The Trump administration’s recently announced ban on in-flight laptops, tablets, and other electronic devices for travelers flying from Middle Eastern countries to the United States is the latest chapter in his racist immigration policy. This part is clear. What is perhaps less clear, but no less interesting, is who else benefits from Trump’s new policy wrinkle. The new laptop ban is also effectively a giveaway to Trump’s private equity backers and the US airline cartel they control; it comes at the expense of the Gulf carriers who threaten the US airlines’ domination of international long-haul routes and the business travelers who are their most lucrative customers.
This may have a whiff of conspiracy theory, but the contours of an emergent “Trumpian” monopoly capitalism become clearer by the day. If global free trade, or globally competitive capitalism, was the dominant ideology of the past three decades, Trump’s revanchist nationalism signals something new — the ideology of a re-trustified world economy, where shareholders assemble national monopolies under the guise of competing brands and use government policy to battle over international markets.
When we consider the nature of these monopolies, particularly their relationship to Trump, an interesting picture emerges. In many respects Trump’s foreign policy fits with the kind of imperialist structure proposed by Rudolf Hilferding. Hilferding’s theory of late nineteenth-century financial capitalism went something like this: large financial institutions had acquired control over domestic producers, consolidating and cartelizing them into effectively national monopolies. These national monopolies then dueled with each other over international markets and used their political power to capture favorable government policy, including tariffs to shield them from international competition and armies to conquer captive overseas demand.
The international market for air travel is a window into what could be described as “twenty-first century cartelization.” Institutional investors, including pension funds, mutual funds, and of course private equity, hold a large and growing share of US companies — a phenomenon of increasing policy and academic interest known as “common ownership.” While traditional mutual funds have been around for a long time, they have tended to be passive, just holding companies and not interfering much in operations.
However, larger and more ambitious institutional investors supply more than just capital to companies; they bring expertise, connections, and importantly, information about “industry best-practices” — often a code word for implicit collusion. Researchers in this field have promoted the mantra “passive investment does not imply passive ownership”— these institutional investors take a long-term stake, the economics of which is based on capturing control over the corporations and parasitizing them for the shareholders’ benefit.
The criticism of this common ownership model is straightforward. When you own many companies in the same sector you aren’t enthusiastic about having them compete by improving quality, lowering prices, or sinking substantial upfront investment in new research and development. Much better to asset-strip the companies you do own and lay off or outsource your experienced workforce, secure in the knowledge that a de facto price-fixing cartel will mean you don’t lose any customers to your “competitors”— the other companies in your portfolio. Common ownership also results in CEO pay that is higher and less sensitive to relative performance, because shareholders don’t want their CEOs competing too much with each other.
This problem has been recognized in many sectors, as a few financial institutions wind up in control of many potentially competing companies. Blackrock (whose CEO, Larry Fink, is advising Trump) for example is the largest shareholder in 655 companies, 26 percent of construction companies, 16 percent of manufacturing, 17 percent of finance/real estate, and 20.7 percent of transportation and public utilities. In fact, “BlackRock, Vanguard, and State Street together are the largest shareholders of 88 percent of the companies listed” on Standard and Poor’s five hundred largest companies. Much of this began in the merger waves of the 1980s, but has accelerated in an era of low interest rates and financial deregulation.
The US airline industry is a prime example. A few institutional investors (e.g., Blackrock, State Street, PrimeCap, Vanguard, Berkshire Hathaway, AQR) hold large shares in the four remaining US-based airlines: United, Delta, American, and Southwest. In a recent paper, José Azar, Martin C. Schmalz, and Isabel Tecu examined the effects of this concentration of ownership. Blackrock bought Barclays Capital, which already owned a number of airline shares, and so Barclay’s shares got added to those that Blackrock already owned.
That increase in the concentration of ownership caused airline fares to jump between 3 and 11 percent on the exact same routes — and that is likely an understatement of the effects on profits, since their data source does not track safety issues, poor service, and ancillary fees for baggage and seat reservations that have proliferated in the years since airlines stopped competing with one another.
Yet interestingly, the trend of private monopolies is not replicated everywhere. The major Gulf airlines — Emirates, Etihad, Gulf Air, and Qatar Airways benefit from government subsidies, as well as generous government-subsidized fuel. These corporations are largely controlled by the sovereign wealth funds of the GCC’s monarchical regimes (UAE, Bahrain, Qatar), and they do not admit outside investors.
This leg up for the Gulf airlines has not gone unnoticed. Angry about threats to their market share by these parastatal corporations, the three remaining US carriers that provide long-haul flights — Delta, American, and United — formed the Partnership for Open and Fair Skies in 2015, whose FAQ is as shameless as possible (e.g., “Q: Isn’t the antitrust immunity that has been granted to US airlines so they can form global alliances also government support similar to a subsidy? A: No, antitrust immunity is not a subsidy.”) US carriers accuse the Gulf carriers of anti-competitive practices and are actively working to exclude them from the American market — thus protecting their international business.
The idea that highly autocratic Middle Eastern (and Asian) parastatals are the main competitive force keeping down long-haul plane fares is amusing on one level, but is also in some respects a bellwether of a new, post-competition, capitalism.
Common ownership is becoming increasingly pervasive in the US economy, and along with economies of scale and barriers to entry in the technology, health care, and media sectors, are leading to increased monopolization. Increased monopolization helps explain why productivity growth has been so low in the United States over the past fifteen years despite rapid technological change — monopolists strip assets and under-invest to keep profits high — and why the share of income going to corporate profits has increased dramatically over the same period. Industries with these kinds of “superstar firms” also have lower labor shares of income.
The intellectual co-conspirator of this consolidation has been a certain strand of conservative legal/economic theorizing, housed at law schools like George Mason University and the University of Chicago. In this antitrust policy paradigm, which has prevailed since 1980, authorities radically limit antitrust scrutiny on the assumption that size and profits are driven by efficiency rather than anti-competitive behavior. The purpose of antitrust law is redirected from policing market power to ensuring market “efficiency.” And then the bait-and-switch: the market is already efficient, so no need for intervention. Assume away the problem antitrust policy was enacted to confront in the first place, so there’s no need for antitrust policy. It is the misbegotten child of conservative economics and conservative law, midwifed by the usual oligarchic philanthropies.
The products of this intellectual movement live in academia, private law, and the regulatory agencies. These are also exactly the people that Trump picked to staff the antitrust authorities at the Justice Department and the Federal Trade Commission: Joshua Wright, Maureen Ohlhausen, Makan Delrahim, and other prominent figures, many of whom are regularly paid to make these arguments in front of regulators, and have rarely seen a merger they didn’t like.
What this Trump administration initiative shows is that federal policy can be brought into service on behalf of monopolization. A similar dynamic is at play in health insurance. Anthem recently spoke out in favor of the Trump administration’s proposal to gut Medicaid and make the individual market untenable for older or sicker patients, advocacy that is likely aimed at inducing the new administration to abandon the prior administration’s heretofore-successful challenge to its planned merger with Cigna. Or consider the pending mergers of AT&T and Time Warner and of Bayer and Monsanto, which received rhetorical boosts from the administration in exchange for empty claims of job creation and research and development pledges during grip-and-grins with the companies’ CEOs.
Hilferding’s observations on imperialism, which were later cribbed by Lenin, were flawed to be sure. But his insistence on linking national monopolization with important foreign policy consequences (Lenin’s big one being imperialist expansion leading to World War I) was spot on. World war may not be on the horizon today, but undermining the business models of overseas rivals by making it inconvenient for American travelers to transit their hubs is a small but squarely aimed redirection of the flow of rents in the global economy. In that context, it isn’t surprising that an ostensible (and extremely dubious) national security policy restricting the devices that can be brought on international flights would be ostentatiously directed at the international rivals of US corporations.
So perhaps instead of interpreting Trump’s wild swings as (just) the flailing paranoid id of America, we should interpret them as the latest stage of capitalism: a multipolar rivalry of blurred nationalist and capitalist interests. The United States still promotes global capitalism with itself at the helm, but that capitalism has become nakedly oligarchical, with public policy serving firm and shareholder profit margins rather than any kind of national interest, democratically defined.