From ‘The Great Reversal’ Review: When Bigger Is Not Better” . in the Wall Street Journal:
Mr. Philippon, a professor of finance at New York University’s Stern School of Business, begins “The Great Reversal” with a simple observation: “Why on earth are US cell phone plans so expensive? . . . Why do consumers in Europe or in Asia pay less for cellular service and, on average, get much more?” He points to a 2017 study showing that American consumers could save as much as $65 billion a year if mobile rates were comparable with German ones. Another study from 2015 makes the same point about the cost of internet service, which in the U.S. is as much as 3½ times higher than it is in France.
According to Mr. Philippon, the key drivers of U.S. economic growth—from telecoms and airlines to banking, health care, pharmaceuticals and Big Tech—are crippled by arrangements that thwart dynamism and efficiency. He homes in on three problems in particular, providing a variety of data-rich charts and graphs to document his claims. First, evidence indicates that competition has declined in most sectors of the American economy, including the high-tech sector, where Silicon Valley’s vaunted reputation would lead us to expect endless innovation and productivity but where increasing concentration has slowed both. Second, the lack of competition is due to the influence of lobbying and campaign spending, aimed at goading politicians and policy makers to protect monopoly advantage and limit market entry by potential challengers. Third, as competition declines, big players don’t have to lure investors by improving their game. The result, Mr. Philippon says, is “lower wages, lower investment, lower productivity, lower growth, and more inequality.” These are the fruits of economic policies that are geared to protect the biggest corporations and concentrate “market power” in as few hands as possible.
While Elizabeth Warren might like Mr. Philippon’s diagnosis,she won’t like his solution: lots more deregulation, backed by aggressive antitrust action to keep market concentration down and push more opportunities for newcomers. Mr. Philippon is no fan of regulation. On the contrary, in his view political lobbying ensures that regulatory regimes benefit the status quo by limiting the entry and growth of small firms that might become challengers to big market players.
I have often contended that excessive regulation serves big businesses and is often ‘captured’ for their own benefit. Deregulation combined with antitrust is a worthy consideration, but regulators much prefer fewer larger targets.