It’s amazing what a different view of America you get from the heartland. All card-carrying coastal elites should be required to visit a landlocked state at some point during the year. As many Swampians know, I grew up in the rural midwest, though I don’t go back as often as I probably should (or certainly as my mother would like). I did, however, spend a few days this past week in Kansas City, speaking with the Kansas City Fed and the Economic Club of Kansas City about financialisation and monopoly power. I came away with two major observations from the trip.
At first glance, the economy seems to be doing great. Business leaders are being forced to hire people they fired a few years back because they can’t find any other labour (I’ll caveat this by saying the pressure is still mostly at the lower end of the pay scale). Talented millennials that might once have eschewed bread-basket cities like KC are moving in to take advantage of affordable housing prices and the job offers of a well-balanced economy (the city has a great mix of services, manufacturing and commodities, and is politically centrist too, unlike the state as a whole). Anecdotally, there’s a sense of swagger and style underscoring a level of wealth that is very different from what I saw growing up in the midwest (you can certainly say the same of many other cities, like Columbus or Indianapolis). Thankfully, though, I didn’t see any gluten-free bakeries and everyone was still eating plenty of beef.
Yet if you dig deeper, there are structural worries. Everything’s up to date in Kansas City, as the lyrics go, since Google came in a few years back and laid high-speed fibre optic cable. But efforts have recently stalled, and the city hasn’t gotten the expected bump up in development. Esther George, the head of the Kansas City Fed, which recently focused its well-publicised Jackson Hole economic conference on corporate monopoly power, worries about a lack of dynamism and small business creation. She and other local leaders feel that the winnowing out of competition because of oligopoly probably has something to do with lower new business creation. Indeed, several counties north of the city are taking a new approach to economic development, aiming not to hand out tax breaks in an effort to attract large businesses, like so many other cities, but to position entrepreneurship as the number one priority.
Ten years on from 2008, access to capital appears to still be an issue. Victor Hwang, the vice-president of entrepreneurship at the locally based Kauffman Foundation (a group that does probably the best research on the topic in the nation) pointed out that despite the claim by large banks that they can’t find anyone to lend to, 81 per cent of new businesses are still funded by home equity and savings. “Most loans are 100k or less, and banks [even regional ones] just can’t make much money on those,” he says. Yet such new firms are still the biggest contributor to net job creation, and entrepreneurs have a disproportionate economic spillover effect into their communities, which argues for a new approach to growth that “would make entrepreneurs, rather than consumers, the ‘customer’ of our economy”. Some people think that argues for a loosening of regulation on the growing fintech sector, which aims to use the power of technology platforms to make lending more accessible. But Hwang is leery of this idea, citing the evidence of predatory lending and cherry picking, something I look at in my column this week. He’s more in favour of regulatory shifts and tax incentives that move local entrepreneurs, as opposed to large global firms, to the front of the queue for capital. Kauffman will have a paper on the topic out soon.
These questions about monopoly power and whom markets serve, just seem to keep growing. I had another very interesting conversation this week with SEC commissioner Robert Jackson, who’ll be giving a speech on Wednesday that will focus on whether stock exchanges themselves are a source of monopoly power. Jackson notes that there are 15 exchanges in the US, and 14 of them are owned by three conglomerates. What’s more, exchanges are self regulated, yet required to pursue shareholder “value” as part of their mission as profitmaking companies, two objectives that Jackson believes may be incompatible (he cites the Flash Boys story as something that might not have happened if you didn’t have self-regulating exchanges).
Jackson is one of the most ambitious people in Washington (and that’s saying quite a lot), and I think his points are well taken. But I wonder how far he’ll get in Trump’s Washington, particularly at the SEC, which is notoriously sympathetic to corporate interests. Ed, following on from your smart piece about oligarchy last week, I wonder what we can do to move the needle on big money politics and monopoly power, barring an overturning of Citizens United?
- This week I’m diving into John B Judis’ new book, The Nationalist Revival, which looks at the revolt against globalisation. I’ll judge him against your take on populism, Ed, and that’s a high bar. I’m enjoying many of these short and smart ideas books being put out by the Columbia Global Reports imprint.
- Amid all the usual (and mostly justified) Trump bashing, I thought Fareed Zakaria was smart to point out the risk to democracy from the left. It’s something I’ve sounded the alarm on myself in the past.
- I’m a sucker for a great piece on outer space, so I enjoyed this take on the future of manned space travel in the age of AI, in the pages of the FT.
Edward Luce responds
Rana, I don' t think big money politics is going away soon. One of John McCain' s greatest legacies — but now largely forgotten — was the 2002 McCain-Feingold act restricting soft money in politics. It was obliterated by the 2010 Citizens United ruling, which opened the floodgates. If, as expected, Brett Kavanaugh is confirmed to the court, we can expect an inbuilt majority in defence of “money is speech” for years to come. Meanwhile, I doubt very much whether Trump’s FTC or DoJ will take any serious steps on economic grounds to break up concentrated industries. It is quite possible he will target Amazon, or Google, on political grounds. But there is no policy-driven appetite in the Trump administration to break up oligopolies. Quite the reverse. As regards John Judis, he’s always worth reading.
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