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Anti-Trust Ahead?

The Jackson Hole Economic Symposium of 2018 not only gathered central banking illuminati it asked excellent questions. One that’s central to many of my clients in the credit union movement is “In the recent economic recovery why aren’t wages rising?”

The prime suspect in the reality of pay not increasing is corporate concentration. Two prominent economists presented papers and arguments. Alan Krueger of Princeton argued that declining worker bargaining power due to monopsony and employer collusion is an important driver. Monopsony in this case refers to a single employer having so much power that they can set wages artificially low. Krueger also pointed out situations where informal or secret collusion among employers caps compensation. He used examples like competing hospital systems in a market that can agree to a lower level of pay for medical specialists. He estimates that wages are running 1 to 1.5% behind where they should be given unemployment and inflation.

Alberto Cavallo of Harvard looked at how the shift to online “retail” has allowed immediate price shifts that can capitalize on shocks, shortages, and pass-throughs of costs to consumers. His research indicates that massive online retailers like Amazon and Walmart can adjust on the fly to optimize returns while continuing to grow market share. He forecasts that central bankers will be unable to guard against inflation with interest rate policy because retailers can change prices in a microsecond in the face of market shortages, geopolitical events, natural disasters, and perhaps even executive orders.

One broader and longer-term implication I see is whether government bodies and regulatory agencies will awake to the concentration of power and challenge it. The “Ma Bell” actions from early in my life come to mind. A few nights ago the HBO comedian Bill Maher closed his show with an hypothesis that “Apple-zon” and “Goldman Google-mart” might someday split the world. This was his amusing but fraught reaction to AT&T taking over the already-consolidated Time-Warner that owns HBO. Funny.

But are we looking ahead to another massive anti-trust environment? After an ineffective effort to eliminate “Too big to fail” in banking I wouldn’t think so. Deeply entrenched political divides in Congress make bi-partisan efforts as rare as a thriving local retailer. But the Jackson Hole conference at least shows that there’s thought and a growing unease with powerful concentrations. There are signals that the train’s out of the station when it comes to the companies behind Maher’s joking multi-national companies of the future.

One question I’m asking more often of my clients in strategy sessions is “how do you stack up versus Amazon (or Google) if they decide to get into your business.” It isn’t just banks and credit unions that I ask. A massive US concrete manufacturer brought Amazon up to me last year. Universities are discussing Google. Regional planning consortia look at the power of Amazon’s “HQ2” search. Berkshire Hathaway subsidiaries are carefully watching their company’s collaboration with Amazon and JP Morgan on healthcare. Food producers and processors in the system are watching the Amazon acquisition of Whole Foods carefully.

Have you asked the same?

Photo by Bill Oxford on Unsplash
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