ImpactAlpha, Dec. 16 – While I was running Village Capital a few years ago, I noticed two starkly divided realities in the U.S.
Vilcap, as its known, is a venture firm investing in the middle of the country. Techno-optimism prevailed on the coasts, such as in Silicon Valley where “tech for good” was going to solve the world’s problems. A different reality was evident in the vast majority of the U.S. Entrepreneurs felt that they could not compete with the tech titans, even if they had better products or ideas, because they were vastly outmanned in money, people, and cultural attention.
BOOK REVIEW: Goliath: The 100 Year War Between Monopoly Power and Democracy
There have been many problematic aspects of the Donald Trump era. But his promise to remember the “forgotten men and women” resonated with many Americans. The country is a rigged game that you can’t win if you’re not included.
The distillation of this cognitive dissonance for me came one day in 2016 when Barack Obama and Mark Zuckerberg took the stage of the Global Entrepreneurship Summit, held that year at Stanford University in the heart of Silicon Valley. The world was going in the right direction, they said; technology and innovation had the power to cure the problems that we were facing.
The optimism was broken that night, when a celebratory dinner was interrupted by a late attendee, who came in to tell us that Britain had just voted to leave the European Union. Figuring out that dissonance has obsessed us ever since.
I met Matt Stoller the same year and he laid out the problem for me. Matt was part of the team at Open Markets, which at the time was part of the ne New America Foundation. (In a perhaps on-message tangent, Open Markets left New America in a publicized controversy where their founder criticized Google, angering donors and leadership). In one of our first conversations, Matt told me, “A free market isn’t free if people don’t have a right to compete.”
Matt has now given us historical context for the problem, and laid the groundwork for some of the solutions, in Goliath: The 100-Year War Between Monopoly Power and Democracy. It’s a rollickingly well-told read that takes us through the past hundred years—and hopefully sets the stage for the next hundred. There’s a lot to unpack in this 600-page book, but Stoller really asks two important questions: first, why are we so confused about what’s happening today? And second, what steps can we take to create a new democracy?
The big lesson from Stoller’s book: the way our economy and politics works is not just natural law, created in a vacuum. It’s real policies, created by real people.
We are confused because we were taught to conflate democracy with the success of a few large businesses. As Louis Brandeis, says, “we can have democracy, or we can have power in the hands of a few, but not both.”
When we have large companies ignoring the way they are exacerbating inequality, tearing down our democratic systems, and accelerating climate change in the name of “we’re doing what’s best for the consumer” or “we need to serve our shareholders,” they’re not citing natural law: they’re citing ideas invented by a relatively small number of people in Chicago in the 1970s, that then spread like a virus.
To cut to the chase, Stoller lays out steps we can take to create a new democracy. We can prioritize “the people who produce the nation’s wealth,” not corporations, and not even consumers. We can recognize that “the little guy” is a business that needs the ability to compete and grow. And we can use our identities to break up concentrations of power that are unjust, and bring power to people who haven’t been included.
If you’re making investments that try and have an impact on excluded people, hire people and include people in the decision-making that share the experiences of the people you are trying to help.
If you’re supporting growing businesses, think about the best way for these businesses to grow, thrive, and create success for their founders, team members, and stakeholders—not just extract wealth for you.
If you’re interested in politics, as a candidate, staffer, regulator, donor, business leader, or lawyer, think about how you can fight for the small vs. the big.
“Our monopoly problem is a massive one,” Stoller writes, “but it can be solved by breaking it down into person-sized chunks.”
Populism and liberalism
The great hero of Goliath is populist Texas congressman Wright Patman, who spanned the generations from the New Deal to post-Watergate, with amazing consistency. Patman’s north star of political economy is the producer of value: the entrepreneur, the laborer, the farmer. Our country should seek to promote, support, and optimize for their success.
Patman rose to power on the backs of the poor and middle class, and never forgot who he answered to or how to use it. He was a rural Democrat, more progressive than most on social issues (he fought the Klan in the 1920s), and was elected on a progressive economic platform in an extremely conservative area.
“To get a sense of how rural Democrats used to relate to voters, one need only pick up an old flyer from the Patman archives in Texas,” Stoller writes. The title: “Here Is What Our Democratic Party Has Given Us.” There were no fancy slogans or focus-grouped logos. Each item listed is a solid thing that was relevant to the lives of conservative white Southern voters in rural Texas: Electricity. Telephone. Roads. Social Security. Soil conservation. Price supports. Foreclosure prevention.”
In the 1920s, when Wright Patman was first elected to Congress, inequality was the highest it had ever been (until today). Robber barons like Mellon, Vanderbilt, Rockefeller, and Carnegie controlled the country. And big business and national policy were hand in hand. Members of the New Deal Congress like Patman fought back against these tycoons.
The black hat of Goliath’s first section is Andrew Mellon, one of the wealthiest and most famous people in the country, and an incredibly powerful federal government figure. Patman’s investigations showed how Mellon’s financial dealings were often at odds with the national security needs of the country. As owner of the aluminum giant ALCOA, Mellon prioritized trade with the Nazis at the expense of the American military’s access to aluminum.
Patman argued that Mellon and Alcoa answered to the American people, and not the other way around. He initiated Mellon’s impeachment; Andrew Mellon resigned a year later.
In the 1930s, FDR and Congress viewed the “large” as inherently suspect. Democracy required the individual producer: the farmer, the laborer, the entrepreneur to succeed. When big business—even in the name of efficiency and what’s best for the consumer—rolled through, the producer won. In the mid-20th century, A&P supermarkets tried to do what dollar stores and big box retailers didn’t accomplish until the mid-80s. That’s because Patman blocked it by co-sponsoring a bill called Robinson-Patman that gave individual producers the right to set their own prices. (This law, still on the books, is rarely never enforced).
In the 1960s and 70s, this began to change. A group of thinkers out of the University of Chicago, and championed by thinkers like Aaron Director, Milton Friedman, and Robert Bork, led a school of thought called the “New Learning.” In a sentence, this view of how our politics should work prioritized the consumer and the big company, not the producer.
Corporations had typically taken account of their responsibility to all stakeholders. The “New Learning” produced the theory of shareholder value, where corporations cut back on pensions, benefits, and investments in their communities in order to prioritize stock prices. Legal opinions, federal agencies, and eventually public opinion followed suit.
Today, both democracy—the voice and rule of the people that Wright Patman and FDR championed—and entrepreneurship—the economic success of the same people—is at risk. The helpful reminder from Stoller’s book: we’ve been here before, and we can do it again.
As Goliath shows, the dominance of major monopolies today is not an accident. We let it happen. Today, the people who produce the goods you buy are not free to make as much money as they want: they’re subject to Amazon’s pricing algorithm. The people who write the books and articles you read don’t dictate how they get paid: it’s Facebook and Google’s ad revenue. Farm bankruptcies are up 24% in the last twelve months alone. While headlines blame tariffs, the data shows that industrial agriculture mergers are a bigger issue. If you wonder why Obama won Iowa twice, and Trump won once, look no further.
There is truth in Wright Patman’s maxim: “A nation’s greatness can be measured by the happiness and prosperity of the people who produce the nation’s wealth.”
These are political decisions. We could enforce Robinson-Patman and say that producers of value get to decide what they charge at retail. If Amazon or Wal-Mart think the prices are too high, the producer will learn, but the middleman can’t drive economics.
The good news is we are starting to see the shift. Last summer, the impact investment community was in a buzz about the statement from the Business Roundtable, an industry association of top CEOs. More than 180 CEOs signaled a shift from prioritizing “shareholder value” to “stakeholder value.”
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the CEOs pledged. “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The press release may have been largely symbolic, but understanding the history makes it much more significant. It was thinkers who came from the “New Learning” School in the 1970s that founded the Business Roundtable, in large part to enlist CEOs as advocates for shareholder value. The shift is real and significant.
How can this prioritization of the producer, versus the corporation or even the consumer, translate to a political movement? The vast majority of Trump’s rhetoric is racist and inexcusable. However, there are aspects of what he said in the 2016 campaign – “The system is rigged.” “The forgotten men and women.” “You’re going to be working your a**es off if I get elected.” – that taps into the average person’s universal desire to find value in what they produce.
Trump’s actions have not lived up to his rhetoric. And while their rhetoric is much more inclusive, the Democrats have yet to find a broadly understandable way to prioritize the producer. Booker and Warren are very strong on policy, but have yet to explain what they are trying to do in plain English. Other candidates like Biden and Buttigieg are far too sympathetic to large corporations and organizations. That may change, and will need to in order to gain popular support and fix the system. Andrew Yang has strong diagnosis of the problem, but the solution of a universal basic income is a broadly consumerist mindset.
Antimonopoly is a pro-business
The antimonopolist movement is coming from the business world, not the political world. It’s not left or right. The principles of “prioritize small vs. big”, “prioritize the producer versus the consumer,” and “prioritize the little guy versus the big guy” are principles that can organize a movement.
The political winds around antitrust and entrepreneurship are confusing. I worked in 2008 for Barack Obama, and I supported him twice. But the Obama Administration presided over unprecedented corporate consolidations, farm bankruptcies, and a decline in entrepreneurship.
Some of the most forward-thinking supporters of entrepreneurs come from the left, like Senators Elizabeth Warren and Cory Booker, as well as the right, like Senators Tim Scott and Josh Hawley.
But the movement for change is coming not from politics but from the business community. That’s where the impact investment community can play a role. I’ve seen dozens of great businesses try and get off the ground, but their inability to compete with (insert tech titan here) has killed investment. I’ve seen other businesses grow and have great impact, then get acquired to achieve investor expectations, and lose the impact in the acquisition.
The proponents of big business on both sides of the aisle might argue that it is anti-competitive to protect the big versus the small—that it’ll hurt the economy overall. My own personal experience is different. Stoller’s book, for example, outlines how strong competition policy in the 1990s leveled the playing field for competitors of Microsoft, the Facebook or Google of that time.
We had decades of prosperity because of governance that was acutely aware of favoring the entrepreneur over the powerful led to a level playing field. We have forgotten this, but the business community is asking for it again.
Two of Microsoft’s competitors were internet service provider America Online, and Lotus Development Corp., inventor of the Lotus 1-2-3 spreadsheet. At Village Capital, I’ve gotten critical major backing from Jean and Steve Case of AOL and Freada Kapor Klein and Mitch Kapor of Lotus 1-2-3. Without a level playing field, their businesses—and businesses like mine—would not have had a shot.
As Stoller says in the book: “The real question is not whether commerce is good or bad. It is how we are to do commerce: to serve concentrated power or free us from concentrated power.”
Stoller is self-aware of the book’s biggest blind spot: his heroes are largely white men. Patman, was anti-KKK and Jim Crow, but sometimes voted for segregationist measures to stay in power. He is not an apologist of these decisions, and recognizes that we can’t romanticize the largely white privileged male days of the past.
“Every subgroup, whether white, black, gay, straight, immigrant, male, female, genderqueer, interacts with market structures that can discriminate, integrate, liberate, or not,” Stoller writes. “If you are experienced in an area, you see with experienced eyes, and can guide policymakers into building a more just way to do commerce.”
Readers of ImpactAlpha care a great deal about both business and social justice. While Goliath directly addresses business concerns, it also indirectly addresses social justice concerns. Concentration of power, very often, intentionally or unintentionally harms the poorest people the most.
If you stand for the right to compete, you should intentionally look out for areas where people in positions of power have limited the rights of the most marginalized groups to compete. Institutional racism and discrimination is often a way for market structures to cut people out. The aim of Jim Crow laws, specifically, was often to intentionally crush the economic power of black businesses. One obvious takeaway from Goliath is to look at where market structures have intentionally excluded specific marginalized populations—and redress them by creating a playing field that works for those populations.
The other point that Stoller often makes is that independent businesses, specifically when run by discriminated-against populations, are able to give a voice to ideas that would otherwise be marginalized in a larger structure. He often cites the example of Harvey Milk’s independent camera store as a launching pad for many of the activists who led the gay rights movement in San Francisco—if Harvey Milk were a clerk selling digital cameras for Best Buy, his political platform might have been stifled. Independent businesses give people the power to voice opinions that might be stifled in a structure where politics is concentrated.
Big vs. small
When I look at entrepreneurs, investors, and community leaders, “big vs. small” dominates my analysis. Once you see how concentrated power accelerates its own interests, you can’t un-see it. And the medium and small that have been marginalized are revolting against the current system, both economically and politically, leaving us an unstable society. That’s the bad news. The good news is that Goliath shows us we’ve been here before. And with leadership and courage, we can rebalance the system.
Ross Baird is the founder of Blueprint Local.