Rethinking the "Free Market"
The Democratic case for breaking up tech monopolies, redesigning our patent system, and simplifying our corporate tax code.
Our free market isn’t as free as advertised. Pollster Stefan Hankin is back with another modest proposal, this time making the Democratic case for breaking up tech monopolies, redesigning our patent system, and simplifying our corporate tax code. What’ll that get you? More jobs, more innovation, and fewer patent trolls gaming the system.
by Stefan Hankin
A free market is integral to the American economy because it promotes innovation, competition, and is in line with American values and priorities as a free country where it is theoretically possible for anyone with a good product to build a good business. Epitomized by the concept of the American Dream, these ideals are arguably what has made the American private sector so successful around the globe. However, over the course of the last few decades, our free market has rapidly deteriorated and is now practically nonexistent.
What we have is a marketplace that is open in the most basic this-is-definitely-not-the-USSR type of way, but in reality it is severely closed for people who were not in the door first or who do not have access to large amounts of capital. The auspicious handful of businesses who happened to be the first to commercialize a desired product can make up for a lack of capital by quickly seizing control of the market. Either way, big businesses have no interest in making the “free market” more free. This is especially true in the technology industry where a few companies have come up with great, even revolutionary products but after their initial success, have done everything possible to shut down their competition and expand their reach. As Jeff Bezos has said, “Your margin is my opportunity.” Translation: I see you, I’m coming for you, but don’t worry, you’ll see me coming. Jeff Bezos eats small businesses for breakfast, and he is not the only one.
In addition to suffocating innovation, technology companies today wield an unprecedented amount of power and are only reluctantly starting to reflect on their hegemonic status. It is with occasional and minimal acceptance from a handful of GOP lawmakers that Democrats continue to lead the desperately needed antitrust charge in the tech industry and elsewhere. The important questions about technology companies are deeply intertwined with questions about the economy (and national security for that matter). Sadly, as evidenced by past congressional hearings, the majority of Senators miss this point completely.
As it turns out, most Republican Senators do not represent, nor do they understand, today’s economy.
As it turns out, most Republican Senators do not represent, nor do they understand, today’s economy. In the U.S. Senate, 82% of GOP Senators hail from states that contribute less than 2% to our country’s GDP. This is no excuse for the fact that the party is led by lightweights who lack any understanding of how markets function or how the modern economy works. And it is not just the party leaders and elected officials who are responsible for driving the GOP’s economic platform off a cliff but also the “think tanks” where “serious thinking” is regulated by people with deep pockets who happen to make their money off of old-world industries. The GOP and its institutionalized support system focus on winning elections and keeping power in the hands of the minority, not, as they claim, on maintaining a free market.
In its desire to maintain power, the Republican Party happily does the bidding of whoever is paying the bills. Though Democrats are by no means innocent in that regard, for Republicans this means currying favors for the fossil fuel industry and individuals like the Koch brothers and Sheldon Adelson who have made it their life’s mission to curb regulation and competition at all cost. However, the GOP is currently facing a problem much larger than Sheldon Adelson: Donald Trump.
In a transformation cemented by the Trump administration, the GOP has moved from a traditional business-first vision of capitalism to a right-wing populism that is not based in the ideals of a free market. Rather, its defining ethos seems to ignore how the world has changed over the past 70 years; it views closed borders, broad control over trade, and internal and external protectionism as policies that are in the best interest of the nation.
The GOP’s defining ethos seems to ignore how the world has changed over the past 70 years; it views closed borders, broad control over trade, and internal and external protectionism as policies that are in the best interest of the nation.
Trump’s damage goes way beyond his half-baked economic plan. As we discussed in a previous article, the diverging factions of the GOP can no longer survive under the same roof. Though complicit in their own party’s destruction, the anti-Trump Republicans now have an opportunity to create a new party that is not only decidedly separate from the xenophobic, protectionist Trumpian wing of the GOP, but that also brings conservative thinkers into the 21st century. This new party, a center-right party, should find that it shares some common goals with the Democratic Party, ie. improving markets and expanding opportunities.
To be sure, a modern center-right party would not align with the Democratic Party on every issue nor on every aspect of economic policy. But there is plenty of room for the two parties to work towards their collective interests in revitalizing the American economy and safeguarding American industry’s competitive advantage. After all, didn’t Republicans used to pride themselves in their defense of the free market? Didn’t they focus on a pro-business message that prioritized the future of the American economy? Whether Republicans were willfully negligent or too busy “owning the libs” to notice the perilous state of our economy, a reinvented, anti-Trump center right party will have the opportunity to course correct.
For the sake of making our free market more free, this theoretical center-right party and the Democratic Party should agree on the following: the need to break up monopolies in the tech sector, redesign our patent system, and simplify our corporate tax code.
From a pro-free market perspective, there is no question that some of our bigger monopolies should be broken up. The only reason Amazon and AWS are owned by the same company is so that the company can increase its profits and market share. The same can be said of Alphabet (aka Google), Apple, and Facebook. The total vertical integration of these companies stifles innovation and places too much power in the hands of just a few individual CEOs and their gargantuan companies. This essentially unrestricted consolidation is bad for individuals, bad for our economy, and bad for our society.
From a pro-free market perspective, there is no question that some of our bigger monopolies should be broken up.
The percent share of businesses in the American economy that are small businesses has been on the decline since the mid-90s. More troubling is the decline in the number of jobs created by new companies. Throughout the ‘90s, according to the Bureau of Labor Statistics, we saw both an increase in the number of companies being created as well as the number of jobs created by these new companies. From 2001 through 2010, the number of jobs created by new companies dropped from about 4.75 million jobs per year to 2.5 million. By 2015, the number increased to 3 million, but this is pathetically small given our country’s “forward” trajectory.
These numbers paint a picture of a market that is unmistakably not free and certainly one that does not encourage innovation. The simple explanation is that big companies are getting bigger and, with the help of the US government, have created an environment closed to competition.
In addition to protecting small businesses by regulating monopolies, creating a freer market means making it easier for people to start the next great company. As discussed here, American businesses need to get out of the business of providing social safety nets (healthcare and retirement). All companies, but especially new and small companies, work better when they can focus solely on being better companies as opposed to being both a company and a social safety net provider. A healthcare system that is not tied to people’s jobs also fosters innovation. People would no longer be forced to stay at their jobs to ensure their family has healthcare coverage and would be free to start their own businesses.
A healthcare system that is not tied to people’s jobs also fosters innovation.
Another significant barrier to entry into the marketplace is our painfully outdated patent processes. The system has been weaponized in part because it allows companies to protect products they have not even made. We cannot function in a business landscape where companies with the money to hire lawyers to file hundreds of patents are able to further their position of dominance while stifling any perspective competition. In 2019, the U.S. Patent and Trademark Office granted nearly 400,000 patents. This number has doubled since 2006, quadrupled since 1990, and is 8 times the number of patents granted in 1963 (49,000). Another worrisome statistic is the declining percent share of these patents that originated in the US. In 1963, 18% of the patents granted were of foreign origin. In 2011, the percent share of patents granted each year that were of foreign origin passed the 50% mark and it has remained over half since then.
The emergence of patent trolls, people who aggressively file patent infringement lawsuits with the intent to restrict the marketplace, has had a chilling effect on small companies. In 2005, patent trolls sued 800 small businesses which in this study was defined as a company with less than $100 million in annual revenue. By 2011, the yearly total of small companies sued by patent trolls was 2,900 companies with a median annual revenue of $10.3 million. The costs of these often-frivolous lawsuits is in the tens of billions of dollars. That is money that could have been spent on improving products or hiring more people instead of further inflating the salary of patent lawyers.
Policymakers may or may not be able to do their own taxes, but it is definitely within their jurisdiction to streamline the process.
The government can also take steps to simplify the corporate tax code. Policymakers may or may not be able to do their own taxes, but it is definitely within their jurisdiction to streamline the process. As Trump recently highlighted, the ease with which accountants manipulate our corporate tax structure is outrageous. Much of this problem can be traced back to members of Congress who are incapable of have anything close to a reasonable conversation about taxes. Loopholes are inevitable, so we need mechanisms that have the ability to close them as soon as they are discovered. This will also require a better funded IRS and a set of meaningful deterrents that encourage business leaders to think twice about serial tax avoidance. Additionally, closing offshore tax havens and treating smaller businesses differently from large corporations will create a more predictable landscape for smaller businesses by ensuring that they understand what their tax liabilities look like over the next five to ten years. A simplified cooperate tax code will also ensure that small companies do not get caught in some obscure tax that made sense 40 years ago and that the accounting teams at larger corporations have already figured out how not to pay.
A market that fosters innovation by regulating monopolies, creates competition by limiting barriers to entry into the marketplace, and lifts unnecessary burdens off of businesses sounds significantly freer than the market we have today. This is a hefty goal, but one that is achievable with the support of a center-right and Democratic coalition.
For the more conservative thinkers, this is in line with their pro-business, pro-economy foundation. For the Democratic Party, protecting and fostering small businesses while helping to create jobs most definitely adheres to the party’s values. Together, the two parties can sideline Trump’s economically illiterate GOP and prepare the American economy for the future. Building a stronger economy is more than just a talking point; the center-right and Democratic party have the potential to make real change.
Stefan Hankin is the founder and president of Lincoln Park Strategies. His previous bylines for The Experiment include “Rethinking the Safety Net,” “The Day Data Died,” “Rule by Minority,” and “End the GOP.” Follow him on Twitter at @LPStrategies.
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