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The Curse of Bigness
How Corporate Giants Came to Rule the World
Tim Wu
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The Curse of Bigness
How Corporate Giants Came to Rule the World
Tim Wu
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About This Book
We're three decades into a global experiment: what happens when the major nations of the world weaken their control on the size and power of corporate giants and allow unrestricted expansion?In The Curse of Bigness Tim Wu exposes the threats monopolies pose to economic stability and social freedom around the world. Aided by the globalization of commerce and finance, in recent years, we have seen takeovers galore that make a mockery of the ideals of competition and economic freedom. Such is the reality of the 'curse of bigness': stifled entrepreneurship, stalled productivity, dominant tech giants like Facebook and Google, and fewer choices for consumers.Urgent and persuasive, this bold manifesto argues that we need to rediscover the anti-monopoly traditions that brought great peace and prosperity in the past.
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WHERE OUR PATH HAS LED
Once upon a time, the major industrialized nations might have been thought to have learned their lesson. After suffering communist and fascist revolutions, a great depression and two catastrophic world wars, most of the industrialized world changed its approach to the economy and its role in a democracy.
Three extreme alternatives were rejected, at least in their fullest forms: laissez-faire’s rule by the wealthy, communism’s dictatorship of the proletariat and fascism’s state-directed capitalism. Instead, the democratic nations of the world embarked on the re-democratization of economic policy and the politics of wealth redistribution. That path yielded decades of economic growth that built strong middle classes who enjoyed important freedoms and a previously unknown level of prosperity, reducing what had become a massive gap between rich and poor.
To be sure, different parts of the world achieved widespread prosperity and freedom on different schedules. Large parts of the world – the ‘Global South’ – never made the gains hoped for. But the economic achievements of Western and Eastern democracies stole the thunder of both communism and fascism, whose calls for revolution were always driven by the unfairness and cruelty of unfettered capitalism.
No one economic policy overcame the inequalities produced by the Industrial Revolution and the consolidations of the early twentieth century. But anti-monopoly laws formed part of the story, by breaking the economic and political power of self-enriching trusts, and resisting the accumulation of wealth in monopoly and concentrated cartels. That was a mission reinforced by the horrible lessons of fascist Germany and Japan, and their close partnerships between government and private monopoly.
One way or another, concentration and inequality had its effects. In Great Britain, the country for which we have the most data, the share of income going to the top 5 per cent of wage earners had plunged to less than 20 per cent by the late 1970s.1 In the United States, by the late 1960s, the share of national income going to the top 1 per cent of earners had fallen to 8 per cent.2 France, Denmark, Japan and the Netherlands follow roughly similar trends.3 Seemingly, the capitalist nations had found a way to square the circle, and by promising prosperity to the middle classes, presented an alluring alternative to the self-enriching dictatorships in other parts of the world.
That was then, and yet here we are again, as if trapped in a bad movie sequel. Laissez-faire economics, renamed neoliberalism, is the dominant economic ideology. And today, as in the 1910s, two essential economic facts characterize the industrialized world. The first is the re-emergence of an outrageous divide between the rich and the poor. The world’s richest 1 per cent currently own 45 per cent of the world’s wealth.4 The world’s ten richest billionaires own some $745 billion in combined wealth, a sum greater than the output of many nations.5
This trend is particularly stark in the United States and the United Kingdom, where the gains made in equality achieved by the 1970s have been lost. In the US, the top 1 per cent today earn 23.8 per cent of the national income and control an astonishing 38.6 per cent of national wealth. The top 0.1 per cent alone earn 12 per cent of the nation’s income.6
The second feature is a return to concentrated economies – that is, industries that are dominated by fewer and larger companies, especially in the developed world. In 2015, the average market capitalization of the top hundred firms was a staggering seven thousand times that of the average for the bottom two thousand firms, whereas in 1995 it was just thirty-one times higher.7 Similarly, since the year 2000, across US industries the measures of market concentration have increased in over 75 per cent of industries.8
The most visible manifestations of the consolidation trend sit right in front of our faces: the centralization of the once open and competitive tech industries into just a handful of giants, Facebook, Google, Apple and others, many of which have achieved monopolies not just in their home countries, but around the world, creating a rather extreme version of global economic monopoly.
The power that these companies wield underscores our sense of concern that the problems we face transcend the narrowly economic. Big tech is ubiquit-ous, knows too much about us, and seems to have too much power over what we see, hear, do, and even feel. It has reignited debates over who really rules, when the decisions of just a few people have such great influence over everyone.
Given a global economy that looks like that of the early twentieth century, is it any surprise that world politics has come to match it? The early twentieth century was marked by persistent economic distress, the brutal treatment of workers, the destruction of small- and medium-sized businesses, and broad economic suffering. That led to widespread popular anger and demands for something new, different and fairer. The economic distress experienced by broad swathes of the population subsequently led to communist revolutions in Russia and China, and to fascist or ultra-nationalist takeovers in Italy, Spain, Germany and Japan.
Today, economic grievances are again giving way to angry, populist and nationalist answers around the world. People are blaming their economic woes on immigrants, Jews, Muslims, Christians, the Chinese, or whomever, giving rise to a new generation of xenophobic, nationalist and racist politics. We have witnessed a return to the politics of outrage and violence, stoked by the humiliation of being poorer than one’s own parents, and by the real prospect of falling through the cracks. We may be just one hard economic crash away from the end of democracy as we’ve known it.
The forgotten lesson from the twentieth century is that more measured, less angry alternatives work: programmes to aid the unemployed and the aged, to protect workers and labour movements, and to blunt the harshness and disparity inherent in unrestrained capitalism.
But that seems more obvious and better known. The missing piece of the puzzle is the importance of controlling economic structure, using laws designed to prevent or undo the consolidation of excessive private power. It would be an exaggeration to suggest that an anti-monopoly programme provides a full answer to inequality or other economic woes. But it does strike at the root cause of private political power – the economic concentration that facilitates political agency.
Advocating a revival of anti-monopoly laws is not meant to compete with other economic proposals aiming to address inequality. But laws that would redistribute wealth are often themselves blocked by the enhanced political power of concentrated industries, when they are able to exercise that power over democracy. In this way, the structure of the economy has an underlying influence on everything in the realm of economic policy.
All this is easier said than done. The world’s largest and most powerful firms enjoy the kind of political influence that tends to dampen criticism. Many, moreover, are regarded as ‘national champions’ in their countries or regions of origin. And many countries encourage their champion to attempt the conquest of the rest of the world. It is very hard for any country to want to challenge the firms that it sees as its own champions, or of which an entire region is proud. Nor does any country or region want to feel it is unilaterally disarming. This is what makes the dilemma particularly difficult: we fear other giants, but often love our own.
The potential dangers of economic concentration and international consolidation can sometimes feel abstract and removed. We might gain a more concrete sense of the stakes by turning to the nation of Brazil, and the twenty-first-century story of the family slaughterhouse that grew into a global monopoly.
The Rise of a Global Meat Trust
In 1953, a Brazilian rancher named José Batista Sobrinho began his slaughterhouse operation in a straightforward fashion: by killing and butchering the cattle himself. He expanded into a modest, four-cow-a-day operation and found it to be a good business, and slowly but progressively expanded his holdings. By the year 2000, his firm, now known by his initials, JBS, was among the country’s largest beef slaughterhouses, but it remained a private, family-owned operation. The founding family liked to emphasize their country roots and their traditional methods of management. As Wesley Batista, one of the founder’s sons, put it in 2011, the firm was run in a ‘a simple way’, without ‘a lot of layers, not a lot of fancy things, not a lot of time spent on PowerPoint presentations’.9
In the early twenty-first century, effective control of JBS passed from the father, José, to two of his sons, Wesley and Joesley, then ambitious young men in their thirties. The younger generation of Batista brothers had different and far grander visions than their father did. Coming of age amidst the exciting prospects of globalization and Brazil’s emergence as South America’s most promising economy, they began to see a way they might refashion their family business into something much larger, a global empire of meat.
It wasn’t just that. The Batistas also sensed a golden opportunity to propel their family, already very rich in Brazilian terms, into the ranks of the ultra-wealthy, the ludicrously rich, and to become the Brazilian equivalent of the Trumps, Boehringers or Kwoks, the billionaire families emerging in the United States, Europe and Asia. The story of how they did so, and what happened, is the economic story of our times.
* * *
In 2005, soon after taking control of the family company, the young Batista brothers first met with a man named Guido Mantega, then president of the Brazilian Development Bank. The Development Bank is a branch of the Brazilian government with the power to lend out money at subsidized rates. It had been designed to help small and medium-sized businesses catch up with the big guys, by providing credit to invest in domestic projects. But Mantega, an economist, politician and apostle of globalization, saw that as old-fashioned.
Mantega discussed with the brothers a different plan to refashion the family business. Instead of building up the business the old way, they agreed on a much faster alternative: acquiring other firms – buying out as many as possible of the world’s other major meat processors.
Buying companies is expensive: where would the money come from? That’s where Mantega and his Development Bank came in. In the early 2000s, the Brazilian government, infatuated with globalism and global markets, was eager to create a new generation of so-called global players. President Luiz Inácio Lula da Silva and his Workers’ Party, under the banner of globalization, would use Brazilian money to build companies that invested outside of Brazil. What that meant, in practice, was cheap money from Mantega’s Development Bank to buy rival companies in other countries.
Mantega and the Batista brothers conducted a trial run of the new strategy in neighbouring Argentina. That nation’s leading slaughterhouse, Swift Armour SA, had been weakened by Argentina’s seemingly never-ending financial crisis and was vulnerable to a buyout at a cheap price. Mantega was enthusiastic and approved the financing of a $200 million purchase at discount interest rates. The brothers were also asked to wire $3.2 million in US dollars to an overseas account. It was what one might call a personal expression of gratitude. ‘That’s what it took for us to get the deal done,’ said the elder Batista later.10
And so the trial run was a happy one for everyone. Over the next decade, the Batista brothers would return over and over again to the Brazilian Development Bank, embarking on what amounted to a state-backed global spending spree, lubricated by large cash bribes. Armed with billions in public, risk-free loans, and later shareholder money, the Batista brothers set their eyes on other targets. In the late 2000s, they bought, in quick succession, three American firms weakened by the Great Recession: Swift, the beef division of Smithfield Foods and Pilgrim’s.
After buying its main domestic rival and some of Australia’s slaughterhouses, JBS had managed to make itself into the largest beef processor in the world. It was by then slaughtering some ninety thousand cattle a day and exporting beef to over 150 countries.11 Using the miracles of cheap credit and consolidation, the sons had achieved more apparent growth in six years than their father had in fifty years of hard work.
When the time came, the Batistas did not neglect themselves or their immediate family. In 2009, they conducted an initial public offering of shares in the family firm, while holding on to a controlling share. The stock sale was a success, propelling the Batistas into the growing new cadre of twenty-first-century billionaires. By 2014, the family had a combined net worth of $4.3 billion, joining the ranks of other Brazilian billionaire clans that then included the Marinho family ($28.9 billion) and the Safras ($20 billion), among others. Ironically, the build-up of wealth by these families occurred during a time when many thought Brazil was teaching the world a lesson on how to combat inequality.
If they had been satisfied to be merely the world’s largest beef processor, or merely wealthy, the Batistas might have avoided some of what was soon to befall them. But growth is addictive, and only a few executives really understand the dangers of bigness, or know when to stop, until it is too late for everyone. To be fair to the Batistas, it must have been hard to stop when both the Brazilian government and private sources of capital welcomed and applauded JBS’s plans to go further. Through the 2010s, JBS began buying chicken and pork processors around the world, in Mexico, Australia and other countries. They made a total of more than forty further acquisitions, which would make JBS not just the world’s largest meat processor, but the second-largest food company in the world (after Nestlé).12
At this stage JBS’s buying spree began to cause a chain reaction around the globe, as it triggered similar consolidation campaigns by other meat processors, eager to divide up what were now being called the ‘protein markets’. JBS’s rivals now...