Commerce

Better a Crook than a WASP: The Left Ditches Progressivism

June 25, 2014


If you”€™d asked me at the peak of public cynicism about giant oil companies”€”say, 1975″€”if within a quarter of a century a Democratic administration would allow Exxon and Mobil to merge into ExxonMobil, I”€™d have assumed you were nuts.

After all, Exxon (formerly the Standard Oil Company of New Jersey) and Mobil (the Standard Oil Company of New York) were the two biggest descendants of the 1911 Supreme Court decision enforcing the Taft Administration’s pioneering antitrust lawsuit against John D. Rockefeller’s Standard Oil monopoly.

If even Republican President William Howard Taft had thought Standard Oil was too dominant, how could a Democratic president agree to its reuniting? Yet Bill Clinton’s FTC voted unanimously in 1999 to allow the formation of ExxonMobil.

One of the less heralded developments of recent decades has been the decline of appreciation on the left for the progressive reformers of the first decades of the 20th century and their battles with the robber barons.

When I was young, the history books, which were largely written by those progressives”€™ protégés, were filled with their praise. Today, however, progressive victories against inequality, such as anti-monopoly enforcement and immigration restriction, are ignored or denounced. Perhaps those old progressives seem too WASP for contemporary tastes. That the most effective opponents of crony capitalism tended to be the distant cousins of the capitalists themselves subverts the dominant narrative that the United States must have been fated to white bread ruin without massive injections of more vibrant immigrant ethnicities.

Moreover, the progressive reforms of a century ago were too pragmatic for subsequent intellectual tastes, which prize grandiose theorizing about how capitalism will save us through “€œdisruptive innovation,”€ or how we”€™re doomed by capitalism’s fatal flaws that can only be remedied by turning the power to tax (and, presumably, the accompanying power to use the threat of organized violence to demand taxes) over to a global superstate, as French economist Thomas Piketty demands in Capital in the Twenty-First Century.

Harvard historian Jill Lepore set off a furor last week by writing a New Yorker article making fun of Harvard Business School professor Clayton M. Christensen’s buzzword “€œdisruption,”€ that talismanic term so beloved by the Forbes 400. Christensen, whose website informs us he’s “€œthe architect of and the world’s foremost authority on disruptive innovation,”€ has responded with Donald Sterling-quality umbrage:

I hope you can understand why I am mad that a woman of her stature could perform such a criminal act of dishonesty”€”at Harvard, of all places.

Lepore, unfortunately, doesn”€™t quite grasp the key fact about technological “€œdisruption”€: It only pays off if it helps you grab some degree of monopoly power.

This is ironic because Lepore begins her article by mentioning that she once worked for the previous high guru of business strategy, HBS professor Michael E. Porter, whose books on competitive advantage were eye-opening to a naïve economics major like myself when I was studying for my MBA. Your undergrad Econ 101 professor explains how a wheat farmer is a “€œperfect competitor,”€ which sounds pretty cool. When you get to B-school, however, your business strategy professor points out that you do not want to be a wheat farmer. Perfect competition is no fun at all. As Porter wrote in 1979:

The essence of strategy formulation is coping with competition. … In the economists”€™ “€œperfectly competitive”€ industry, jockeying for position is unbridled and entry to the industry is very easy. This kind of industry structure, of course, offers the worst prospect for long-run profitability. … The corporate strategist’s goal is to find a position in the industry where his or her company can best defend itself against these [competitive] forces …

For example, for most of 1982-2000, I worked for a start-up firm that disrupted the heck out of market research for the consumer packaged goods industry by introducing supermarket checkout scanner data into a business that had previously relied for data collection upon pencils and clipboards. Yet, even though my company transformed market research into an early outpost of now-fashionable Big Data, it recurrently disappointed investors.

Why? Because the Reagan Administration vetoed on antitrust grounds the firm’s logical endgame”€”a merger with the more deep-pocketed of its two established rivals. In the subsequent turmoil, we drove the weaker of the two out of business. But the industry still proved “€œonly big enough for 1.5 firms.”€ Both survivors constantly cut prices during the ensuing multi-decade price war.

The disastrous surprise was that our huge advance in accuracy of market-share data ruined the profitability of what had previously been a cozy duopoly. Ironically, the sheer wooziness of the two incumbents”€™ incompatible methodologies had made clients”€™ market research departments reluctant to switch data suppliers in search of lower prices. Why? Because some of their brands”€™ market shares would suddenly appear to go up and some would go down. This would lead to embarrassing questions from their bosses about the trustworthiness of the data. So, it was best to keep paying high prices for numbers stylized in a consistent way.

In contrast, by providing clients with scanner data from 2,700 supermarkets, we gave them science rather than art. Unfortunately, the truth turned out to be a commodity, like wheat. Because both surviving competitors delivered virtually identical results, clients were liberated to switch suppliers if prices weren”€™t lowered.

That kind of too-perfect competition is increasingly rare as antitrust enforcement, and the culture it inculcates, declines.

The left has lost most of its former interest in anti-cartel activism. For example, Piketty, the paladin of the 21st century left, mentions the word “€œmonopoly”€ only twice in his 685-page Capital in the Twenty-First Century. And one of those appearances is on a page that’s devoted to sniping at criticism of Mexican monopolist Carlos Slim.

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