detailed way in 1914 the clayton antitrust act this established the federal trade commission we are going to come back to the federal trade commission in a variety of ways i used to run the policy planning staff at the federal trade commission the anti-trust act of of 1914 bars activities that may substantially lessen competition well that's a lot of authority right there at the federal trade commission also the antitrust division of the justice department regulating all mergers it also establishes a safe harbor for unions this is important for you to understand because the sherman antitrust act although it was originally aimed at big corporations and big monopolies and the railroads and oil companies actually in its early years it was used against the beginnings of unions and the courts found that unionization in its early years did violate the sherman antitrust act and then the federal trade commission act of 1914 bars unfair acts and practices in commerce a teddy roosevelt uh who was our president starting in 1901 the party bosses never expected that he would be present he was a troublemaker he was a a populist he was a progressive uh he wanted to do a lot of things he wanted to he was a reformer and the party bosses in then the republican party thought one way to keep him quiet was to make him the vice president uh to william mckinley uh if if he was vice president then you know vice presidents can can basically fade into the sunset they don't have to be heard well unfortunately for the bosses william mckinley and also unfortunately for william mckinley he was assassinated and teddy roosevelt became president and teddy roosevelt uh as you may remember you weren't there at the time i wasn't either but you may remember from history he was a vigorous reformer a progressive he was called he called himself a progressive he wanted to allow some concentration of industry for efficiencies he understood that there were some scale efficiencies uh economies of scale but he wanted to regulate he thought well if you regularly regulated these companies these big companies and made sure that they did not do anything that would uh for example endanger the health of uh of of people uh the food and drug act was passed under teddy roosevelt uh then you could just sort of deal with the social costs you wouldn't have to end and you get the social benefits of all of the economies of scale woodrow wilson who became president a few years later and louis brandeis justice of the supreme court they took a different view they thought you couldn't regulate these gigantic and they were getting to be huge these gigantic entities you needed to break up concentrated economic power and their view of antitrust was very different from teddy roosevelt's it wasn't until 1974 in the modern era let's put it that you had a lot of anti-trust activity start there was some in the progressive era under wilson and even under roosevelt but the big things that happened that had enormous consequences for the structure of our modern economy happened in the uh 60s 1970s the breakup of a t mob bell the justice department initiated that case in 1974 it went on for years they broke it up into regional belts regional bells and those regional bells themselves grew quite large by the way who was robert bork a a celebrated cellist a senator from indiana b or a c an academy award-winning actor or d a congressman from texas or e a law professor go well let's see how you answered that question who was robert bork you have no idea who robert was well actually some of you do 27 of you say he was a law professor but there are a number of you who think he was a a cellist you know the the great you have yo-yo ma and robert bork no he wasn't a cellist and then some of you uh believe that he was a senator no he wasn't a senator he wasn't an academy award-winning actor and he wasn't a congressman from texas but here's the thing that is important about robert bork robert bork wrote a book now it's very rare that academics write books that have huge influence we in academe we like to think that we have huge influence and we like to think that our books are read and change history they don't most people don't read academic books they don't even read my books and my books certainly don't change history except except bill clinton did say that one of my books did influence him but here's how robert borks the antitrust paradox which came along exactly the right time because it came along two years before ronald reagan became president three years actually ronald reagan uh became president january of of 1981. mork said that antitrust the purpose of antitrust was only consumer welfare those of you who voted for consumer welfare way back a few minutes ago well you would have liked this book uh borg said other things uh about that that anti-trusters had worried about a political power political influence uh workers communities forget it uh it's all about consumers as long as companies are efficient as long as companies provide the lowest possible price for consumers then there is nothing to worry about antitrust should not be used and the book provided a justification for ronald reagan and then for the first george bush and then for all subsequent presidents like bill clinton and the second george bush and barack obama and donald trump and even to some extent now although it's changing the bible administration is taking antitrust much more seriously uh but what bork did is provide an intellectual justification for basically getting rid of antitrust i mean antitrust nobody talked about antitrust antitrust was gone it was gone as long as big companies could show and they easily could show that they were generating economies of scale which often led to lower consumer prices then mergers were fine if you wanted to grow and take over an entire industry that was fine there was no problem and i trust all but disappeared i should also tell you that robert bork was my professor at law school and i would sit in on his i would be in his class along with several other people in his same class there was hillary clinton in that same class and bill clinton in that same class and there was also clarence thomas in that same class we were all there and they're who else um a senator a current senator from connecticut was also in that class anyway uh when burke would ask a question and this was all the socratic method we do this a little bit in this class but bork would ask a question uh based upon antitrust theory and hillary uh she was then hillary rodham her hand was the first one in the air she would just and when he called on her she would have the most eloquent perfect uh answers uh my hand was about the second or third in the air and when he called on me my answers were okay i got it right most of the time [Music] but not all of the time uh when he called on clarence thomas clarence thomas said nothing in fact clarence thomas never put his hand in the air at all and bill clinton never attended class so that's gives you a sense of how what people act like when they are in their early 20s is probably their character for the rest of their lives uh in any event i actually went on to have another relationship with robert port because he asked me to be one of his assistants when he was solicitor general in the ford administration i became an assistant solicitor general in the ford administration bork argued supreme court cases i argued supreme court cases we did briefs on behalf of the united states now i didn't agree with him politically he uh you know he and i had very different views of the first fourth fifth eighth and ninth amendments to the constitution uh he's very very very conservative i respected him i liked him and then he was nominated to be a justice on the supreme court ronald reagan nominated him and well he didn't get it it was a very bitter angry nominating fight in fact up until then most presidents got who they wanted on the supreme court a robert bork's nominating nomination fight was one of the roughest in memory and it was so acrimonious and so nasty that it set a precedent for future fights over supreme court nominees and bork himself was never the same uh i saw him in later years he was he was he was bitter angry uh he uh i don't think he really got over that what should be the major consideration in deciding whether there is too much market power i think we've talked about this before consumer welfare workers and suppliers economic growth this is slightly different political power because this is so close to a previous question i will not i'm not going to ask you to to choose but the important point is bork was saying consumer power is the only consideration and there should be no other consideration but is it time for antitrust again as i alluded to a moment ago the byte administration is making antitrust a priority it is putting anti-trusters in positions of power in the federal trade commission and in the anti-trust division of the justice department it is bringing more anti-trust cases it is stopping more mergers what's going on why suddenly is the biden administration interested in antitrust well let's see what's happened in the united states in the structure of the economy at least over the last years since bork and ronald reagan got rid of antitrust for all intents and purposes how many corporations account for in your view this is a question let's say 90 of hardware stores 90 of cigarettes 65 of pharmacies 55 of car rentals 40 of us airline seats 100 of airline tickets and hotels sold online what do you think how many um is it two four six or eight those are your choices go is it two is it four is it six or is it eight well it's a little bit of a trick question um those of you who said four are closer to the mark than everybody else but in some of those areas in some of those markets it's two and in fact there are some markets where it's even one and we're going to examine this because this has all happened over the last 30 or 40 years the combined market share of the two largest companies by industry if you look just since to the early 2000s you can see the increasing concentration in hardware stores that is the big i'm not talking about hardware stores on main street i'm talking about the big national or international companies that owned the hardware stores on main street uh and you went from the early 2000s to about a 45 market share of the two largest hardware corporations to now 91 uh in cigarettes you had now have the two largest companies with 92 percent of the all cigarette sales and then you can see in other areas uh in airlines the two biggest now have i just lost my place and airlines they now have about 40 percent the point is the more market share companies have the greater market share they have the more power they have the more power to set prices yes but also power in other dimensions that we've looked at political power monopsonistic power over workers over communities there are three drug chains controlling 99 of drug stores there are four companies that control 85 of the beef market three produce half of all chicken by the way beef prices uh in this inflationary uh environment we're now in beef prices have been soaring these four companies have a oligopoly on beef and we're also including poultry four companies they are coordinating i mean there's no question i i'm i am looking at the data in fact i'm looking at the data right now because i've started looking at it this morning they are coordinating their price increases they are in a sense are they responsible for inflation well that's a complicated question we're not going to get into right now but undoubtedly they have huge pricing power uh one company walmart accounts for 30 of the all the products americans consume in terms of where you buy it walmart gets a big markup on these products even though they you know consumers find it very cheap the monopsonistic power of walmart over its suppliers is the big deal it controls half over half of all groceries sold in some major cities the four biggest airlines now control over 80 percent of all domestic airline seats now i'm old enough to remember when we had twa and u.s airways and we had all of these other well you're now consolidating that consolidation means not only the four biggest airlines control 80 of all domestic airline seats but in certain markets in certain places if you live in for example montana let's say you want to get from one city in montana to another city or or let's or better yet let's say you live in denver colorado you don't have four big airlines competing for your business depending on where you want to go it may be two big airlines or maybe just one airline and that's not competing for your business that's just one airline and again with four major airlines think of the political power with four major airlines think of the power to set wages or health insurance another big one i mean health insurance there's been so much consolidation in health insurance and that consolidation is in part driving prices yesterday i i testified uh before congress i i love one of the wonders of remote of of of this kind of remote learning and remote teaching and remote uh zoom meetings is you can do things like test a pivot car congress and then you can have lunch at home uh so yesterday i testified before congress and the the the committee i was testifying before a house committee is looking at the future of health care uh and there were about 20 members of congress on my screen and they had a lot of questions and one of the questions they had was about you know why is it that medicare for all uh is is has lower administrative costs then uh than than the giant health insurance uh and we talked about consolidation and a lot of the republicans on the committee uh they were saying well you know the the government is so inefficient how can you possibly argue professor reich how can you possibly argue that actually you're going to get lower costs and better health care if the government controls it all isn't that absurd and i responded i said well uh congressman actually there's been a huge consolidation in health insurance uh in fact health insurance has become uh you know big big bureaucracies i i don't know about you mr um uh congressman uh but if you've tried to just get your health insurer on the line uh you may face uh big wait times and menus and complicated it's just unbelievable administrative costs well i didn't show them this chart i should have the five biggest wall street banks uh well the five biggest wall street banks are now really large and after the meltdown of wall street in 2008 they got even larger because they absorbed some of the other banks that were going down and they're too big to fail i mean that's why they were bailed out in in 2008. the biggest wall street banks are now too big to fail they have huge economic power they have huge political power and they have huge power over setting uh prices deposits i mean what you uh what you pay for a loan uh obviously the the federal um the fed and we're going to get into this pretty soon the fed has huge power over setting interest rates but the banks have huge power over what they're going to charge in addition to what the fed requires them to charge what is the advantage to big banks becoming very big is it biggest banks enjoy efficiencies in attracting capital and investing in financial technologies or b the biggest banks have global reach allowing them to spread financial risks over many different countries or c investors and depositors are willing to pay more because they assume the biggest banks are insured against failure what do you think go let's see what you well you're you're divided um most of you by a slim margin 38 you think that um the big advantage for the biggest banks and the reason they're getting even bigger is because investors and depositors are willing to pay a little bit more because they assume the biggest banks are insured by the federal government against failure because they're too big to fail and there's a lot of evidence for that but there's also evidence those of you who said uh a that it's also it's all about uh the biggest banks uh have more efficiencies with regard to attracting capital and investing in financial technologies undoubtedly true and b that's true as well i i think uh i would probably put more emphasis on c the estimated benefit to the biggest banks of being too big to fail that is what is the implicit government subsidy by the government saying in effect we are going to back you up no matter what uh that that comes to about 58 billion dollars a year for the big banks that's a lot of money i mean 58 billion dollars uh would would certainly account for a big big portion of their profits and certainly a lot of their bonuses this is bonus season on wall street by the way have you got your bonus check yet i i haven't uh internet service providers um well uh there's not much uh 38 of americans have just one or two choices for broadband internet if you have any choice at all and and again from the standpoint of consumers you're going to be paying a lot because you don't have in fact americans pay much more for broadband than europeans do and most europeans have many more choices now assuming they're real efficiencies from large size where do you think they're going are they going to wage increases a or price decreases b or c investments in r d and product improvements or d profits executive pay stock buybacks and higher share prices go well a little bit a little bit outnumbered you d people uh have 71 percent of you think it's uh they're going into profits and and that's probably right based upon the data that we have the the efficiencies uh are not going into price decreases very much they may be not right now certainly but they may and some of them may go into investments in r d and product improvements uh but undoubtedly uh most of them are going into uh profits executive pay stock buybacks higher share prices and that's what we are witnessing that's what we've been witnessing uh certainly for the last 15 to 20 years i want to just take a moment and talk about monopsony power because wages across america today according to barry lynn of the open markets institute uh one of the nation's really top experts on antitrust and on market power barry lynn says that wages across america today are at 20 or more lower relative to the economy as a whole than a generation ago the main reason for this decline is that the monopolists who captured control over our markets have exploited their power to drive these wages down now other people disagree with vary lynn uh i happen to disagree with barry lynn i think there are other things that are going on i think it's it's uh he's exaggerating here but he's he's a very distinguished and uh uh and able uh analyst and we shouldn't ignore his point and his point is basically that when you have a labor market in which mo people don't have the choice of whom to work for now you have and will have enormous choices of whom to work for i have great choices of whom to work for but if you let's say you are living in uh in a in a medium to small town in kansas and you don't have a college degree it may be that uh your choices are limited to uh you know two or three giant american corporations and those joint american corporations are not going to pay very much partly because they coordinate if they're in the food processing or in the food distribution businesses they are it's easy for them to coordinate they're not many of them they're not going to pay very much wages and they could agree that they're not going to very pay very much wages in fact you can look by commuting zones this is a map that shows um how concentrated the labor market is and and it and it really looks at the ease of commuting so in any any of these little uh boxes or these little areas these are commuting zones in which people there are interstate highways or there are other ways of getting around and it's it's each of these represents sort of the willingness of people the ability of people to commute in that particular box now how much monopsonistic power in the labor market my commuting zone really refers to how many choices these workers have who are doing the commuting uh do they have a lot of choices of who to work for or are their choices very limited and as i said if you are in the middle part of america or in any of these rural areas you have very limited choice in terms of who to work for and there is a lot of monopsonistic power over the labor market if you happen to be in the bay area it's unconcentrated you've got a lot of choice the current inflation there are supply bottlenecks and the current inflation that we are now experiencing seven and a half percent a year on a yearly basis uh which is extraordinarily high it's the highest inflation it's been in 40 years uh much of it if not 90 of it is being driven by supply bottlenecks there's just too little global supply to meet the surging demand for all sorts of goods uh and people are not yet buying services they're not yet going into uh hotels and restaurants and uh and movie theaters uh and by and and buying services uh they're they're basically you and i and others we have a lot of pent up demand for goods uh and when you have a lot of pent up demand for something and the supply has been knocked out because of something like a pandemic it's going to be a while before supply and demand get back in sync and until then you're going to have a lot of upward pressure on prices but there's another issue here and that is will corporations absorb those cost increases uh if they're very wealthy and and remember big corporations we we hit on this a couple of a couple of sessions ago are now are now making more money are more profitable big corporations more profitable than they've been in 70 years corporate profit rates are extraordinarily high so these companies big companies could absorb the costs of their components of anything that's being supplied to them that is itself subject to a supply bottleneck but they're not they're passing them on to consumers in the form of higher prices and many of them are saying we have no choice well of course they have choice because they have so much money they could absorb it they could swallow these price increases but they're not the biggest big tech companies uh are you know google and facebook are the first stops for many americans seeking news amazon is the first stop for almost a third of all u.s consumers buy anything google is responsible for 68 of all u.s

searches i think it's actually higher than that now apple iphone has 43 percent of smartphone market in the united states 14 worldwide i mean these these big high-tech companies are not just big but they are getting bigger in their markets the trend line is toward greater and greater growth and size which may not be a problem we have to be sure we know what we're talking about when we say size is a problem but just take a look at the market value of the top 10 u.s companies from july 2015 to july 2020 i mean these are the top 10 companies apple amazon alphabet and facebook are a big big portion of the market value of the top 10 u.s companies and if we look at the five biggest tech companies and here we have the data from 12 2012 to 2021 we see that they are together approaching nearly a quarter of the value of the entire u.s stock market which is a proxy not a very good proxy but a proxy for the value of all big u.s companies

and that's very very big now again big is not bad i don't want to suggest to you that we're going to slide to that kind of simple simplistic logic we have to unpack this a little bit and see exactly what the problem is if there's a problem maybe there's no problem at all by the way when talking about high tech and size a lot of people band around this term network effect what is and what are the network effects as a network affect ownership of a patent or copyright that gives a corporation control over critical technology or is it ownership of a portal or a platform that has become valuable because users depend on it to reach other users or is a network affect ownership of an interconnected network of telecommunications firms and systems what do you think go well forty nine percent of all almost half of you think a network effect is ownership of uh a portal or platform that has become valuable because users depend on it to reach other users that's the standard definition of a network effect um and uh the other forms of ownership are also entry barriers but network effect as an entry barrier is b and the reason it is often talked about in terms of high tech is to rebut the assumption that it's just economies of scale per se or that the economies of scale are like the economies of scale in manufacturing let's say no the network effect that you get from facebook or from google or from uh or from apple has to do with the fact that so many other people are also using the same platform or the same portal that gives it a lot of its value to you and you can see on that basis that these particular firms will could get infinitely larger because as they get larger they become more valuable to you because so much more many more people are using them digital advertising is a good example digital advertising revenues uh are going almost overwhelmingly to google and facebook and media advertising as a whole is going into digital advertising so you can see how this is all upending a a huge a huge what was a huge it is a huge market but there's a great deal of concentration this is a duopoly a duopoly of facebook and google uh is there a problem with big tech and here's a chance for you to say you can say no new entrants and events and inventions are keeping it competitive it's also the most innovative sector of the us economy leave it alone or you can say yes there's a problem innovation is declining because so few startups can enter content providers are getting squeezed consumers are losing privacy misinformation is rampant break up the biggest stop further acquisitions require that technology be licensed what do you think go well 22 percent of you say no leave it alone 27 74 of you say yes it's a problem uh and then we got four percent of you who who didn't like either one of those options um uh it is complicated uh and the debate is a roaring debate uh let me give you some data amazon collects what percentage on every this is this is this is about uh the the power that amazon has over its suppliers this is monopsonistic uh amazon collects what percentage on of on every dollar sold by its merchants the merchants who use amazon what do you think is it 4 9 14 what's what's your smart guess go uh well uh those of you who say e 27 are you are correct there's no f option it's not 38 percent but it was e uh and that keeps on rising uh that percentage that amazon is collecting from the merchants is is is getting higher and higher and higher merchants are complaining but amazon essentially has monopsony power amazon's content providers as of 2019 amazon collected 27 cents of each dollar uh that's a 42 jump from 2014 uh and this doesn't include what uh companies pay to place ads on amazon a business that wall street considers as valuable as nike that is just the ad placing new business formation what you can see here is a pattern uh and it is uh not a terrible pattern but you see the period uh before the uh the explosion of wall street the financial crisis on wall street on 2000 and 2008 there was a lot of new business uh formation going on and there's still a lot of new business formation and it's coming back but one group of people who are very concerned about the power of big tech say it's very hard for any new business to get in and a lot of new businesses that might be innovative and be innovative digitally don't want to even bother because they're sure that one of the big ones uh one of the five giants in technology will take their ideas or will innovate and and come up with the idea themselves there's also this concern about surveillance capitalism uh here is a quote i'm not gonna read the whole thing from mark zuckerberg here's another quote from eric schmidt of google and what they both have to say is that they're looking to the future and they will know more about us than even we know about us they were both they were both thinking that was a good thing there's a a new uh book by uh shoshanna zubov uh she had been a professor at harvard business school called surveillance capitalism uh i recommend it it's a it's a interesting a tough book a difficult book but a very very important book uh and it takes on this uh both the zuckerberg schmidt view that this is a good thing uh facebook which is now meta i've got a laugh meta has purchased at least well 91 companies i mean these this is just a a small fraction of the companies that facebook has purchased in recent years and some uh critics of high tech and the power of high tech say uh wait a minute if you're if you're purchasing all these color these companies you're not only um reducing competition because some of these companies might have been a competitor of yours uh but you're also uh because you have so much power you probably purchased it for less than would have been the case had these companies had an opportunity to get up and running and actually had a uh you know been out and been out in the market and had an initial public offering in the market um we i want to move on to labor so i'm not gonna i'm not going to ask you this question but it's it's would you have allowed these acquisitions let's not get into it but uh my point is that all of these companies are rich enough powerful enough they are acquiring a lot of other companies uh interestingly the european anti-monopoly commission is much more powerful and it is also more aggressive than the federal trade commission and the anti-trust division of the justice department in the united states uh europeans and the european anti-monopoly commission uh has taken on google it's taking on every big uh not just american high tech company it's taking on other uh high-tech companies around the world but it is less tolerant of the high-tech companies uh assurances that the their efficiencies of innovation their efficiencies of network effects really outweigh all the downsides before we leave and i trust and before we leave monopolization i just want to suggest to you that when barriers to entry become so big that they are called and regarded as moats in which almost nobody or no competitor can get over them then we might have a little bit of a problem in terms of some of the downsides we've talked about um warren buffett who's a major investor and his was until recently i think he may still is the third richest man in the universe or the united states certainly a good business is like a strong castle with a deep moat around it i want sharks in the moat i want it untouchable in other words warren buffett is making business decisions in terms of where he invests based upon which companies have the most monopoly power that's where he says the biggest returns are going to be and that may be where he makes and has made a lot of his money a morning star which is an investor uh uh trade publication an investor publication uh provides a wide moat index and it shows that the returns to investors on its moat focus index fund that is the the companies with the biggest moats the companies with the greatest market power really are showing as warren buffett predicted the biggest returns which gets us to labor unions and the reason again i want to just refresh your recollection the reason i'm putting labor unions together with monopolization is that labor unions themselves are effectively a form of monopolization of the workforce what a labor union intends to do is increase the power of workers through unity uh your own experience just out of curiosity uh a you belong or belong to a labor union uh or at least one of your parents has or neither of you or you or your anybody else in your family or you don't even know what unions do no and let's see what your experience and knowledge is well most of you say 53 of you are saying that neither i nor anyone else in your family belongs to a labor union uh we've got about 15 percent of you do belong to a labor union look can i ask just a show of hands uh what union you belong to anybody out there hi um it was a long time ago but in another life i was in ldn in the county office of education so it was like the same union as california teachers well the teachers union what uh that's useful anybody else in terms of your union background yeah i had worked for save mart when i was in high school and it was actually a requirement to be in the union when you're employed by them i'm sorry i missed the employer um save mart's save mart supermarkets like lucky supermarkets in the bay area and that was a that was what's known as a clothes shop that is uh the requirement for employment was that you belong to that union and a lot of unions do make that uh requirement because uh that's the way they maintain their power we'll get into this in a little bit um and uh another thing i wanted to point out was that there are public unions and there are basically unions that represent workers in the private sector the public sector unions are very different than private sector unions in part because public sector unions uh operate under an entirely different statute they don't under operate under the national labor relations act we'll get to in a moment they operate under different statutes that allow different groups of public workers to unionize they also cannot strike you may remember some of you may recall or have heard that ronald reagan fired the air traffic controllers in 1981 because the air traffic controllers went on strike they are a public union they were not permitted to go on strike as i said originally the sherman act that is the anti-trust act of 1890 was used against labor unions the pullman strike of 1894 members of american railway union led by eugene debs they had a strike because of the depression pullman had cut wages 15 to 45 percent uh the court ruled that such strikes were illegal restraints of trade in other words they used the antitrust laws a president grover cleveland dispatched troops resulting in the death of 12 strikers and the end of the american railway union this little piece of labor union history is important to understand because it illustrates exactly today's underlying theme uh in unity there is strength and unity there's power in unity there is also power of abuse uh the president of the national association of manufacturers in 1903 was so irate i mean i want you to imagine organized labor knows but one law and that is the law of physical force the law of the huns and the vandals the law of the savage composed the desert the men of muscle rather men of intelligence and commanded by leaders who are at the heart disciples of revolution it's not strange that organized labor stands for principles that are in direct conflict with the natural laws of economics the national association manufacturers are still at it when i last looked they were still fighting unions uh now the key labor laws clayton act of 1914 protects labor unions from anti-trust action the north laguardia act of 1932 legalized labor unions they were illegal in many places uh national labor relations act this is the big one employers have an obligation to bargain with employees in good faith now reading that you must be struck by the fact that a lot of employers are still trying to bust unions i mean in bessemer alabama amazon had a big warehouse where has a big warehouse and those workers were going to unionize they tried to unionize amazon didn't want to bargain with them in good faith in fact amazon didn't want to bargain with them at all amazon launched an anti-union campaign that the national labor relations board just found was illegal and so amazon has to have another election at that bessemer plant uh there's also starbucks i mean starbucks which pretends to be this socially responsible corporation in every respect uh starbucks has mounted a vigorous anti-union campaign against starbucks and baristas it's not bargaining in good faith it's not bargaining but the history here is a history of violence i don't think we're anywhere close to that this is a san francisco newspaper from 1934. uh this is the uh general strike in san francisco of 1934. uh we don't have you don't have i don't even have an experience uh like people who were alive in the 1920s 1930s 1940s remembered in terms of labor uh the violence on both sides uh and uh this particular general strike uh was particularly violent because it had to do with the dock workers the longshoremen and of course all of the goods that were being shipped from everywhere around the world into the bay area longshoremen went out on strike they wanted a better pay better working conditions and the result was death at least for one many many injured the point here is that the history of labor management relations in this country is a history of tumult of struggle sometimes of violence this man who was he and why should you care well who was he first of all marlon brando a harry bridges b harry truman c truman capote d or al capone e what do you think go uh well uh about uh let's see 22 percent of you think harry truman no definitely not harry truman uh and uh the next runner-up well some of you uh do think truman capote uh or al capote fifteen percent of you think marlon brown oh no uh he is the aunt right correct answer is b uh he is harry bridges and harry bridges was a labor union leader in san francisco to tell you how things have changed harry bridges was perhaps as powerful some people said much more powerful than the mayor of san francisco uh he was thought to be more powerful than the governor of california harry bridges uh was the organizer behind that general strike in 1934 harry bridges was a legendary figure and harry bridges is obviously legendary no more labor unions grew substantially and you can see the growth here this is the percentage of private sector employees in a labor union you can see that you know by the time of that general strike we were already uh seeing a lot of increases in labor union activity but then after the national labor relations act was passed there was a substantial increase in labor union membership all the way through 1944 45 to 1950s and you see that really almost uh well more than a third 35 percent of all private sector employees in the united states were members of a labor union there was uh in 1950 the famous treaty of detroit in which the uaw the united auto workers agreed with the three big the big three autumn makers uh chrysler ford and gm uh not to strike that there would not be strikes uh they would have an agreement about wages wages would continue to rise working conditions health care health insurance was included in the agreement and as the big three got more profitable the wages would go up that's what they were shaking hands it was a big treaty it was a big deal it marked a a major turning point people thought uh in american capitalism and also in the subject of this course because you see this treaty of detroit was emblematic of a new emerging and richer middle class in america mostly unionized uh by the way uh the names of these two people a eleanor and franklin roosevelt b clyde barrow and bonnie parker c cesar chavez and dolores huerta c d b bill and melinda gates go yes you're right 82 percent of you uh got it it's cesar chavez and dolores huerta uh they organized uh the grape strikes they organized farm workers in the united states in california mostly uh cesaro chavez gets most of the credit but actually dolores huerta who's still alive i saw her maybe five years ago an extraordinary woman both of them managed something that nobody thought possible because agricultural workers were not part originally of the now of the national labor relations act uh agricultural workers were thought of as them they were thought of as either black workers black people or latinx people they were not thought of as part of the american labor force by the american labor force white members of the american labor force but they succeeded cesar chavez dolores huerta in making working conditions and wages far better for american farm workers now what you need to understand i've just kind of given you the high points of unionization in america reaching 35 38 reaching even into agricultural workers but then we had beginning in 1980 81 82 a lot of backlash employers using illegal tactics to thwart unionization here on the left is a chart showing employers are charged with breaking federal law in four in 10 unionizing campaigns that's they are charged with breaking the national labor relations act they are violating the national labor relations act and what you see over here is 20 percent one in five employers are charged with illegally firing workers now there's a difference between being charged with and actually being convicted and there's no conviction the worst that can happen for employers and approximately this number of employers of four in 10 with regard to union organizing campaigns breaking federal law generally intimidating workers for example or illegally firing workers it comes to approximately this number who are found ultimately by the national labor relations board but here's the thing the penalty under the national labor relations act for violating the right to organize and have a union is at most you've got to re-hire the worker who is high who's fired you've got to pay the worker back pay or you've got to you've got to pay a little bit of a fine and the fine under the act is very very small amazon had to have a new election at their bessemer alabama plant but paid a measly fine in other words breaking the law i

2022-03-18 06:44

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