Power, productivity and how our system works

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

I spent a couple days last week at the University of Chicago’s yearly antitrust conference, where all the economists, lawyers and many journalists who care about competition policy gather. Former White House competition adviser Tim Wu, FTC chair Lina Khan and Department of Justice antitrust head Jonathan Kanter were of course there, as were a number of Europeans. (You can stream the video here.)

One of the most interesting presentations was on how much antitrust action — which of course is having a big moment right now — affects productivity growth. As Swamp readers probably know, we’ve had sluggish productivity growth in most rich countries, including (until very recently) the US, for the past couple of decades. There are lots of ideas about why this is, from poor education to declining tech skills in an ageing workforce, to a lack of investment by companies.

But what if the productivity gap is really about how large corporations use their economic and political power to squeeze out innovation in favour of larger profit margins? Several academics presented data that supported this conclusion. UChicago professor Ufuk Akcigit had some fascinating slides showing that when innovators and entrepreneurs take their work into larger companies, new patents and product development drop by 50 per cent. No prizes for guessing that their compensation, however, goes up. Larger companies also get more state subsidies, despite having lower rates of innovation. And perhaps most shocking was a slide showing the inverse correlation between falling innovation and the rising number of local politicians hired by large firms to support their lobbying efforts.

None of this will come as a surprise to anyone who’s worked in business or covered it. Power exists in the political economy. It’s the air that we breathe. Academic and former EU regulator Tommaso Valletti, now at Imperial College London, noted large jumps in political lobbying money associated with mergers as big firms have gotten bigger. We truly have a market system that has been captured by large corporations, something that I experience nearly every day in my own working life.

And yet, I was also struck by the fact that the conversation around all this remains highly technical and siloed, in academic conferences like the one I attended, or too broad and rather hysterical (as per the rhetoric about corporate greed that you hear from progressive politicians). While we all sort of know intuitively that our politics are captured by corporate interests, it’s difficult to get the public galvanised around this.

I think part of this is the fact that the metrics we are using to talk about the impact of corporate power aren’t resonating. I raised this at the conference, and asked what we could actually start measuring that would give us a more colourful, understandable way into the narrative of big company power and its effects, one that would capture the public imagination.

Wu had one interesting thought — take a page out of the book of racial activists, who’ve run well-publicised experiments looking at how resumes with “ethnic” names get buried in the slush pile, while those of more obviously white candidates will sail through HR with ease. “Maybe academics should be looking at, say, how long it takes phone calls from different stakeholders to get returned by various politicians or regulators,” suggested Wu. Great idea.

I’d also suggest academics start focusing on more of this sort of inductive rather than deductive work, focusing more on real world expressions of power — like, perhaps, tallying the visitor records to the White House or the agencies on a regular basis. One of the bits of data that actually led to my first book was some work done by a University of Michigan academic tallying up the consultation visits taken to see financial regulators during the creation of the Dodd-Frank regulation. She found that 96 per cent of all the meetings had been taken with the largest “too big to fail” banks. Talk about capture.

There must be all sorts of other creative ways to make this problem really resonate with the public. Peter, I’m curious what metrics you’d suggest we look at to understand how power is really being used in our political economy?

Recommended reading

• Amid last week’s IMF/World Bank spring meetings in DC, I had the pleasure of doing an Oxfam panel on the post-neoliberal world with some top development economists, including Nobel laureate Joe Stiglitz, Senegalese economist Ndongo Samba Sylla, and Adriana Abdenur, special adviser to Brazilian president Luiz Inácio Lula da Silva. It was an interesting window into the tensions between industrial policies being adopted by rich countries, and the hyper-financialised markets that still penalise the poor (the topic of my column that will appear on Tuesday). See the video of the panel here.

• European technocrat Mario Draghi is actually calling for “radical change”, meaning the end of the neoliberal system, and an EU-wide industrial policy. This is akin to Davos Man calling for the end of free market capitalism. Read here.

• Also, this speech by John Podesta, given last week at the Columbia Center on Global Energy Policy, was really groundbreaking. He tallied up the carbon cost of the free trade system itself, which makes it the second- biggest polluter after China. A big win for the USTR Katherine Tai’s view of a post-neoliberal trade paradigm.

• FTC chair Lina Khan is on a very successful media tour; she recently did a spot on CBS Sunday Morning about how companies can get “too big to care” using price-gouging and other techniques to gain profit at the expense of customers.

• And in the FT, I loved Soumaya Keynes’s column on the economics of running, and in particular how a hotter economy and the greater hours of work it requires take a toll on our health. 

Peter Spiegel responds

Rana, I guess I’m a bit old-fashioned about it, but to be honest there’s really only one metric I follow: money.

The American campaign finance system is one of the most corrupting features of a modern democracy anywhere in the world, and the shocking thing is that most of it is completely legal and transparent — so it’s relatively easy to track. Campaigns and political action committees have to file regular contributor disclosures with the Federal Election Commission, and are increasingly prone to bragging about how much they’ve raised and who their biggest donors are. 

What is harder to follow is the money that doesn’t go through official PACs or campaign committees but nevertheless has an outsized impact on the US political system — indeed, I’d argue that in some cases it can have an even bigger impact than the traditional big-money donations to candidates. 

Take Charles and David Koch, the billionaire industrialist brothers who are generally credited with creating and growing the anti-government Tea Party ethos that overtook the Republican party in the early 2000s. The Koch brothers changed the American political ecosystem not by donating to candidates (though they did some of that) but by seeding rightwing interest groups, foundations and nonprofits nationwide. All of this was done almost without anyone noticing, since none of it was traceable; these groups don’t have the same disclosure requirements that political campaigns do.

The Koch brothers, in many ways, created the model that others have since followed. For example, the Mercers — a father (Robert) and daughter (Rebekah) billionaire hedge fund team — created the space for Donald Trump to rise by funding rightwing media outlets like Breitbart and backing conservative provocateur Steve Bannon well before Trump even arrived on the political scene. 

When I was a foreign correspondent, the obscene amounts of money in the US political system vied only with our lax gun control laws as the thing that most baffled foreigners about America — and the things I had the hardest time explaining to outsiders. 

In this election cycle, I’ve continued to push our political correspondents to keep an eye on the money game, and we’ve broken quite a few stories on the beat. As a journalist and an editor, I still think it’s one of the most important metrics in the political economy that the Financial Times can keep tabs on.