The Biden administration just issued an executive order that makes an excellent start at increasing competition throughout our economy. It targets several areas where a lack of competition has raised prices or suppressed wages, including health care, Big Tech, and labor markets across many industries.
This focus on pro-competition protections is the best way to address many social issues – such as working poverty, skyrocketing health care prices, and more – because their root causes lie in the declining competitiveness of our markets. Working poverty, for example, is caused by wage suppression due to the “monopsony” power (the buyer’s market equivalent of monopoly power) that arises in our very concentrated low-wage labor markets (see Working Poverty: Low Skills or Low Wages? for more details). Hospitals now charge an average of 4 times cost (!), after decades of mergers and acquisitions. Prescription drug companies have become one of the two most profitable industries in the country by exploiting lax enforcement of regulations designed to ensure that their patents expire on time and make way for less expensive generic versions.
None of these markets now resembles what a free marketer has in mind when they sing the praises of unregulated markets – those benefits only accrue when markets are highly competitive, with lots of competing vendors, full information available, and low barriers to entry. We have very few such markets; instead, our typical market is highly concentrated and becoming more concentrated. And these markets don’t self-correct toward more competition, as these advocates also promise: absent vigorous pro-competition protections, they tend to become more concentrated.
In short, decades of deregulation has left us with markets so highly concentrated that big business routinely extracts excessive profits (i.e. “supranormal” profits, in economics lingo) by overcharging consumers and underpaying workers. Low-wage employers extract tens of billions of dollars each year from their workers, as do middle-wage employers, and the heath care industry overcharges us by a trillion dollars per year. For more details on these examples, and on why competition is so important to a strong economy, see The Free Market Fallacy (click here for a non-paywall version).
The good news is that, with actions like those in Biden’s recent executive order – such as banning non-compete clauses that create barriers to worker mobility and thus the competition for labor – we can simultaneously correct many of these inequities and strengthen economic growth at the same time, because correcting for market power increases output and growth. Critics will argue the opposite, as Jay Timmons, CEO of the National Association of Manufacturers has, warning that these moves will “undo our progress by undermining free markets”, but this is just smoke and mirrors. As the president said in his remarks, “Capitalism without competition isn’t capitalism. It’s exploitation.” And free markets aren’t the goal either – markets, yes, but what’s good for society as a whole is competitive markets.
Big Picture SI 