+Script and Sources

Why are corporate profits so high while most workers’ pay is so low? It all comes down to power: who has it, and who doesn’t.

The reason corporate profits are a bigger share of the economy today than they’ve been in 75 years has a lot to do with the increasing bargaining power of corporations and the decreasing bargaining power of workers. Bargaining power for one side grows when the other side has fewer alternatives, and shrinks when the other side has many alternatives. The huge rise in corporate bargaining power is the result of corporations monopolizing their markets -- becoming so dominant that workers and consumers have fewer options, and have to accept the wages and prices these giant corporations offer. At the same time, worker bargaining power has declined as fewer workers are unionized, and technologies have made outsourcing easy, allowing corporations to get the labor they need for cheap. These two changes in bargaining power didn’t happen by accident. Corporations have been allowed to grow larger and dominate their markets because anti-monopoly laws have not been enforced. At the same time, fewer workers have joined unions because the nation’s labor laws have not been enforced, and many state legislatures -- under intense corporate lobbying -- have enacted laws making it harder to form unions. Because of these deliberate power shifts, a steadily larger portion of corporate revenues has been siphoned off to profits and a shrinking portion allocated to wages.

The stock market has soared, while wages have slumped.

To understand the current concentration of corporate power we need to go back in time. In the late nineteenth century, corporate power was a central concern. “Robber barons”, like John D. Rockefeller and Cornelius Vanderbilt, amassed unprecedented wealth for themselves by crushing labor unions, driving competitors out of business, and making their employees work long hours in dangerous conditions for low wages. As wealth accumulated at the top, so too did power: Politicians of the era put corporate interests ahead of workers, even sending state militias to violently suppress striking workers. By 1890, public anger at the unchecked greed of the robber barons culminated in the creation of America’s first anti-monopoly law, the Sherman Antitrust Act. In the following years, antitrust enforcement waxed or waned depending on the administration in office; but after 1980, it virtually disappeared.

The new view was that large corporations produced economies of scale, which were good for consumers, and anything that was good for consumers was good for America. Power, the argument went, was no longer at issue. America’s emerging corporate oligarchy used this faulty academic analysis to justify killing off antitrust.

As the federal government all but abandoned antitrust enforcement in the 1980s, American industry grew more concentrated. The government green-lit Wall Street’s consolidation into five giant banks. It okayed airline mergers, bringing the total number of American carriers down from twelve in 1980 to just four today. Three giant cable companies came to dominate broadband. A handful of drug companies control the pharmaceutical industry.

Today just five giant corporations preside over key high-tech platforms, together comprising more than a quarter of the value of the entire U.S. stock market. Facebook and Google are the first stops for many Americans seeking news. Apple dominates smartphones and laptop computers. Amazon is now the first stop for a third of all American consumers seeking to buy anything.

The monopolies of yesteryear are back with a vengeance.

Thanks to the abandonment of antitrust, we’re now living in a new Gilded Age, as consolidation has inflated corporate profits, suppressed worker pay, supercharged economic inequality, and stifled innovation.

This mega-concentration of American industry has also made it harder for newer firms to gain footholds. The rate at which new businesses have been formed in the United States has greatly slowed since 1980.

Meanwhile, big investors are making bundles of money off the growing concentration of American industry. Warren Buffett, America’s third wealthiest man with a net worth of $90.2 billion, has been considered the conscience of American capitalism because he wants the rich to pay higher taxes.

But Buffett has made his fortune by investing in monopolies that keep out competitors. The sky-high profits at Wall Street banks come from their being too big to fail and their political power to keep regulators at bay. High profits at the four remaining airlines come from inflated prices, overcrowded planes, overbooked flights, and weak unions. High profits of Big Tech come from wanton invasions of personal privacy, the weaponizing of false information, and disproportionate power that prevents innovative startups from entering the market. If Buffett really wanted to be the conscience of American capitalism, he would be a crusader for breaking up large concentrations of economic power and creating incentives for startups to enter the marketplace and increase competition.

I won’t hold my breath.

Perhaps the worst consequence of monopolization is that as wealth accumulates at the top, so too does political power.

These massive corporations provide significant campaign contributions, have platoons of lobbyists and lawyers, and directly employ many voters. So items they want included in legislation are inserted; those they don’t want are scrapped. They get tax cuts, tax loopholes, subsidies, bailouts, and regulatory exemptions. The financial returns on their political investments are sky-high.

Take Amazon – the richest corporation in America. It paid nothing in federal taxes in 2018. Meanwhile, it held a national auction to extort billions of dollars in tax breaks and subsidies from cities eager to house its second headquarters. It also forced Seattle, its home headquarters, to back away from a tax on big corporations, like Amazon, to pay for homeless shelters for a growing population that can’t afford the city’s sky-high rents, caused in part by Amazon!

Surprise, surprise. The scales have been tipped in corporate America’s favor.

While corporations are monopolizing, power has shifted in exactly the opposite direction for workers. In the mid-1950s, 35 percent of all private-sector workers in the United States were unionized. Today, 6.2 percent of them are.

Since the 1980s, corporations have fought to bust unions and keep workers’ wages low. They’ve campaigned against union votes, warning workers that unions will make them less “competitive” and threaten their jobs. They have fired workers who try to organize, a move that’s illegal under the National Labor Relations Act but happens all the time because the penalty for doing so is minor compared to the profits that come from discouraging unionization. Corporations have replaced striking workers with non-union workers. Under shareholder capitalism, striking workers often lose their jobs forever. You can guess the kind of chilling effect that has on workers’ incentive to take a stand against poor conditions.

As a result of this power shift, workers have less choice of whom to work for. This also keeps their wages low. Corporations have imposed non-compete, anti-poaching, and mandatory arbitration agreements, further narrowing workers’ alternatives. Corporations have used their increased power to move jobs overseas if workers don’t agree to pay cuts. In 1988, General Electric threatened to close a factory in Fort Wayne, Indiana, that made electrical motors and to relocate it abroad unless workers agreed to a 12 percent pay cut. The Fort Wayne workers eventually agreed to the cut. One of the factory’s union leaders remarked, “It used to be that companies had an allegiance to the worker and the country. Today, companies have an allegiance to the corporate shareholder. Period.”

Meanwhile, as unions have shrunk, so too has their political power. In 2009, even with a Democratic president and Democrats in control of Congress, unions could not muster enough votes to enact a simple reform that would have made it easier for workplaces to unionize. All the while, corporations have been getting states to enact so-called “right-to-work” laws barring unions from requiring dues from workers they represent. Since worker representation costs money, these laws effectively gut the unions by not requiring workers to pay dues. In 2018, the Supreme Court, in an opinion delivered by the court’s five Republican appointees, extended “right-to-work” to public employees. This great shift in bargaining power from workers to corporate shareholders has created an increasingly angry working class vulnerable to demagogues peddling authoritarianism, racism, and xenophobia. Trump took full advantage.

All of this has pushed a larger portion of national income into profits and a lower portion into wages than at any time since World War II. Most of these profits are going into stock buybacks and higher executive pay rather than new investment. The declining share of total U.S. income going to the bottom 90 percent over the last four decades correlates directly with the decline in unionization. No other change in the system provides as clear a relationship. The American economic pie continues to grow but most workers are getting only crumbs. Most of the increasing value of the stock market has come directly out of the pockets of American workers. Shareholders have gained because workers stopped sharing the gains.

So, what can be done to restore bargaining power to workers and narrow the widening gap between corporate profits and wages?

For one, make stock buybacks illegal, as they were before the SEC legalized them under Ronald Reagan. This would prevent corporate juggernauts from siphoning profits into buybacks, and instead direct profits towards economic investment.

Another solution: Enact a national ban on right-to-work laws, thereby restoring power to unions and the workers they represent. Require greater worker representation on corporate boards, as Germany has done through its “employee co-determination” system.

Perhaps most crucially, break up monopolies. Senator Bernie Sanders is proposing to break up any bank that is “too big to fail”, and expand the Federal Trade Commission’s ability to fine monopolies, and review and halt anti-competitive mergers. Senator Elizabeth Warren plans to designate large technology platforms as “utilities” whose prices are regulated in the public interest, and require that services like Amazon Marketplace and Google Search be spun off from their respective companies.

Above all, antitrust laws must stop mergers and break up monopolies that harm workers, stifle competition, or result in unfair pricing.

This is all about power. The good news is that rebalancing the power of workers and corporations can create an economy and a democracy that works for all, not just a privileged few.