How National Monopolies Drain Rural Economies

Dilapidated buildings along Main Street in Pamplin City, Prince Edward County. Photo credit: OnlyInYourState.com.

Virginia’s rural communities suffer from huge disadvantages when competing for job-creating corporate investment. Low density makes it expensive to install high-bandwidth Internet service. The small size of rural communities makes it difficult to support the amenities that skilled, educated workers are looking for. And, most important, corporations prefer locating in metropolitan areas with “deep” labor markets where they can tap employees with specialized skills.

Perhaps we can add one more disadvantage to the list: a national economy increasingly dominated by monopolies and cartels. So suggests Lillian Salerno, a former Texan who served as deputy under secretary for rural development in the Obama administration.

“For decades,” she writes in a Washington Post op-ed, rural America has been punished by bad policy that places too much power in the hands of distant financiers and middlemen through the formation of monopolies, which undermines small, local businesses and drains communities of resources.”

New business formation has plunged since the Great Recession, and nowhere more dramatically than in counties with fewer than 100,000 people. Why? Because, Salerno says, the federal government stopped enforcing monopoly laws.

This slow-rolling wave of corporate mergers has left almost all major markets — airlines, telecommunications, health care, retail, milk, seeds for growing crops, hardware, even cowboy boots — dominated by a cluster of mega-corporations, cloaked behind a plethora of brand names. These behemoths now hold unprecedented power over thousands of once-thriving community economies.

Corporate concentration has hit farmers, ranchers and agricultural workers especially hard, she writes. Many markets are monopolized by a single company that dictates the terms of business to suppliers. The seed industry has dwindled from 600 independent companies two decades ago to six today. Similar levels of concentration exist in the pork, chicken and dairy industries.

I don’t know if Salerno is right or not — I would like to see more specifics — but her argument is worth close examination. If her theory holds up, it is discouraging indeed for rural economies, for a decades-long drift toward a cartel-dominated economy is not easily reversed. If it’s any consolation, monopolies are not good for most metropolitan economies either.

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20 responses to “How National Monopolies Drain Rural Economies

  1. The telecommunications argument is largely bogus. While big companies, e.g., AT&T, Verizon, CenturyLink, Frontier, Time Warner, Comcast, do serve many small towns and rural markets (often poorly), the overwhelming majority of rural America’s farms, ranches, small towns and empty spaces are served by rural telephone companies, many of which operate a cable TV company. With very few exceptions, these small companies make major investments to deliver high-quality service to their customers. But even they have to deal with economics.

    And today (4-20) the FCC removed a stupid rule that discouraged broadband investment in the highest cost locations.

  2. The bigger picture is, yes, several influential economists have decided maybe we need to work proactively on creating jobs for America, rather than passively let slow growth and globalization kill us. “If you don’t use it, you may lose it, forever” new mentality re: jobs. That is more or less where Trump is headed, and also probably where Hillary would have also been headed.

    How that concept trickles down to telecom, monopoly laws, I have no idea. But if there is a consensus view that the policy is killing jobs, I believe it will may get some attention.

  3. cable TV is not a problem in rural areas – Direct TV and DISH are doing quite well in that regard… I’ve seen one or the other literally out in the middle of nowhere – where there was not even electricity nor landlines

    but internet and specifically broadband (high speed) is a a whole different deal.

    but the whole tenor of this article is odd coming from a guy (Jim Bacon) who purports to be a free-market proponent and this is the way the free market works. … in general.. unless one actually wants the government to be picking
    winners and losers.

    competitors will combine so they can outcompete others.. and if they drive the others out – so be it but what is going on now, I think is not the same as the kind of corporate concentration that occurred in prior generations when the govt created anti-trust laws.

    we have a plethora of brands and good prices… from online and delivery in days.. !!! And we have the Walmarts, the Dollar Generals, the Lowes and Home Depots as well as a good assortment of Grocery…

    but the local mom/pops are all but gone… and were never really competitive… they only existed because there were no other alternatives, truth be known.

    but GEEZE.. Jim Bacon is the last person on earth I thought would be ruminating about “monopolies”…

  4. Jim Bacon is the last person on earth I thought would be ruminating about “monopolies.”

    That’s because you haven’t been paying attention, Larry. I frequently inveigh against cartels, monopolies, laws, and regulations that restrict business competition. Government-enabled monopolies are the antithesis of free markets.

    • Corporate concentration has hit farmers, ranchers and agricultural workers especially hard, she writes. . . . If it’s any consolation, monopolies are not good for most metropolitan economies either.

      There’s an understatement! The very premise of our market-based system is that the consumer has a choice among competing sellers. Competition! And the most important function of government in any market is to keep it competitive — strike down barriers to entry; keep transactions transparent; prevent collusion to fix either the supply or prices.

      I can’t see what this has to do with rural America in particular, other than, the rural economy is more isolated, more localized, more fragile. And we certainly shouldn’t blame business corporations for seeking to out-compete their competitors, including by achieving efficiencies of scale in manufacturing, distribution and advertising, and by using their own larger size to negotiate greater savings with their suppliers. This is the America of Walmart! We have two federal agencies that are supposed to be watchdogs for the public interest in reviewing (preventing if necessary) too much concentration in any one field of business, the Department of Justice (antitrust division), and the Federal Trade Commission. Not incidentally Ms Salerno is an opposition party candidate for a seat on the FTC.

      But what you also point out is the problem for local suppliers to break into efficient, dominant supply networks of all kinds. Ask anyone who’s tried to sell a locally-produced food or drink item to one of the big supermarket chains with their shelf-space allocation rules. Yes, these can be barriers to entry and yet, they are also part of an efficient system that keeps prices low overall.

      That’s why we have regulators, to sort these complex tradeoffs. I’m concerned, but not prepared to agree with Ms Salerno, that the regulatory aspect of all this anti-trust activity is broken.

  5. ” Why? Because, Salerno says, the federal government stopped enforcing monopoly laws.”

    so – Jim Bacon FAVORS the govt intervening in the marketplace when one company outcompetes the others?

    that’s not really what is going on right now anyhow.. is it?

    Online retailing and automation is really what is killin the rural communities but virtually every one that I’ve ever been to – and I see a LOT OF THEM – has a nearby Walmart, Lowes, and Dollar General… and each of them carries a plethora of brands… It’s not like one company that only sells it’s own products…

    Do you think Walmart is a monopoly?

    How about naming some examples of what you do consider – businesses that operate like monopolies in rural communities?

    I think when you name 6 companies selling seeds – that’s corporate concentration but the competition is still there…

    so maybe the question is – is corporate concentration a modern-day de-facto monopoly in your mind – AND you think the govt needs to intervene ?

    maybe an example is the ATT merger – even though there is Verizon?

    • Larry, I’m just citing Salerno’s op-ed as posing questions worth examining. As I said, “I don’t know if Salerno is right or not — I would like to see more specifics.”

      If government intervention is necessary, it would be to bust up monopolies. But I suspect the pros and cons would be very complex and would have to be judged on an industry-by-industry basis.

    • During the Obama Administration, the FCC and, hence, either the DoJ or the FTC depending on the nature of the transaction, approved the following communications industry mergers or acquisitions. Source is FCC General Counsel website.
      2009 AT&T / Centennial Communications,
      CenturyTel / Embarq
      Harbinger/SkyTerra
      2010 Level 3/Global Crossing
      2011 Cumulus/Citadel
      EchoStar/Hughes
      CenturyLink/Qwest
      Comcast / NBC Universal
      XM/Sirius
      2012 Gannett-Belo
      2013 AT&T/Atlantic Tele-Network
      GCI-ACS
      SoftBank/Sprint/Clearwire
      T-Mobile/MetroPCS
      Sinclair Television-Allbritton Communications
      2014 AT&T/Leap Wireless
      AT&T-DirecTV
      2015 Charter/Time Warner Cable/Brighthouse
      2015 Altice – Cablevision

    • During the Obama Administration the FCC and either the FTC or DoJ (depending on the nature of the transaction) approved the following communications industry mergers. Source Office of General Counsel – FCC.

      2009 AT&T / Centennial Communications,
      CenturyTel / Embarq
      Harbinger/SkyTerra
      2010 Level 3/Global Crossing
      2011 Cumulus/Citadel
      EchoStar/Hughes
      CenturyLink/Qwest
      Comcast / NBC Universal
      XM/Sirius
      2012 Gannett-Belo
      2013 AT&T/Atlantic Tele-Network
      GCI-ACS
      SoftBank/Sprint/Clearwire
      T-Mobile/MetroPCS
      Sinclair Television-Allbritton Communications
      2014 AT&T/Leap Wireless
      AT&T-DirecTV
      2015 Charter/Time Warner Cable/Brighthouse
      2016 Altice – Cablevision

      I excluded all transactions that included sales of telephone exchanges and transfers of radio licenses that when the surviving companies were still separate.

      I wonder what Ms. Salerno thinks of those transactions.

  6. Perhaps the bigger issue for rural communities is –

    what can people do to earn a living in a rural community
    in the current global economy?

    There is some discussion that there is “something” the govt can do
    to bring jobs to the rural communities.

    to me that’s the 600lb gorilla and no I do not believe Mr. Trump.

    when we travel through these rural towns now days – there is no work other than local schools, law enforcement , grab and go gas.. Dollar General, some local eateries… and not a whole heck of a lot more…

  7. Interesting.

    However, if I were Governor (ha ha), I think that I’d simply face the reality about rural areas and small towns…they’re never “coming back” in any meaningful way. There are a variety of reasons for this, and this article is probably correct in pinpointing one.

    Instead, I’d look at 4 specific areas: Roanoke, Lynchburg, Charlottesville, and Harrisonburg. If we’re going to rebuild rural Virginia, then we need to provide it with meaningful hubs. I’d direct more transportation, economic development, and community development state dollars to those 4 cities and work at making them viable metros in the 21st century. You will never get anywhere as long as the state spreads its dollars so thin. Start with those four, and then work your way out.

  8. The economy has fundamentally changed and the question is – what kind of work is available to people in these places – to make a living – especially if all they have in the way of an education is high school and they don’t want more..they just want a job?

    Charlottesville is very healthy economically with UVA Medical and an array of companies allied with UVA on things like health care informatics. Blacksburg has Virginia Tech which is Virginia’s land grant University and is involved in transportation and energy… smart roads, smart cars.. etc.

    These two are linked in to the technologies driving the 21st century.

    The other two Lynchburg and Harrisonburg both have good road and rail and communication access but not much in the way of their colleges working beyond basic education and with businesses to develop technologies that are needed in the 21st century.

    People with insufficient education are going to have a harder and harder time making a decent living – no matter where they live but the combination of not enough education and living in an area that has lost 20th century industry is deadly – and adversely affects the rest of Virginia and the Country who will end up paying for entitlements.

    This is a problem as big or bigger than the education and societal problems of inner cities.

    companies will locate in cities with well-educated labor pools even if their are pockets of poverty but those companies will not locate in rural locales no matter how good their infrastructure is – if the labor pool is not well educated and does not want to be – as illustrated in prior blog posts here about Martinsville where there ARE advanced manufacturing factory jobs but people will not get the training needed to perform that work and seemingly prefer to rely on entitlements – not unlike some of our inner cities.

    The meaning of “work” is changing – and to this point – a good part of the US is not up to the change… especially our rural areas.

  9. We most certainly are in an age of corporate consolidation. In the food industry about 70-85% of each segment: beef, pork, poultry, grains, seeds, chemicals,etc., is controlled by 3-4 companies. This has driven the small farmer out of business and concentrated production of food-like substances into the hands of agribusiness rather than having real food produced by real people.

    We hear much talk about “free markets” in America, but they don’t exist. We have managed or regulated markets whose rules are increasingly manipulated to favor a few and erect barriers to entry to protect the incumbents. Consumers pay with lower quality and often higher prices. Food prices are an exception. Prices have gone down but have been more than offset by increases in health care resulting from the poor nutritional value of the food.

    Our desire to build our economy around these rapacious large companies is what concerned me regarding the article about the new Virginia development coordinator. Continuing to be governed by the desires of Wall Street will only further erode our “Main Street” communities. They are indeed dying, but they only need to be reinvented. Change happens at the margins. Electric vehicles are a case in point. The innovation is coming from tech companies: Tesla, Google, Apple, BYD, etc. not the mainstream automotive manufacturers.

    The idea of a hub of services is a good idea. Except the current structure of our universities needs to be revised or replaced. They are putting out obedient workers for the current multi-national workforce, lured by the promise of a big paycheck.

    Our abandoned rural areas will be the new “edge ecosystem” where small to medium-scale production of food, products and services will begin to thrive based on intimate connections with their customers, flexibility, customization and rapid innovation. Areas with excellent services, affordable, family friendly communities, and access to moderates amounts of capital will take off first. This can occur in urban areas too. Eventually, the current multi-national supertankers will prove too cumbersome to respond and will succumb to the pace of accelerating change.

    Smaller regions will chafe at the increasing manipulation of nation-state policies by multi-national corporations (TPP, NAFTA, owned politicians and paid for legislation) and will begin to splinter away from the larger aggregations (Brexit, other EU defections, Scotland, etc.).

    We would be best served if we turned our attention to building successful responses to the new situations instead of spending so much time and resources trying to patch up the failing old systems with the same old unsuccessful solutions. The transition might be rocky, but it will be well worth it.

  10. re: ”
    Our abandoned rural areas will be the new “edge ecosystem” where small to medium-scale production of food, products and services will begin to thrive based on intimate connections with their customers, flexibility, customization and rapid innovation. Areas with excellent services, affordable, family friendly communities, and access to moderates amounts of capital will take off first. This can occur in urban areas too. Eventually, the current multi-national supertankers will prove too cumbersome to respond and will succumb to the pace of accelerating change.”

    maybe.. people inherently seek value – more for their money – so while I understand “better quality”… sometimes I wonder if the premium for that better quality is worth it to enough others for it to survive.

    Eggs are a good example.. You can find eggs in Walmart anywhere from 50 cents a dozen to over 5 dollars a dozen… and in a local organic store near me..even higher than that.

    but typically those who buy the higher priced stuff are folks who are wealthier than many others…

    It’s not clear cut (at least to me) what “better” actually is for some things..like eggs.. but many other agricultural products …

    you might be interested in this:

    ” Here’s what’s behind the US-Canada dairy spat that has Chuck Schumer agreeing with Trump”

    http://www.businessinsider.com/heres-whats-behind-the-us-canada-dairy-battle-that-trump-waded-into-2017-4

    in a nutshell: ” global milk overproduction, not Canadian policies, are the problem.

    “Dairy farmers globally, and not just in the US, are facing many challenges,” he wrote to Cuomo and Walker. “In particular, both Canadian and American farmers have been dealing with international pressures of low world prices, and a surplus of skim milk solids.”

    that’s just plain old productivity – and how it has a bad aspect to it! the loss of jobs!

  11. The harsh reality is that as each industry achieves greater levels of productivity that translates to per worker productivity – they need less workers.

    That aspect has little to do with globalization per se .. it can be automation and robots to domestic industries.

    In a globalization environment – if other countries become more productive than us – we have to maintain a competitive ability or our own industry will lose out not only to imports but our ability to export will also be affected.

    We are evading reality when we blame globalization and cheap overseas labor for our problems.

    We can shut out trade with other countries and/or levy import taxes but when we do that – we ultimately harm our own economy and it’s workforce.

    Our advantage to this point has always been that because we are more productive – we can outcompete those that would import and we can outcompete foreign competitors even on their own turf by exporting to those countries.

    We can pull back – but it won’t help us in the longer run.

    we really have no choice but to compete … and to do that – we have to have a world-class education system that produces workers who are as qualified or more so than foreign workers.

    Fighting to keep low-wage, low-skilled jobs.. is a further act of desperation that will only worsen our economy as the entitlement burden on the folks who do work will increase.

    we’re in a fight for our economic lives – and to this point – we are not up to the task with regard to an educated workforce.

    • Larry,

      You are 100% correct. Anyone with a true sense of the changing global nature of economics and technology is on board with you.

      But in America, we’re going in the opposite direction. Protectionism, education protectionism (look at the idiots on this blog who want more “in-state” kids at U.Va. at the expense of 1500/1600 SAT out-of-state kids), nostalgia, anti-immigrant policies, “charter school” advocates, etc.

      These are yesterday’s men spouting yesterday’s ideas. What’s about to hit this country in ten years will lead to the greatest Democratic victories since 1932. People are going to wake up and see high unemployment and eroding economic competitiveness like this country’s never witnessed in its entire history. We have had an economy geared towards the top 10% since 1980. We have completely ignored the other 90%. It works “ok” so long as there is enough makework for the 90%. But there won’t be makework for bottom 30-35% in about a decade. We won’t have made the proper public investments like South Korea or Gemany in education, health, etc. Instead, we will have a bottom 30-35% that will have absolutely no place in the economic order. We are headed for a disaster and electing people like Trump.

      • LGG – if your premise that, going forward, low skill jobs will not be sustainable, why should we continue importing large numbers of unskilled and often uneducated workers through the failure to enforce immigration laws, both at the employer and individual levels? Logic and good public policy would suggest we should take steps to limit and, ultimately, reduce the number of low-skilled and under-educated individuals over time. Yet, we seem to be making things worse by acting as a safety valve for other nations to avoid reforms in order to satisfy employers who want to low-ball wages; keep jobs available for the “professional caring class”; and provide future voters for the welfare state Party.

        If we need to make major changes/improvements to our education system that may well take additional tax dollars, why should we continue importing large numbers of poor children with major language and other barriers? We need to provide an education to all kids, but we don’t need to adopt immigration policies that encourage more of them. Immigration policies have brought the United States a large number of highly educated, productive and creative immigrants. But they have brought us many more poor, unskilled and often under- or uneducated people who have needs much greater than the tax revenues they produce. Fairfax County Public Schools have more poor children receiving free and reduced-price lunches than most Virginia public schools have children.

        Finally, given that the U.S. spends one of the highest sums on average to educate children K-12, despite producing mediocre results, where should we cut current spending to transfer funds to higher teacher pay and other reforms? Or would we be better off, providing vouchers to all so that parents can make education choices that, over time, would force existing educational institutions to identify and make changes on their own?

        Trump won chiefly because a significant number of white voters who had voted for Obama in the 2008 & 2012 election because of their perception he would do more for them than either McCain or Romney became disillusioned with the Democrats, their identity politics or, especially, the ultimate insider, Hillary Clinton. Assuming, arguendo, the Democratic Party continues in the same direction and more and more people find themselves losing ground economically, doesn’t this mean more people will turn to populism both of the Sanders and Trump styles? Sooner or later, people stop looking at their foreign roots, sources of DNA and the like and pay more attention to their economic well being. IMO, economics and hope for the future will outweigh identity politics.

  12. Recent studies (Cultural Diversity, Geographical Isolation and the origin of the Wealth of Nations, by Oded Gaylor, Brown University) show that geographical openness, cultural diversity and tolerance are not by-products but key drivers of economic progress.

    That lesson should be heeded by those who want to go back to the past in our rural and urban areas and the homogeneous monopolies.

    It should also be heeded by many in the Muslim world who want to return to the “pure”days of Islam when it was unsullied by foreign influences. Between the 8th-13th centuries the Arab-Muslim world was perhaps one of the world’s greatest polycultures centered in Spain and North Africa. This world introduced Europe to the concept of zero, the trebuchet which ended the era of knights and castles, and advances in astronomy and calendars.

    In this age of accelerating changes, we must be open to new ideas and new ways of doing things from a variety of sources. Those who bury their head in the sand seeking the “good old days” will be left behind.

  13. re: ”
    LGG – if your premise that, going forward, low skill jobs will not be sustainable, why should we continue importing large numbers of unskilled and often uneducated workers through the failure to enforce immigration laws, both at the employer and individual levels? ”

    because these are jobs that Americans will not work and if they did they’d have to live in shared homes…

    “Logic and good public policy would suggest we should take steps to limit and, ultimately, reduce the number of low-skilled and under-educated individuals over time.”

    Yet, we seem to be making things worse by acting as a safety valve for other nations to avoid reforms in order to satisfy employers who want to low-ball wages; keep jobs available for the “professional caring class”; and provide future voters for the welfare state Party.

    I’m all for e-verify and that employers who hire people who are not citizens be fined and jailed.

    but don’t be surprised when farmers start complaining that their crops are rotting in the fields…produce triples in price and roofs start costing 50K and up and motel rooms cost an arm and a leg.. nursing homes … etc.. These are jobs right now – that Americans won’t take.

    “If we need to make major changes/improvements to our education system that may well take additional tax dollars, why should we continue importing large numbers of poor children with major language and other barriers? We need to provide an education to all kids, but we don’t need to adopt immigration policies that encourage more of them.”

    TMT – you’re cutting off your nose to spite your face here.

    refusing to educate our own folks .. because undocumented also get education is dumb and counterproductive.

    we’re not talking about basic literacy here.. we’re talking about K-12 PLUS some level of Community College – occupational certificates which will not be available to undocumented folks who will be relegated to the lowest skill – lowest wage jobs.

    ” Immigration policies have brought the United States a large number of highly educated, productive and creative immigrants. But they have brought us many more poor, unskilled and often under- or uneducated people who have needs much greater than the tax revenues they produce. Fairfax County Public Schools have more poor children receiving free and reduced-price lunches than most Virginia public schools have children.”

    yes but are 50-70% of Fairfax kids on reduced lunch – like many rural counties are in Virginia?

    “Finally, given that the U.S. spends one of the highest sums on average to educate children K-12, despite producing mediocre results, where should we cut current spending to transfer funds to higher teacher pay and other reforms? Or would we be better off, providing vouchers to all so that parents can make education choices that, over time, would force existing educational institutions to identify and make changes on their own?”

    I’m all for any and all competitors to public education as long as they are also measured and also have to perform at least to the same levels of public schools and BETTER.

    But you have to ask yourself – what do a lot of schools in Va spent local money on – that is over and above the require SOQ match? It’s that area of money spending that needs to be looked at because that’s the money that we spend on stuff that Europe and Asia do not..- sports, extracurricular, resume-enhancing courses for the college-bound – but not more rigorous math and science.

    “Trump won chiefly because a significant number of white voters who had voted for Obama in the 2008 & 2012 election because of their perception he would do more for them than either McCain or Romney became disillusioned with the Democrats, their identity politics or, especially, the ultimate insider, Hillary Clinton. Assuming, arguendo, the Democratic Party continues in the same direction and more and more people find themselves losing ground economically, doesn’t this mean more people will turn to populism both of the Sanders and Trump styles? Sooner or later, people stop looking at their foreign roots, sources of DNA and the like and pay more attention to their economic well being. IMO, economics and hope for the future will outweigh identity politics.”

    TMT – that last paragraph is Grade A Partisan Blather – and you know it!

    Just look at where Trump and the GOP are headed… do you REALLY THINK they’re going to improve things? The man is all mouth and not a whole heck of a lot more…

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