Posts Tagged ‘oligopoly’
“Attention is the rarest and purest form of generosity”*…
… But that most valuable of gifts is being hijacked, subverted/converted into a commodity, and used to mold not just consumer behavior, but society-as-a-whole. We live in an attention economy, and its media/tech ownership landscape is becoming ever more consoldiated.
Kyla Scanlon unpacks the way in which concentrated ownership of media and tech and their automated manipulation reshape democracy…
It’s nearly impossible not to get lost in the news right now. I was at a wedding last week, and every conversation eventually drifted back to the same subject: the World We Are in and All That is Happening. The ground feels like it’s moving faster than anyone can feasibly keep up with.
Some people think the shift is progress. Others see collapse. Either way, the line between digital and physical life is increasingly blurry. What happens online is real life. What we consume is what we become.
Plenty of thinkers have circled this before – Postman, Debord, Huxley, Orwell on media; Machiavelli, Tocqueville, Thucydides, Gibbon on human corruptibility during times of uncertainty. The convergence of endless information and a ragebait economy creates the perfect environment for splintering how we understand the world and how we understand each other.
The deeper problem is this: we no longer trust institutions to provide truth, fairness, or mobility. Once, they were scaffolding that helped us climb from raw data to wisdom. And when that scaffolding gives out, people adapt: some over-perform in the status race (because you have to) and others defect from obligations altogether (why would I work for institutions if they don’t work for me).
There are a few ways to picture our distorted information ecosystem.
- The DIKW Pyramid (Data → Information → Knowledge → Wisdom): raw posts and clicks at the bottom, trending content in the middle, shared truths above that, and finally wisdom, the rare ability to see causes instead of just symptoms.
- Or the Ladder of Inference: we start with data, add meaning, make assumptions – and our beliefs tend to affect what data we select. Bots and algorithms hijack that ladder, nudging us toward polarized beliefs before we realize what’s happening.
Taken together, we can combine them into what we might call a hierarchy of information:
- Raw data: the endless stream of posts, likes, bot spam
- Information: headlines, hashtags, trending things
- Knowledge: the narratives we share and fight over.
- Understanding: recognizing what might not be real (or is hyperreal)
- Wisdom: systemic analysis, the ability to see causes instead of just symptoms.
Right now, we’re stuck sloshing around in the middle layers of the hierarchy: drowning in outrage, fighting over partisan hot takes, rarely reaching understanding, almost never wisdom.
Chaos always has an architect. And if we want to make sense of American democracy today, we need to understand who those architects are, and how they profit from confusion.
This polarization rests on media concentration.The Telecommunications Act of 1996 was sold as a way to increase competition in media and telecommunications, but in reality, it did quite the opposite. Within five years, four firms controlled ~85% of US telephone infrastructure. That deregulated spine carried today’s consolidation of the entire media environment – not just telephones. Newspapers. Social media. TV stations.
We have the increasing concentration of media ownership, the financialization of attention, and the transformation of information from a public good into a private commodity to be bought, sold, and manipulated…
[Scanlon characterizes and explains the concentration, examines its impacts, and unpacks the roles of bots…]
When manufacturing consensus is both cheap to produce and valuable to those who benefit from confusion, you get industrial-scale manipulation.
Truth becomes whatever can capture the most attention in the shortest amount of time. Traditional journalism, with its slow fact-checking and institutional processes, can’t compete with bot-amplified outrage. Democratic deliberation, which requires shared facts and good faith dialogue, becomes nearly impossible when the information environment is designed to maximize conflict.
We’re living in a speculation economy where perception drives value more than fundamentals. Look at the stock market: Nvidia gained $150 billion in value based the back of a $100 billion OpenAI investment (which OpenAI will use to buy more Nvidia chips). Ten companies pass hundreds of billions back and forth, and the S&P jumps like it’s measuring something real.
It’s all memes wearing suits. Meme stocks and Dogecoin at least looked like jokes; now the same speculative energy runs through the corporate core. Attention, perception, and narrative drive valuation more than production or profit.
We’ve built a world where the hierarchy of information has flipped upside down.
At the bottom, bots flood us with raw noise. In the middle, outrage and team narratives harden into “knowledge.” At the top, the ladders to wisdom like journalism, schools, civic discourse, shared institutions are weakened. The scaffolding that once helped us climb no longer holds.
The traditional solutions – fact-checking, media literacy, content moderation – assume we’re dealing with a content problem when we’re actually facing an infrastructure problem. You can’t fact-check your way out of a system designed to reward misinformation. You can’t educate your way around algorithms optimized for polarization. You can’t moderate your way past economic incentives that make confusion profitable.
Recognizing this as a market structure problem rather than an information problem changes everything. Instead of focusing on individual bad actors or specific false claims, you start thinking about the underlying systems that make manipulation both profitable and scalable.
The information wars are economic policy, determining how we allocate attention, structure incentives, and organize the flow of information that shapes every other market and political decision we make. I don’t think it’s useful to get on a Substack soapbox about this – but we need to take (1) the power of media seriously and (2) those trying to influence it extremely seriously. There is a way to get to the top of the information hierarchy! We don’t have to be stuck in these middle layers…
Follow the money: “Who’s Getting Rich Off Your Attention?” from @kyla.bsky.social
For more on how the Telecommunications Act of 1996 helped set all of this in motion, see: “On Jimmy Kimmel: It’s Time to Destroy the Censorship Machine and Repeal the Telecommunications Act of 1996” from @matthewstoller.bsky.social.
For more on thoughts on why companies are behaving in the ways they are: “Why Corporate America Is Caving to Trump” and “Media consolidation is shaping who folds under political pressure — and who could be next.”
And lest we think that this came out of nowhere: “David Foster Wallace Tried to Warn Us About these Eight Things.”
[Image above: source]
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As we reclaim recognition, we might recall that on this date in 1452 an earlier information revolution began: Johannes Gutenberg started work on his Bible (which was completed and published in 1455). An inventor and craftsman, Gutenberg created the movable-type printing press, enabling a much faster (and cheaper) printing process. (Movable type was already in use in East Asia, but was slower and used for smaller jobs.) His Bible was his first major work, and his most impactful.
The printing press later spread across the world, leading to an information revolution– the unprecedented mass-spread of literature throughout Europe. It had a profound impact on the development of the Renaissance, Reformation, and Humanist movements.
“For many Americans, the cost of one drug is the difference between life and death, dignity and dependence, hope and fear”*…
Longtime pharmaceutical executive Amal Naj laments the woeful state of the industry and calls for new leadership to win back public trust…
Some two decades ago, when I mentioned what I did for a living — manufacturing and marketing a wide range of prescription drugs — it elicited appreciative reactions from acquaintances. “I take your products every day,” a number of them would offer; others would mention how a specific medicine had made all the difference to their health and would ask whether a more advanced treatment was in the works; some simply marveled at the industry’s innovations as nothing less than miracles. Then there were some who teased: “Good business; you can charge whatever price.” I considered the quip an acknowledgment that lifesaving discoveries were worth the money. Pharma Man, they called me. It seemed to confer a certain respectability, of the sort reserved for a physician or a scientist or a teacher. There was a presumption in it, too, that I lived by certain ideals and ethics demanded of such an avocation. I was proud of being a Pharma Man.
Alas, I have now slipped precipitously in their eyes. I am seen as an avaricious man inexorably exploiting the misery of fellow human beings for profit — by inventing one new magic potion after another for which they cannot afford not to pay my price, because the only alternative would be pain and suffering, even death. My onetime champions have grudgingly tolerated this collective subjugation for years. But not anymore. Their festering anger has now broken into an open rebellion against the Pharma Man, the benevolent oppressor.
The recent murder of UnitedHealthCare CEO Brian Thompson in cold blood, a heinous and deplorable expression of this growing rebellion, cannot be condoned in any way. But the health care landscape is littered with provocations against the Pharma Man which play out daily on national television, in the newspapers, and on social media.
The Pharma Man’s reputation is only going to get worse as President-elect Donald Trump takes office and tries to fulfill his promise to bring down drug prices. And there is the specter of Robert F. Kennedy Jr. bringing his unconventional ideas to American health care in the new Trump administration; he has already publicly called for capping drug prices. Ironically, it had been the Democrats who made the industry — a financial hotbed of Republican support — a whipping boy in blaming America’s failure to deliver affordable health care to its citizens. But Mr. Trump has outshouted them all. He famously declared that pharma companies were “getting away with murder” and singled out Pfizer Inc. and publicly shamed the company and forced the CEO to roll back planned price increases.
As I watched Mr. Trump tower over the CEO at a White House appearance and later triumphantly declare the result of his disciplinary action, I was reminded of my school days when the headmaster would hoist a student by the collar to make the truant admit culpability in front of the class. It was humiliating for the Pharma Man, for I once worked at the company, proud of its pioneering history and its roster of some of the world’s most impactful medicines, a company that would go on to save millions of lives with its Covid-19 vaccine during the pandemic.
But the Pharma Man has earned this new reputation, and then some…
[Naj recounts (some of) the industry practices that have contributed to its fall from grace– familiar, but still striking…]
… It is baffling to me that we as an industry haven’t stepped out in front of the groundswell of national outrage and undertaken systemic changes to our business practices. We continue to conduct our business on the strength of our power over our customers, a power we derive from our possession of the inventions that prevent and treat and cure and which our customers cannot do without. That’s like possessing Tolkien’s One Ring, which gives the possessor unassailable power to rule over and dominate others. We set the price we want. We can cast our spell on doctors to prescribe our medicine and do our bidding. We can banish competitors who attempt to lay claim to our Ring of Power. We have institutionalized this leverage in our business, all the way from drug discovery and development to marketing and sales and distribution. This underpinning of the industry’s colossal machinery is rigged against the patient. No one in the leadership of the pharma industry has raised a voice, let alone stepped up to act, to alter this unfair state endured by their very own customers; it seems there are no hobbits in the industry ready to undertake the treacherous journey to Mount Doom in a quest to destroy the Ring.
We refuse to see how our customers see our business. In their minds, we owe our existence to their misfortunes and mishaps: the unexpected cancer, the heart that suddenly fails, the pancreas that fails to produce enough insulin. Our customers turn to us to help them deal with these events of life and living. Although they know it takes a lot of money and time to come up with a treatment, they also expect the pharma company to make it available to them at an affordable price. After all, they argue, axiomatically, the drug was specifically developed to serve their need, brought on by their unfortunate luck.
They volunteer in tens of thousands, sick and healthy, for a new drug to be tested on them so the company can prove it works and is safe; some can die from the potential side effects. They are the ones who help create the market for the drug. And to dangle it in front of them but out of their reach by charging unaffordable prices is unconscionable. It is hard to argue against that view: the symbiotic existence between our enterprise and our customers imposes a business — not to mention a moral — obligation on us to make the drug affordable to the patient who was instrumental in the development of the treatment in the first place. We also should not ignore the fact that the U.S. government helps out drug development with taxpayer dollars.
Unfortunately, our customers cannot rely on market forces for what the pharma companies won’t offer: a fair deal. Car companies, with their zillion features, battle among themselves to win over customers, and any and all of their cars, irrespective of their features, deliver the same result: transporting the buyer from one place to another. One can purchase any smartphone on the market and it will make the call, send messages, browse the web. But when it comes to drugs, the consumer doesn’t necessarily have alternative choices.
Take, for instance, the cholesterol-lowering drugs, known as statins. Among the seven or so statins developed so far, the most prescribed ones are atorvastatin (Lipitor), rosuvastatin (Crestor), and simvastatin (Zocor). Each statin has its own distinct efficacy and side effects, even though they all lower cholesterol. Physicians prescribe one statin or another based on patient condition and the desired outcome. In effect, the market of cholesterol-lowering agents gets divided into distinct segments of therapy, each offering just one single statin. Within each segment there is no competition to speak of (until the patent expires, allowing the entry of copies of the product, the so-called generics). Although the manufacturers compete with their sales and marketing campaigns to recruit patients to their respective statins, this sort of “competition” doesn’t significantly influence the price, as each product is viewed as distinct and un-substitutable, something that the manufacturers take pains to establish with their scientific papers and promotional materials.
We are known to shamelessly exploit these monopolistic powers. When we lose a patent on a drug, we pay off competitors to keep them from entering the market. (The Federal Trade Commission estimates that these anticompetitive tactics cost consumers and taxpayers $3.5 billion in higher drug costs every year.) Most commonly, we tend to extend patents with minor variations on the original drug, such as a new coating or a slight change in the formulation — this is called evergreening — which offer little or no additional benefits to the patient. (Some 78 percent of the patented drugs marketed between 2005 and 2015 are not new drugs, according to a study published in the Journal of the Law and the Biosciences in December 2018.)…
… A large truth is that our drug pricing is heavily influenced by our single-minded obsession with keeping our shareholders — not patients — happy. This is not unique to the pharma industry; delivering “shareholder value,” the appreciation of the company’s stock price, is an operational mantra of corporations across industries. Whatever earnest exercise a pharma company goes through to set drug prices based on R&D, manufacturing, marketing, and other costs, at the end of the day this is all swept aside by the pressures to achieve quarterly and annual sales and profit targets. Executives’ bonuses are tied to achieving these performance metrics, and their stock grants and options deliver additional riches when the company’s stock appreciates.
The pressures to serve the shareholder have only intensified in the past decade as the health care industry has become a sought-after vehicle for investors for the safe and steady and stellar returns it offers. Pharmaceuticals’ net profit margins are in the range of 15 to 20 percent, compared to 4 to 9 percent for large non-drug companies. A single successful drug can generate billions of dollars in sales, some as much as $15 billion or more annually. Many of our single pills, if incorporated into a company, would rank among the Fortune 500 companies.
Investors bet on our drugs long before they reach the market. They pore over scientific papers and decipher results of early-stage clinical trials of a drug with the zeal of a geologist prospecting for oil. They swarm medical and scientific conferences where the latest findings and opinions about a drug’s progress are presented. Living up to their expectations or, better yet, exceeding them becomes a high priority for companies setting their future financial performance targets. The patient is nowhere in the picture; few in executive suites agonize over whether to lower a price by 10 or 15 percent so many more patients can afford the drug.
The concept of affordability is not an operational imperative in the business, largely because top executives rarely interact with customers — the patients — to be sensitized to their needs, their plight really. In the car and smartphone industries, senior executives go around shaking hands with their customers and host regular conventions to take the pulse of their customers’ desires. In pharmaceuticals, a typical CEO’s calendar is filled with meetings with Wall Street analysts and fund managers, and the job of interacting with the customer is left to prescribing physicians, whom sales reps regularly badger with sales pitches.
But these prescribers we rely on to do our bidding with patients have lost public trust. The opioid crisis exposed a large number of doctors accepting bribes, as much as $100,000 a year, and sexual services to push sales. Although this is the most publicized example of corruption among doctors, there are many others that haven’t drawn much public attention. Nearly all Big Pharma companies have paid fines, some multiple times, to settle charges of bribing doctors. In 2013, Johnson & Johnson agreed to pay more than $2.2 billion in fines to settle charges that it had improperly promoted an antipsychotic drug; the government alleged that the company had paid “speaker fees to doctors to influence them to write prescriptions” and that its sales representatives “told these doctors that if they wanted to receive payments for speaking, they needed to increase” their prescriptions of the drug…
… n the pharmaceutical industry, influence peddling goes much deeper, to the very core of its business — the research and development — unlike in any other industry. Companies recruit leading researchers and academics to guide them during drug development, and to publicly pronounce their expert opinions in medical journals once the drug is successfully launched to the public. As critical as this alliance is to the successful development of a drug, it is now widely questioned because of these influencers’ financial ties to pharmaceutical companies.
ProPublica, a non-profit investigative journalism organization, has exposed several leading researchers and academics for accepting money from pharmaceutical companies which they didn’t disclose — or did so falsely — in connection with the scientific articles they published, some in prestigious journals like the New England Journal of Medicine and The Lancet. Among the prominent researchers ProPublica cited was the chief medical officer of Memorial Sloan Kettering Cancer Center, the nation’s leading cancer institute; he bullishly pitched to the investment community a new cancer treatment being developed by Roche without disclosing his financial ties to the company… If you want to find out if your doctor is receiving any money — how much and for what — from a company whose drug he or she is prescribing to you, you can go to the website Dollars for Docs and type in the name of the doctor. The site is the brainchild of ProPublica. It brings to mind the comparison with the U.S. Justice Department’s National Sex Offender Registry for the identity and location of known sex offenders.
In a world where doctors and researchers and medical academics all work as an army of influencers, the patient exists only as the customer to be influenced. It is a most peculiar aspect of our industry that we market our products to doctors (who help generate sales for us but don’t pay for the products) and we sell to our actual customers, the patients (who pay but have no control over the price they pay). Who decides the price? A very small group of wholesalers called pharmacy benefits managers (PBMs), owned by large insurers — CVS Health (which owns Aetna), Cigna, Humana, and UnitedHealthCare — that have been accused of padding their own profits at the cost of the patients they insure. These middlemen buy drugs on behalf of government and private employers and insurance companies. They negotiate prices with the pharma companies.
It may sound bewildering that the customers who pay for the drugs cannot negotiate directly with the manufacturers, unlike in the rest of the world. Even Medicare, the country’s largest health plan, covering 60 million Americans, can’t. In effect, the market forces of supply and demand — the backbone of all other commerce in America — are shielded from each other by the opaque wall of the middlemen. Imagine if the price of your car or a smartphone were negotiated by a handful of middlemen and you had no choice but to pay.
Today, 44 percent of Americans are either uninsured or underinsured; a 2021 national survey estimated that 46 million people couldn’t afford quality health care. Such news fails to register as profoundly worrisome in the psyches of pharmaceutical executives, largely because they are shielded from the customer by the systemic structure of the industry. Reports in the morning papers of patients unable to buy a lifesaving drug — like the news of Americans with diabetes struggling to procure high-priced insulin — might as well be the day’s weather report to them. Stories of struggles from further afield, like distant corners of Asia and Africa, where patients die because they can’t afford a blood pressure or cancer medicine, have even less of a chance of stirring the collective conscience of the industry.
I am often asked if I think drug prices are high, in the sense that they are unreasonable and exploitative. I’ve had difficulty answering the question in the past with a definitive yes or no, because many of the drugs have had such a profound impact in banishing diseases and prolonging healthy life. Their discovery didn’t come easy. I would respond that the prices reflected the cost of innovation, but that they could be lower. That conditional justification is harder to make these days.
More than 80 percent of the prescription drugs sold in the U.S. are generics, copies of patent-expired drugs. As copies, they have very low development costs. Their main costs lie in raw materials and manufacturing. And that cost is a fraction of the price the consumer currently pays for generics. I should know, because I manufacture many of them. For instance, a box of 30 five-milligram tablets of amlodipine, one of the most prescribed blood pressure medications, costs less than 30 cents to manufacture, and retails for $7 to $8.90 online and in U.S. drugstores, ostensibly discounted from $20 to $30. Simvastatin, a commonly prescribed cholesterol-lowering medication, costs less than 40 cents for a pack of 30 20-mg tablets; it sells at $7.87 to $22.28, discounted from $12 to $30. Even after adding the cost of marketing and distribution, the selling prices of these drugs are astronomical.
The consulting firm Pharmacy Benefit Consultants, which provides prescription coverage services to private and government employers, says the average wholesale prices — before the drug is sold to the patient — have been rising at “shocking rates.” Between the beginning of 2017 and March of 2018, it reports, the average wholesale prices of 450 drugs increased by between 25 and 100 percent. They included sharp increases for branded drugs that lost patents many years ago, such as 19.8 to 31 percent for Zoloft, which lost its patent in 2006, and 31.1 percent for Lipitor, which lost its patent in 2011…
… That is pathetic. Because the genesis of the modern pharma industry is anchored on the idea of delivering medicine at affordable costs. Inventors of insulin and antibiotics — the two most seminal discoveries in pharmaceuticals — refused to patent their inventions so everyone would have access to these lifesaving drugs at low costs. That mission seems not to have inspired the modern-day leaders in the slightest…
It is time for us to step up and make ourselves accountable to our customers, or else it will inevitably be done for us…
An insider calls foul: “The Pharma Man’s Negative Reputation is Fair,” from @rollingstone.com.web.brid.gy. Eminently worth reading in full.
Apposite: How the intent of a prescription drug program meant for the needy has been perverted: “How a Company Makes Millions Off a Hospital Program Meant to Help the Poor” (gift article)
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As we heal the healers, we might send healthy birthday greetings to Charles Value Chapin; he was born on this date in 1856. A physician and epidemiologist, he was a pioneer in American public health. He co-founded in first bacteriological laboratory in the U.S. (in 1888) in Providence, were he was Superintendent of Health– a position he held for 48 years. In 1910, he established Providence City Hospital where infectious disease carriers could be isolated under aseptic nursing conditions; his success inspired similar health control measures throughout the U.S. A professor (at Brown) and prolific writer, his impact on health policy and practice was so broad that he was hailed as “the Dean of City Public Health Officials.”
“This massive ascendancy of corporate power over democratic process is probably the most ominous development since the end of World War II”*…
Food is a major topic of conversation these days. Americans feel that they’re paying more for less, with explanations ranging from rising production costs and supply chain disruptions, to concentration among suppliers leading to profit-gouging. In an excerpt from his new book, Barons: Money, Power, and the Corruption of America’s Food Industry, Austin Frerick reminds us that, while those issues are all too real, the emergence of food behemoths has brought other issues as well…
Like the broader Gilded Age economy that Walmart exemplifies and has played a role in shaping, the wealth in Bentonville obscures the hardship surrounding it. After all, the Walton family has so much money to spend on museums and bike trails because they have extracted it from the communities in which Walmart operates—from shoppers but also from the company’s employees, the towns themselves, and even from taxpayers through a series of hidden government subsidies.
For example, as Walmart expanded its traditional stores into Supercenters, it would often construct a new, larger building nearby instead of simply adding on to the existing one. Those old stores frequently sat empty or underused, just like the original Walmart in Rogers. That may be why Walmart openings have been linked to declines in nearby home values.
Walmart and other major retailers have made the situation even worse by including restrictive covenants in the deeds of old buildings, which prevent other retailers from using the space for competitive purposes. These provisions perpetuate food deserts and tie the hands of communities struggling to figure out what to do with these ghost buildings. After all, it’s not easy to find a use for an old Walmart that doesn’t involve grocery or retail. One former Walmart Supercenter in Brownsville, Texas, became the center of a national debate when it was bought by a firm detaining migrant children.
Limiting competition is apparently not enough for Walmart. The company understands what happens to communities when its stores are abandoned, and it uses this knowledge to leverage a tax break. The company often engages in what is known as the “dark stores” loophole, a tax dodge that lets it evade millions in property taxes by valuing its stores as if they were closed.
These shenanigans further tilt the scales in Walmart’s favor and deprive local communities of needed tax revenue. They are particularly egregious in light of the fact that many of their stores were built with massive taxpayer subsidies in the first place. Of course, this isn’t the only tax loophole the family has exploited. In 2013, Bloomberg reported that the family pioneered an estate tax loophole that is now widely used by American billionaires.
As bad as Walmart is for communities as a whole, it creates conditions that are particularly damaging for workers. As labor historian Nelson Lichtenstein noted, Sam Walton built a company rooted in a “southernized, deunionized post-New Deal America.” Walmart has long been defined by transnational commerce, employment insecurity, and poverty-level wages, which is an ironic geographic twist on history given that the region was at the heart of the New Deal and the antichain movement.
Walmart employs about 1.6 million people in the United States alone, making it the nation’s largest private employer. In fact, more people are on the company’s payroll than the populations of eleven states. The company’s impact on the labor market is so big that it drives down wages in the areas in which it builds Supercenters. In the words of one academic, Walmart effectively “determine[s] the real minimum wage” in the country. That’s why it’s national news when the company decides to raise wages.
From its founding, Walmart has been notorious for its poverty-level wages; in its early years, the company exploited a loophole in order to pay the mostly female store employees half of the federal minimum wage. It took a federal court battle for the workers to receive the minimum wage. In 2021, Walmart employees’ median income was about $25,000, whereas CEO Doug McMillon took home $25.7 million that year.
Given this history, it should come as no surprise that Sam Walton hated unions. “I have always believed strongly that we don’t need unions at Wal-Mart,” he stated in his memoir. Over the years, the company has aggressively fought efforts to unionize, and it seemingly closes stores whenever they gain traction. For example, after deli counter workers in a Texas Walmart Supercenter voted to unionize in 2000, the company switched to prepackaged meat and closed the department. In 2015, Walmart suddenly closed five stores to deal with what it said were extensive plumbing issues, which it said would take six months to fix. Some speculated that the real reason it closed the stores was to let the employees go as retaliation for labor activism.
And it’s not just labor laws that the company has eluded. A 2017 report based on a survey of over one thousand Walmart employees found that the company was likely violating worker protections such as the Americans with Disabilities Act and the Family and Medical Leave Act, among others. According to the New York Times, the company “routinely refuses to accept doctors’ notes, penalizes workers who need to take care of a sick family member and otherwise punishes employees for lawful absences.”
As the company’s power grew, it reshaped labor options and norms for millions of Americans. Gary Chaison, a labor expert, told the New York Times in 2015, “What you’re increasingly finding is that it’s the primary wage earners who work at Walmart, because a lot of workers have more or less given up on getting middle-class jobs.” Meanwhile, many older Americans are working at the store past the normal retirement age because of their financial insecurity, a sad reality reflected by the recent TikTok trend of elderly Walmart employees asking for donations.
This power imbalance between Walmart and its employees explains the poverty-level wages for many of Walmart’s 1.6 million workers but also for employees of its competitors. Some unionized grocery stores have even used the opening of a Supercenter as an excuse to demand cuts to their own employees’ wages and benefits.
These low wages also obscure a generous hidden subsidy that the company receives from taxpayers. Many Walmart workers depend on government public assistance programs such as Medicaid (health care), the Earned Income Tax Credit (a low-wage tax subsidy), Section 8 vouchers (housing assistance), LIHEAP (energy assistance), and SNAP (food assistance), among others. In 2013, one estimate by congressional House Democrats found that taxpayers subsidized Walmart to the tune of more than $5,000 per employee each year through all of the government assistance programs that its workers need.
In effect, instead of paying a living wage to these employees, the Walton family shifts the burden onto taxpayers. Although many people may recoil at the idea of the public filling the gap between Walmart’s pay and the income its workers need to survive, not all policymakers see an issue with this sort of billionaire welfare. Jason Furman, former chair of the Council of Economic Advisers under President Obama, wrote a paper before joining the administration titled “Wal-Mart: A Progressive Success Story” that called for even more of these subsidies to Walmart’s bottom line.
There is, of course, another way to address the issue. Walmart failed to establish dominance in Germany because of the country’s strong labor protections and antitrust guardrails. These market protections may explain why the company eventually threw in the towel and sold off its operations there.
In some instances, Walmart even receives a double subsidy. Its workers and shoppers frequently rely on SNAP, the Supplemental Nutrition Assistance Program, formerly known as “food stamps.” The program originated as part of the New Deal as a temporary measure and was made permanent by President Lyndon Johnson in a bill signed in 1964. This program and several smaller food assistance programs are now part of the Farm Bill. In fact, these food assistance programs make up more than 75 percent of the most recent Farm Bill.
SNAP is in many ways a triumph of progressive social policy, with an average of 41.2 million people participating in the program each month in 2022. The use rate is so high because, unlike many other programs, SNAP was structured by the US Congress so that anyone who qualifies is guaranteed to receive assistance. As a result, the program is a lifeline for millions of Americans who might otherwise struggle to put food on the table.
But because of Walmart’s dominance of the grocery sector, a very large portion of SNAP dollars now run through the company’s cash registers. In 2013, the company received $13 billion in sales from shoppers using SNAP. By comparison, farmers markets took in only $17.4 million of all SNAP spending that same year. The amount of SNAP money received by the company surged with the expansion of SNAP benefits in response to the COVID-19 pandemic. With some back-of-the-envelope math, I came up with a rough estimate that Walmart now receives somewhere around $26.8 billion each year from SNAP.
Unfortunately, more concrete numbers are not available because the US Supreme Court has ruled that the amount of taxpayer money that the company receives from SNAP can be kept secret. In 2019, the Court heard a case involving the USDA’s decision to deny a request by a South Dakota newspaper for this information. “Most of the time, the government tells the public which companies benefit from federal dollars earmarked for taxpayer-funded public assistance programs,” agriculture and food reporter Claire Brown noted. “We know which insurance companies make the highest profits from Medicare and Medicaid, for example, and those figures have been used to pressure them to offer better options to their clients.” But in this instance, the Court rejected this level of transparency, with Justice Elena Kagan joining the Republican-appointed members of the Court to uphold the USDA decision under the notion that it was “confidential” business information.
The program is important enough that it factors into Walmart’s operational decision-making. Many Americans enrolled in SNAP schedule their trips to the grocery store around the days when their funds get deposited. In fact, the company factors this bump into its ordering system…
Expensive food is only one of the prices we pay to “Food Barons“– @AustinFrerick in @ProMarket_org.
* “This massive ascendancy of corporate power over democratic process is probably the most ominous development since the end of World War II, and for the most part “the free world” seems to be regarding it as merely normal.” – Wendell Berry, Bringing it to the Table: On Farming and Food
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As we ponder the point at which profit becomes predation, we might recall that it was on this date in 1950 that Hormel registered the name and trademark “Spam” for its canned meat product. It is also interesting to note that the company had marketed the product since 1937, and only felt the need to protect the name 13 years later.
“There are only two ways to establish competitive advantage: do things better than others or do them differently”*…
… so why is it that there’s so much emulation, so much sameness in the marketplace? Byrne Hobart explains Hotelling’s Law…
The economist Harold Hotelling has already inspired one Diff piece, on the optimal extraction rate for finite resources ($), but Hotelling has another rule that explains political non-polarization, fast-followers in tech, and the ubiquity of fried chicken sandwiches. Companies, parties, subcultures tend to converge over time, and a simple model can illustrate how.
Consider a stretch of beach 100 feet long, running east to west. Beachgoers are positioned randomly on the beach. There are two hot dog vendors who are both selling to beachgoers. Where should they position their hot dog stands?
One option is for one vendor to be a quarter of the way from one side, and the other to be a quarter of the way from the other side. This means that everyone is, at most, 25 feet away from a snack. That’s socially optimal. But let’s suppose the vendor on the eastern side moves a bit to the west. Everyone east of them will still patronize them, because they’re still closer, if not the closest. But some customers in the middle will switch! So the other hot dog seller responds by moving east, and the same result ensues. Eventually, you end up with two vendors in the middle of the beach, and now the median distance customers travel, 25 feet, is the former maximum distance anyone used to travel.
You can substitute any other cost or one-dimensional positioning feature for this. If there are two snack food manufacturers, the socially-optimal setup might be for one of them to sell something sweet and the other to offer something salty, but the same convergent force will eventually lead both of them to sell a salty-sweet combo; customers with specific preferences will be worse-off, but they’ll still have a favorite, while any convergence captures some of the customers who were close to indifferent before.
Making the model more reflective of the real world illustrates some of the assumptions it depends on. For example, we were always assuming exactly two competitors, but now let’s add in new entrants and departures. The model gets simpler if one of the initial two hot dog vendors quits—ironically, in this case the monopolist’s profit-maximizing position is also the social welfare-maximizing position (though they’ll probably respond to their new monopoly power with higher prices). In snack foods, if the formerly diverse market is now just a choice between salty-sweet and sweet-and-salty, a new entrant might introduce some product for the flavor purists and capture the market that way.
The model does describe cases where there are limits to new entrants. For example:
- In a voting system that tends to disproportionately reward winners, you’ll expect some convergence between parties. They want enough differentiation for voters to feel like they’re making a choice, but beyond that it makes sense for both sides to compete on similarity rather than difference.1
- Businesses that are dependent on continuously delivering products with low value density will tend to have a few national brands and lots of regional ones, as with Coke and Pepsi. Both beverages are pretty similar, and retain just enough differentiation for customers to feel like they’re making a choice. The amount is small, but nonzero: in the 1980s, when Coke was losing to the sweeter Pepsi in blind taste tests, they introduced a new, sweeter formula, a decision they reversed after a consumer backlash.
- Software products with high switching costs tend to get more complex over time, as standalone products get subsumed as features of a larger suite. As long as the pace of increased complexity is controlled, this doesn’t hurt user experience too much. It does eventually lead to a sprawling mess, but by then a new kind of switching cost kicks in—the sunk cost of learning to use the system is so high that it feels wasteful to switch.
- This model also describes regulated industries that lack extraordinary returns on capital. It’s hard for a bank to become a monopoly because it takes so much capital to grow, and while even the largest banks have some regional skew to their branch networks, they tend to settle on a similar model. They also diversify in similar ways: issuing credit cards, getting into investment banking, having a capital markets business of some sort, etc…
Hotelling’s simplified model describes an iron law: under the right set of assumptions, sellers end up homogenizing their products, and niche interests end up under-served. In the real world, there are countervailing forces, and in practice the dimensions on which companies compete are messy enough that “adjacent” doesn’t really work. But Hotelling’s Law also illustrates why there’s relentless pressure for homogeneity: if some people like product A and some people prefer product B, something halfway between the two will capture part of that audience. And the producer of A or B is probably in a better position to make this new compromise product C…
One can observe that this dynamic often leads, beyond sameness, to steadily declining value/quality as well. So, one might wonder why, if all it takes is an innovative new entrant to stir up a market, that’s not going on all the time. The answer is, of course, complicated (and varies from sector to sector). But if there is a root cause, your correspondent would suggest, it’s the concentration of power and control in a market that yields oligopolies that can effectively preempt new competitors. (See, e.g., here, here, and here.)
The economics of every burger chain launching a chicken sandwich: “Hotelling’s Law,” from @ByrneHobart.
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As we noodle on normalization, we might spare a thought for a man who innovated, then (for a time) enjoyed the benefits of an oligopolist, Thomas Crapper; he died on this date in 1910. Crapper popularized the one-piece pedestal flushing toilet that still bears his name in many parts of the English-speaking world.
The flushing toilet was invented by John Harrington in 1596; Joseph Bramah patented the first practical water closet in England in 1778; then in 1852, George Jennings received a patent for the flush-out toilet. Crapper’s contribution was promotional (though he did develop some important related inventions, such as the ballcock): in a time when bathroom fixtures were barely mentionable, Crapper, who was trained as a plumber, set himself up as a “sanitary engineer”; he heavily promoted “sanitary” plumbing and pioneered the concept of the bathroom fittings showroom. His efforts were hugely successful; he scored a series of Royal Warrants (providing lavatories for Prince, then King Edward, and for George V) and enjoyed huge commercial success. To this day, manhole covers with Crapper’s company’s name on them in Westminster Abbey are among London’s minor tourist attractions.
“Mounting a campaign against plutocracy makes as much sense to the typical Washington liberal as would circulating a petition against gravity”*…
Brad DeLong elaborates on Jonathan Kirshner‘s bracing review of Martin Wolf‘s important new book…
Jonathan Kirshner: Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s The Crisis of Democratic Capitalism: ‘The middle third of this book, “What Went Wrong,” should be required reading…. When it comes to solutions, unfortunately, The Crisis of Democratic Capitalism comes up short. Wolf, ever measured, is convincing in making the case for reform over revolution…. Yet it is disheartening that the sensible, reformist agenda of reasonable, practical measures that Wolf outlines already seems beyond the capacity of our politics…. Massive concentrations of wealth for a sliver of largely-above-the-law plutocrats, combined with stagnation and declining opportunities for the majority—leads to a basic political problem: “How, after all, does a political party dedicated to the material interests of the top 0.1 percent of the income distribution win and hold power in a universal suffrage democracy? The answer is pluto-populism”… [which] unleash[es] forces… [that] render liberal democracy unsustainable…. corruption, arbitrariness of justice, and fear for future prospects are poisonous to the body politic…. Its final sentence, “If we fail, the light of political and personal freedom might once again disappear from the world,” reads less like a call to action and more like an epitaph…
Martin Wolf’s The Crisis of Democratic Capitalism and Barry Eichengreen’s The Populist Temptation are, I think, the best books on theDover-Circle-Plus societies current Time of Troubles. And there is no clear way through.
It was James Madison who wrote, in 1787:
Democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths…
And the death of real democracy does not have to be accompanied by the end of the form. The classic example here is the Jim Crow U.S. South from 1876-1965. It was less than half as rich as the rest of the United States for almost a complete century. It was ruled by an oligarchy uninterested in economic development and very interested in corruption. The oligarchy its power by focusing the electorate on the necessity of keeping the Black Man Down, and tarring anyone who wanted a government that was less corrupt or more pro-development with being a negro-lover. That it held rocksolid from 1876 to 1965 shows that the future of anything we could call prosperous democratic capitalism is not assured…
Bracing: “Pluto-Populism,” from @delong.
See also: Kishore Mahbubani‘s “Democracy or Plutocracy? – America’s Existential Question” (source of the image above).
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As we get back to basics, we might recall that it was on this date in 1934 that Depression Era bandits Bonnie and Clyde were ambushed by police and shot to death in Bienville Parish, Louisiana. Bonnie Elizabeth Parker and Clyde Chestnut (Champion) Barrow were a criminal couple who traveled the Central United States with their gang during the Great Depression. The couple were known for their bank robberies, although they preferred to rob small stores or rural funeral homes. Their exploits captured the attention of the American press and its readership during what is occasionally referred to as the “public enemy era” between 1931 and 1934.
The 1967 hit film Bonnie and Clyde, directed by Arthur Penn and starring Warren Beatty and Faye Dunaway in the title roles, revived interest in the couple, who were treated somewhat sympathetically. The 2019 Netflix film The Highwaymen depicted their manhunt from the point of view of the pursuing lawmen but received mixed reviews.
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