How Much Do Monopolies Control?
Source Louis Proyect
Date 10/09/30/08:37
How Much Do Monopolies Control?

STARING DOWN THE aisle of a Wal-Mart or a Target, it doesn’t seem
that American consumers lack for choice. But Barry Lynn, author of
Cornered: The New Monopoly Capitalism and the Economics of
Destruction, demonstrates that for all the variety at the local
branch of any chain retailer, the products come from the same
handful of giants, monopolies that determine much of what we eat,
drink, wear, and use. Lynn, who visits Zócalo on September 21 to
explain how monopolies have destroyed the American economy,
outlines below the impact of one such company, and why not even
Standard Oil dreamt of such control.

Let’s consider a few of the sales figures that Procter & Gamble
has been able to rack up since its 2005 takeover of Gillette. As a
percentage of the total U.S. market, P&G controls the following:

• More than 75 percent of men’s razors
• About 60 percent of laundry detergent
• Nearly 60 percent of dishwasher detergent
• More than 50 percent of feminine pads
• About 50 percent of toothbrushes
• Nearly 50 percent of batteries
• Nearly 45 percent of paper towels, just through the Bounty brand
• Nearly 40 percent of toothpaste
• Nearly 40 percent of over-the-counter heartburn medicines
• Nearly 40 percent of diapers.
• About 33 percent of shampoo, coffee, and toilet paper9

As striking as some of these numbers are, they tell only part of
the story. That’s because Wal-Mart and a few other giant trading
companies are so powerful that, at least for the time being, they
do not fear further concentration in their supply base. On the
contrary, they routinely force giant suppliers like P&G to form
overt cartels with their direct competitors.

Cornered, by Barry C. LynnIndividual retailers used to draw up
their own merchandising plans, in which they would decide for
themselves — based on their sense of the tastes of their local
community of customers — which brands to promote, how much shelf
space to devote to each, which products to place at eye level, and
so on. These days, Wal-Mart, Target, and other big retailers have
adopted a philosophy of control called category management. Under
this system, these retailers name a single supplier to serve as a
category captain. This supplier is expected to manage all the
shelving and market-ing decisions for an entire family of
products, such as dental care.

The retailer then requires all the other producers of this class
of products — these days, usually no more than one or two other
firms — to cooperate with the captain. The consciously intended
result of this tight cartelization is a growing specialization of
production and pricing among the few big suppliers who are still
in business. This means that Procter & Gamble’s actual market
share of many specialized items is much higher than the above
numbers suggest.

It’s not that Wal-Mart and category copycats like Target cede all
control over shelving and hence production decisions to these
captains. The trading firms use the process mainly to gain more
insight into the operations of the manufacturers and hence more
leverage over them, their suppliers, and even their other clients.
The goal is not merely to increase the “efficiency” that they
claim derives from eliminating competition. It is also to
understand how these companies produce what they produce and hence
how they engineer their own profits. This knowledge then enables
the traders to capture a larger share of those profits for
themselves. That’s why in recent years, these big firms —
Wal-Mart, especially — have begun to dictate to the producers what
ingredients to put into their own branded products, how to package
them, and how to price them.

Wal-Mart, for instance, has told Coca-Cola what artificial
sweetener to use in a diet soda, it has told Disney what scenes to
cut from a DVD, it has told Levi’s what grade of cotton to use in
its jeans, and it has told lawn mower makers what grade of steel
to buy.

And don’t think that such consolidation within the Wal-Mart system
makes it easier for new small manufacturers and retailers to rise
up and compete. The exact opposite tends to be true. In the
process of work-ing together to manage the production and
distribution of, for example, dental products, P&G, Colgate, and
Wal-Mart tend to find it a very easy task to learn whatever they
need to know about any firms that muddy the clarity of their
semisocialistic vision of top-down industrial monopolism and then
to take steps to isolate and eliminate them.

This helps to explain why Tom’s of Maine, the maker of natural
toothpaste and other personal products, sold out to
Colgate-Palmolive in 2006.

Indeed, since Wal-Mart and its subject producers perfected this
form of control, almost all lines of business in our consumer
economy have been remade according to the principles espoused by
John D. Rockefeller when he was building Standard Oil into an
omnipotent and omniscient power in the world of petroleum. This
technique boils down to presenting the owners of midsized and
smaller companies, like Oakley or Tom’s of Maine, with the
“option” of selling their business to the monopolist in exchange
for a “reasonable” sum determined by the monopolist. In the case
of Standard Oil, this was usually far less than the total capital
originally invested. The alternative for the smaller companies was
then, as it is now, to see their investment crushed to nothing.

This was the message delivered to many of the companies that in
recent decades managed to develop big businesses seemingly outside
the reach of the Procter & Gambles, Krafts, and Gillettes of the
world. Consider the following:

• Ben & Jerry’s, the Vermont ice cream company that reshaped the
industry, was swallowed by Unilever in 2000.
• Cascadian Farm, one of the most successful organic food
companies, sold out to General Mills and was promptly transformed
into what its founder calls a “PR farm.”
• Stonyfield Farm and Brown Cow, organic dairy companies from New
Hampshire and California, respectively, separately sold con-trol
to the French food giant Groupe Danone in February 2003 and were
blended into a single operation.
• Glaceau, the company behind the brightly colored Vitamin Water
and one of the last independent success stories, sold out to
Coca-Cola in 2007.

The practical result is a hierarchy of power in which a few
immense trading companies — in control of and to some degree in
cahoots with a few dominant supply conglomerates — govern almost
all the industrial activities on which we depend, and they back
their efforts with what amounts to police power. This tiny
confederation of private corporate governments determines who wins
and who loses in this country, at least within our consumer economy.

Do you think it’s hard to get your child into Harvard? Try getting
a new product onto the shelf of a big chain of stores in the
United States.

And so, the American consumer — living in a nation of more than
three hundred million people in fifty states, stretching from the
Redwood forests to the Gulf Stream waters, from the Caribbean
tropics to the ice fields of the Arctic, from the bodegas of San
Antonio to the village shops of Maine — is today served by
Standard Beverage Company, Standard Cookie Company, Standard
Potato Chip Company, Standard Personal Care Company, and even
Standard Organic and Alternative Foods Company. Then there’s
Standard Software Company, Standard Personal Computer Company,
Standard Microprocessor Company, Standard Discount Store, Standard
Department Store, Standard Electronics Store, Standard Bedding
Store, Standard Eyeglasses Store, Standard Ticket Service, and
Standard Live Entertainment Company.

The one thing that seems to be missing from this list is Standard
Oil Company. Despite the Clinton administration’s best efforts to
stitch Rockefeller’s octopus back together again — through the
merger of Exxon with Mobil, BP with Amoco, and Chevron with Texaco
— the oil refining industry is still more diversified and
competitive than most other big industries in the United States.

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