The next round of media consolidation has arrived. AT&T has bought Time Warner, thanks to a federal judge’s ruling last week. Comcast and Disney are fighting with each other to buy 21st Century Fox. CBS, Verizon and Viacom, among others, may also get involved in a merger. “The floodgates will open,” media analyst Jessica Reif told The Wall Street Journal after the judge’s AT&T ruling.
All of these companies have decided that their best strategy for raising profits involves getting bigger. Larger companies simply have more power – to compete with other giants, to restrain workers’ pay, to influence government policy and, in the long run, to increase prices.
It’s true beyond the media industry, too. Airlines, banks and oil companies have merged in recent decades. So have retailers, hospitals, hotels, manufacturers, drug companies and law firms. The resulting behemoths have then taken advantage of their newfound scale, as well as globalization and digital technology, to grow further.
For everyone else, the consolidation boom hasn’t worked out so well. Since the modern merger era began in the 1980s, corporate profits have surged, while family incomes have stagnated and income inequality has increased. Say this much for the corporate executives who argue that a bigger company can be more profitable: They know what they’re talking about.
In recent months, I’ve spent some time trying to figure out just how much bigger – as a share of the U.S. economy – big business has become. The question has been harder to answer than I expected. The Fortune 500 ranking doesn’t answer the question, for example, because it doesn’t distinguish between domestic and foreign revenue. And while some good academic work has analyzed consolidation within industries, I haven’t been able to find an economy-wide measure.
So I set out to create one, with help from an obscure Census Bureau data set known as Business Dynamics Statistics. It shows how many American workers are employed by different-size companies, now and in the past.
The changes over the past quarter-century are pretty remarkable.
In the late 1980s, small companies were still a lot bigger, combined, than big companies. In 1989, firms with fewer than 50 workers employed about one-third of American workers – accounting for millions more jobs than companies with at least 10,000 employees.
Since then, though, many small businesses have struggled to keep up with the new corporate giants and with foreign competition. You can probably see a version of the story in your community. The hardware store has given way to Home Depot. The local hospital and bank are owned by a chain. The supermarket is Whole Foods, which is now owned by Amazon. The family-owned manufacturer may simply be out of business.
The share of Americans working for small companies fell to 27.4 percent in 2014, the most recent year for which data exists, down from 32.4 in 1989. And big companies have grown by almost an identical amount. Today, companies with at least 10,000 workers employ more people than companies with fewer than 50 workers.
Big companies, to be fair, have their virtues. They can create jobs, take on ambitious projects and compete around the world. But the balance in the modern U.S. economy is off. Large companies today are often taking advantage of workers, consumers, taxpayers and small businesses.
“This has been a blind spot for the last 20, 30 years,” Ro Khanna, a Democratic member of Congress who represents Silicon Valley, told me. “One of the things that people are rebelling against in this country is large, growing institutions. People feel that individuals don’t control their destiny.”
He’s right. The situation will get worse before it gets better, partly because of the AT&T ruling. But corporate consolidation is a problem that’s within our power to fix. A government that wanted to reduce the power of big business – through a combination of new laws, better regulation and different judicial appointments – could do so. Here’s hoping we get such a government sometime soon.