Business

What Biden’s Competitive Crusade Tells Us About Globalization

Joe Biden has, pretty much since the beginning of his administration, taken a stronger stance on competition policy than any US president in memory. He put antitrust advocates at the Federal Trade Commission, the Department of Justice, and the White House. He issued an executive order addressing the company centralization issue last July, contains 72 different terms designed to limit the influence of giant companies.

Much of Biden’s fight is about empowering workers in the US economy and creating a more level playing field for small and medium-sized innovators. But the administration has also begun to identify a link between inflation, now at a 40-year high, and business strength.

In July 2021, the White House asked the Federal Maritime Commission to investigate price increases by major shipping companies. In December, the US Department of Agriculture asked the US Department of Agriculture to look into whether large meatpackers were driving up food prices, creating an electronic portal for producers to report. unfair trade practices and deducting $1 billion from the US Rescue Plan to help smaller independent manufacturers.

Most recently, Senator Elizabeth Warren Grilled Federal Reserve Chairman Jay Powell on the role companies play when it comes to inflation. “Market concentration has allowed giant corporations to conceal claims of increasing costs to improve their profit margins,” she said, at his second-term nomination hearing. last week. Biden himself took aim at the meatpacking industry, saying, “These companies can use their position as middlemen to overcharge grocery stores and ultimately families.” .”

It’s an easy case to make. Meatpacking in particular, but Large Agriculture in general, has become highly concentrated in recent decades, driven by Wall Street and The USDA’s own mandate is to keep food prices low (a policy maintained since the recession). Covid has highlighted how an industry that claims to be driven by efficiency has created two separate supply chains, one for groceries and the other for restaurants – part of the reason people rank goods at stores and food prices rise even as farmers have to throw away the goods .

Supply chain disruptions, not only in food but many industries, are contributing to inflation. But a direct relationship between corporate concentration and inflation is more difficult to prove. There is some good research by academics including Steven Salop and Fiona Scott Morton showing how consolidation can lead to disruption in times of stress, causing shortages and price spikes. . This is exactly what we have seen over the past two years. But there are plenty of other counter-trends, such as the deflationary impact of Big Tech platforms like Amazon (although you could argue, like i have, monopoly power and lower prices can coexist).

I wonder if, in showing the relationship between today’s price pressures and the influence of large corporations, the Biden administration is really looking at something more complicated than inflation dynamics – namely, how that over the past half century globalization has been disrupted.

As TS Lombard chief US economist Steven Blitz wrote in a note last week: “One could say the current commodity price inflation is the unfortunate consequence of high demand meeting the supply constraints, but this argument sets aside the fundamental issue the Fed cares about. tightening – middle-income wage growth recovered, keeping commodity prices high and vice versa, so did overall inflation. ”

As Blitz rightly points out, this group has suffered in recent decades when a strong dollar combined with technology investment has made it “feasible and affordable” to produce goods and services abroad. profits, and at the same time reduce labor input for domestic production”. That has led to government policies that support more domestic workers, greater union power and segregation. There is a lot of regionalization, localization and even vertical integration of the supply chain in some companies.

“We had an anti-worker policy because inflation was low,” Blitz said. The point is that changing that approach – exactly what Biden, who has a bust of the workers’ rights activist César Chavez in his office, wants – could prove somewhat inflationary in the future. short to midterm. Stronger wage growth, which many economists and business leaders expect in 2022, could create more demand, driving up prices.

Some of that inflation should ease once the Covid supply chain split ends. But for all sorts of reasons, from US-China Separation with the shift to a low carbon economy with the rise of decentralized technologies like 3D printing, we’re not going back to the 1990s, when cheap goods were the non-inflationary offset for the rising cost of housing, as well as education and health care.

No one on either side of the political spectrum wants to declare war on wage increases. So we can see more focus on pricing and what companies are doing to raise prices.

Corporate concentration and inflation can be correlated, especially at times when demand outstrips supply. It’s not a coincidence that extraordinary profit reported in some of the most congested industries, including shipping and Semiconductors.

But there is an even bigger change taking place here: the end of neoliberal globalization. Its effects on corporations, workers and inflation are just beginning to be felt.

rana.foroohar@ft.com

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