Matt writes that Carter-era deregulation has reduced the substantial mid-century market power of the large breweries which in turn means there’s less surplus to be shared with unionized workers. Turns out that when examining the numbers this isn’t right, and looking at this closer will points out three interesting developments that have happened in the real economy during the past thirty years, developments we should examine more often here.
After posting this graph:
And as Loomis notes, one consequence of the cartelization of the American beer brewing industry was to generate monopoly profits for the large breweries. This was good not just for “Miller executives” but for all the stakeholders in the enterprise. When a unionized firm is in a non-competitive marketplace, the union is in a strong position to force the firm to share some of the monopoly rents with the workforce. When the market becomes more competitive, not only does the unionized firm lose market share but the union in general loses leverage…In a highly competitive market, there’s not much surplus for unions to get a share of.
Should we assume this increase in brewers has threatened marketshare? If me and 1500 of my closest friends hung signs that said “Investment Bank” on our doors I highly doubt Goldman Sachs would be worried. We’d have to assume that at least a few of these new breweries run as at a loss as a hobby, or don’t even survive the start-up period.
To get numbers for changes in market concentration, let’s look at the 1994 paper Economics of Brewing, Theory and Practice: Concentration and Technological Change in the USA, UK, and West Germany since 1945 by Terence R. Gourvish of the London School of Economics. Specifically this graph:
Market share jumps from 75% for the top five firms in 1980 to 92% in 1990, a dramatic 22% increase in a decade that’s on trend with previous increases. To bring us to now, here’s the estimate I found from Carbaugh’s Contemporary Economics which shows this is still in play in 2002:
Here the top four firms have a 91% share, changing from top five a decade earlier. The only more concentrated manufacturing industry than breweries is cigarettes – which is the definition of an industry with returns-to-scale production and inelastic (addictive, even) consumer demand. The sense from estimates I’m seeing is that the entire craft brewery movement accounts for about 4% of the market.
So the interesting question isn’t why the mid-century period of breweries were so heavily concentrated but why they were so lightly concentrated. I think there are three interesting things to examine in the post-1980s economy that might help explain this.
The first is the abandonment of monopoly and trust law. The LSE report notes the late 1970s not for entry deregulation but for a change in the way the government approaches mergers: “In the USA [for concentration increase of the 1960s-70s], the process was clearly more a case of internal growth than merger and acquisition, the latter being actively discouraged by antitrust regulation until a belated relaxation in the late 1970s.” This was replaced in the neoliberal age with a distrust in the action of the government to put limits on scale and size of anticompetitive industries alongside a larger belief in the ability of potential competition to keep oligarchical firms in check.
The second would be a corporate strategy, following Jack Welch at GE, to emphasize getting most industries down to 2-3 major players. This combines with a Wall Street and financial industry that was more aggressive in going after firms in takeovers to bring this into reality. The growth line from the LSE report is key here – the more oligarchical rather than monopolistic firms of the mid-century period sought to grow internally through earnings rather than debt-driven consolidation and financial engineering techniques.
The third and last thing would be the ways new monopolies share the surplus among each other in ways that create barriers-to-entry. The biggest problem for any of these large number of new craft brewers would be finding the ability to sell their product. They have the means to create new beers but how does that help them get it into Wal-mart or large grocery chains?
As Barry Lynn argued when he made the case for referring to Wal-mart as a monopsony power in Harper’s (his book Cornered is excellent on this as well), the consolidation of markets – the actual physical places people buy and sell goods, from grocers to Wal-mart – has created the ability of the owners of those markets to squeeze producers. In that article – an excellent one if you haven’t encountered it before – Lynn walks through how Wal-mart is able to dictate “how [firms with products at Wal-mart package their products, how they ship those products, and how they gather and process information on the movement of those products.” A hard rationalization of major production alongside the efficiency standards of a single entity.
One fun example of this power is slotting fees - a cousin of our old friend the interchange fee – which is “is a fee charged to produce companies or manufacturers by supermarket distributors (retailers) in order to have their product placed on their shelves.” Firms must use upfront cash to bid on the ability to buy out supermarket shelf space – how would a small vendor compete?
As always, follow the surplus. Who wins under this regime? The marketplace vendors obviously, as they get to capture some of the surplus of these consolidated firms. Consumers get some of that as well, however much of these fees are passed right along, so on net that positive is blunted. Large firms get beaten up at first, but on the other hand these slotting fees and rationalization run as a private-market barrier to entry that protects them from competition from all these brand new brewers and small firms. The real losers are small vendors, who are priced out.
You might notice that the deregulation of the late 1970s was about removing government imposed barriers-to-entries for new firms. But what we see here are large firms using standardization and coordination alongside various slotting fee style programs to create private-market barriers-to-entries that exclude smaller vendors. The first version is created by the government and thus an enemy of neoliberals everywhere; the second results from the market and private agents and is passed over in silence because there isn’t any language in the neoliberal lexicon to even discuss it, much less conceptualize it as a political problem.
I find it interesting that neoliberalism creates a governmentality where citizenship is redefined along market terms – each person his or her own brewing CEO – at the same time where the largest firms become even bigger and create surplus-sharing rent walls capable of excluding these new citizen-CEOs.