Unified theories are enticing. The proponent identifies a problem, a cause, and, of course, a solution. If only real life were that simple.
In Goliath: The 100-Year War between Monopoly Power and Democracy, Matt Stoller, a fellow at the Open Markets Institute, presents his unified theory. The problem, as he sees it: pretty much everything wrong with America today, including stagnant wages, declining democracy, and rising inequality. The cause: big businesses (i.e., “Goliaths”). And the solution: aggressive antitrust laws and regulations to whittle big companies down to size and restore the country to its true Jeffersonian destiny as a nation of “independent yeomanry.”
In Stoller’s Manichean morality play, the heroes (men such as President Woodrow Wilson, Representative Wright Patman, and Supreme Court justice Louis Brandeis) engage in pitched battle against the forces of greed and aristocracy (men such as J. P. Morgan, Andrew Mellon, and now Jeff Bezos) and their intellectual lackeys (men such as John Kenneth Galbraith, historian Richard Hofstadter, and legal scholar Robert Bork). For Stoller, the natural and benevolent American economic structure is one with mostly small and medium-sized firms, and in which if big firms do exist, they should be heavily regulated or owned by government. For him, heroes understand and fight for this vision; villains don’t understand, or do but fight for Goliaths.
In Stoller’s historical narrative, which starts in the late 1890s and proceeds to today, one hero stands out: Wright Patman. Born in a log cabin in East Texas in 1893, Patman was elected to the House of Representatives in 1928 after a campaign in which he declared his opposition to “monopolies, trusts, branch banking and excessive and discriminating freight rates.” For Stoller, Patman is a towering figure. Indeed, he writes, “I was intellectually lost until I stumbled on Patman. . . . I found Patman and saw the world through his eyes.”
Yet, as Michael Lind and I write in our book Big Is Beautiful: Debunking the Myth of Small Business, Patman’s full story is more complicated and less noble than Stoller would have it.
An agrarian populist in the William Jennings Bryan tradition, Patman in 1934 authored a self-published tract, Bankerteering, Bonuseering, Melloneering. In Congress, he served as a front for lobbyists representing small distributors. The law that became the Robinson-Patman Act of 1936, which outlawed various kinds of discounts that advantaged more-efficient chain stores such as A&P, was in fact drafted by H. B. Teegarden, the general counsel of United States Wholesale Grocers. Patman’s nationwide speaking tour the following year was paid for in part by McKesson & Robbins, a drug wholesaler that was financing an anti-chain-store campaign to gain the support of independent drugstores, all the while secretly assembling its own retail drugstore chain. Patman’s patron, the president of McKesson, had adopted the name “David F. Coster” to conceal his earlier life as Philip Musica, a convicted gunrunner, smuggler, and bootlegger; the revelation of his crimes in 1938 led to his suicide. But Stoller tells none of this story, painting a portrait of a courageous Patman defending small retailers against the rapacious A&P, the Walmart of its day.
These small-retailer interests sought government protection from A&P because the store provided tens of millions of American consumers with increased choices and lower prices. Stoller not only dismisses the importance of these benefits, minimizing them as trifles dangled in front of passive consumers, but he claims they were due to unfair competition. Yet studies at the time showed that chain retailers were able to sell products at prices from 9 to 20 percent lower than those of their smaller competitors because of more self-service, better stock control, and greater sales per square foot of store space. Like Brandeis before him, Stoller rejects the idea that these benefits could have been the result of innovations. Indeed, he rejects the concept of economies of scale, the fact that in many industries costs (and prices) fall as production increases. He is “increasingly convinced,” he tweeted recently, that the notion is “the biggest con in business history.”
Stoller does admit that a world of yeoman producers might mean higher prices (i.e., lower living standards), but for him this would be a small price to pay for democracy and dignity. He complains that over the last half century, “the rights of producers, of small business, or small banks and credit unions, did not matter next to the need to hold down prices for consumers.”
In Stoller’s narrative, the battles that the patrons of the people fought against the monied aristocrats, coupled with a Democratic party committed to Jeffersonian populism, were enough to keep the Goliaths at bay through the 1960s. But things started to go bad with the emergence of the Chicago school of antitrust law in the 1950s. Legal scholars at the University of Chicago began a campaign to reorient antitrust law, away from the restrictive understanding that saw a company’s having almost any significant market share as bad, and toward one that focused on market performance and consumer welfare. The Chicago school scholars, including Robert Bork, had easy pickings, for there were many egregious cases of government overreach. Perhaps the high-water mark of such overreach was United States v. Vons Grocery Co. (1966), in which the Justice Department blocked a merger of two grocers in Los Angeles that would have created a firm with a market share of less than 8 percent.
But for Stoller this shift marked the beginning of a transition away from a small-“d” democratic republic and toward the big soulless corporate system of today. The intellectual acid from the Chicago school eroded the populist consensus, a trend fueled by corporate influence, the “rebirth” of Wall Street, and the rise of the consumer movement. What really sank the old consensus, though, was its abandonment by the post-Watergate Democrats. Stoller writes that for 200 years after the founding of the republic, “Americans had fought concentrated power, relying on leaders like Patman.” But after Watergate the newly elected Democrats, seeing Patman as a mossback throwback to a prior era, stripped him of his chairmanship of the House Banking Committee. Without his “guidance, the new generation panicked and turned to a group of scholars who promised them efficiency, progress, and freedom. . . . They released the beast of monopoly on the land.”
Interestingly, Stoller singles out the consumer movement for opprobrium. Because advocates such as Ralph Nader focused on helping consumers, including through limits on “fair trade” laws, which allowed manufacturers to set a minimum price for a commodity, Stoller brands them as elitists who wanted to have government agencies defend consumers, rather than allow a natural order of small businesses and craftsmen that Americans would not need protection from. Nader’s form of politics was “idealistic and ignorant.” Justice Brandeis, by contrast, “believed citizens needed control of production and commerce, so they could have the autonomy necessary to be citizens and protect their communities.”
Stoller conveniently glosses over the fact that compared with big corporations, small businesses pollute more, injure their workers more, cheat more on their taxes, and pay their workers less. In Stoller’s world, there is no Mr. Potter; only a rapacious Citibank that has swept in and bought not only Potter’s bank but Bailey Brothers Building and Loan and then proceeded to rip off both depositors and borrowers.
It is also disappointing that there are so few data presented for his claims, perhaps because they would contradict the story. Stoller asserts that because of monopolies, the “massive wealth” created in the 1920s “wasn’t really paid out to workers in the form of higher wages.” In fact, real wages for working Americans increased by 19 percent from 1920 to 1929. He claims that real wages for manufacturing workers started falling in the 1960s, presumably after the Chicago school gained influence. In fact, from 1965 to 1975, real wages increased by 8 percent. He states that because of the efforts of FDR’s trustbusters and Patman, America after World War II “became once again a nation of tradespeople.” In fact, the average manufacturing firm was three times bigger by the late 1940s than it was in the early 1900s. To defend the break-up of AT&T, which decimated Bell Labs, the single most important private-sector engine of innovation in the 20th century, he claims that after the breakup AT&T increased research and development. The article he cites was written just four years after the breakup, and it was soon afterward that Bell Labs for all intents and purposes died.
Some of Stoller’s populist passion is warranted. Wall Street has gotten too powerful. Economists have taken over public policy, giving them “a divine right to rule.” And monied interests do have too much say in politics. But going back to a society of “individual yeomanry” would solve none of this. Does Stoller actually believe that small-business associations in such a world would not have powerful lobbyists working for their members’ interests? All one has to do is look at associations such as the National Federation of Independent Business and the National Association of Realtors to see how that works.
At the end of the day Goliath is a call to arms. Stoller exhorts readers: “Join us. Make this your tradition. . . . If you are dissatisfied, if you seek a better world, you are not alone.” There are certainly plenty of reasons today for Americans to be dissatisfied. But returning to a small-business economy of the 1800s is not likely to address any of them.
This article appears as “Blaming Big Business” in the October 28, 2019, print edition of National Review.