Monday, September 14, 2009

How Much of Your Money Goes to Monopolies and Cartels?

In a supposedly competitive free market economy, why does most of our money flow through or to a handful of firms?

Since I've been writing about concentrations of capital and cartels inSurvival+, I asked myself: how much of our household spending flows through and to essentially non-competitive cartels or monoplies? The answer: most of it.

1. Mortgage. Our mortgage was bought by Wells Fargo Bank years ago, but of course we have no idea who "owns" it because WFC might own it or might just service it (collect and distribute the monthly payments), having "packaged" it into a mortgage-backed security which was sold to a Norweigian pension fund (or other buyer of supposedly "safe" investments).

Was your mortgage originated by a locally owned bank which still owns it? If so, yours is a rarity. Most mortgages are guaranteed in some fashion by FHA/VA, Ginnie Mae, Fannie Mae and Freddie Mac--the government-backed cartel (Freddie and Fannie are now officially "owned" by the government) which effectively transfers private risk to the public/taxpayers.

Most mortgages are processed and serviced by a mere handful of big players, so regardless of who owns your mortgage now, the mortgage/banking cartel is more than likely collecting a nice piece of it, and a chunk of the origination fees as well.

2. Utilities. How much choice do you have in providers of electricity and natural gas? Zilch. So your money goes to a monopoly.

3. Telecom/phones/Internet. Your landline (if any), Internet and mobile services are divvied up amongst a handful of major providers. In the case of cable Internet service like ours, we pay a virtual monopoly: Comcast. Given the minor differences in service and costs (despite all the sham "deals" hyped constantly), the service from tweedledum and tweedledee is essentially indistinguishable.

4. Grocery shopping. A handful of corporations dominate the supermarket business, a handful of businesses dominate food distribution, a handful dominate the market for bulk grain and commodities like sugar, and a handful of global food giants manufacture most of the packaged food in the supermarkets.

Unless you shop at small ethnic markets, then virtually all your grocery money goes to a few cartels. And even the small ethnic markets buy from distributors--and the grains are still controlled from seed to flour by a cartel.

5. Restaurants/fast-food. Yes, you might take out from the local eatery or frequent the local bistro, but a huge pecentage of meals-away-from-home are served by a handful of firms. Colonel, meet Ronald.

There may be a "secret competition" to see whose offerings are the likeliest to cause chronic disease, but if so, it's neck and neck.

6. Media/Entertainment. Have you ever read the credits on all those wonderful art films from Europe? Gee, why is Canal+, the French media giant, listed on virtually every one? That "hometown newspaper"? It's owned by a media chain. The media and entertainment industries are dominated by a handful of global corporations, so whatever money you spend on media and entertainment flows to a cartel.

7. Auto and auto loans. I've never bought a new car or had an auto/truck loan, but most buyers go through the dealers for financing, and so a handful of global auto manufacturers also handle the majority of auto financing.

8. Retail/consumer durables and discretionary. Who collects most of your discretionary and "durables" consumer spending? Wal-Mart, Target, Lowes, Home Cheepo, Walgreens, CVS--a handful of firms dominate the retail sector. (OK, the "dollar stores" are picking up steam, so some modest competition still exists in the "under $2" sector.)

9. "Healthcare" a.k.a. sickcare spending. Of course none of your money goes directly to providers, except perhaps dental work and eyecare. The big bucks flow through a handful of HMOs or insurers to a handful of hospital chains, and the vast majority of all those funny little pills you get by the boatload every month are manufactured and marketed by a handful of global pharmaceutical giants.

10. Local municipal education and other services. Property taxes (at over $10,000 a year, these constitute a huge chunk of our household expenses) flow to a monopoly called "local government," and do you get a choice about the schools we're paying for? Does your district offer charter schools and real choice in education? Is the municipal trash service in competition with private providers? (If so, then Waste Management dominates the private trash-service market, so you still up paying a monopoly or cartel).

Other than an occasional meal out at the local ethnic restaurant, how much of your household spending doesn't go through or to a monopoly or cartel?

Is monopoly "efficient"? Maybe, maybe not. But we can bet it's profitable. That is, after all, the entire idea behind monopoly. Is a global cartel "bad"? I have no idea. But we can safely say a cartel is not the paragon of competition. Does highly concentrated capital and control of assets, distribution and supply chains turn into political influence? Garsh, do ya reckon?

And what is the first thing a cartel might ask of its political "friends"? To choke off or limit competition, of course. (And there are so many ways to enable crony capitalism and to snuff out competition: targeted regulations to raise the bar to entry, backroom deals, special amendments to omnibus bills, etc. etc.) So the connection between concentrations of capital and control and diminishing competition are not passive. One feeds the other.

Is the "natural state" of "free market capitalism" monopoly and cartel? If so, then what exactly is competitive or free about it?

It's an interesting exercise to figure out just how little of your own household spending doesn't go to a cartel or monopoly.

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