Here's a mystery: What connects the following two stories appearing side by side on the front of the Saturday New York Times Business section (Jan. 26, 2013)? One is a column by James Stewart on legal implications of the lithium-ion battery whose failure has grounded Boeing's 787 Dreamliners. The other story reports how a subsidiary of Johnson & Johnson, DePuy Orthopaedics, concealed critical data on a design flaw in a metal hip implant.
The battery was manufactured by the Japanese government-subsidized GS Yuasa. Question: was there an illegal quid pro quo between Boeing and the also-subsidized Japan Airlines to buy the first run of Dreamliners in exchange for the battery contract? The deal raises another question too: how come Boeing sole-sourced the battery to GS Yuasa, instead of also contracting with better-known suppliers? And finally, given the long-known propensity of lithium-ion batteries to catch fire, how come the critical battery wasn't more thoroughly tested?
As for DePuy Orthopaedics, acquired by Johnson & Johnson in 1998, it knowingly continued to sell the defective implant for years. By the time the implant was finally recalled in 2010, some 93,000 patients were at risk of crippling failures. Two years later, Johnson & Johnson is still defending the indefensible.
I first learned the connection between these stories not from the economics literature, but from a journalist, Barry C. Lynn. In two books, End of the Line (2006), and Cornered: the New Monopoly Capitalism and the Economics of Destruction (2010), and many journal articles, Lynn documents the recent rapid transformation of global corporations from integrated manufacturers to monopolistic distributors. As distributors, giant lead firms like Boeing and Johnson & Johnson either acquire subsidiaries to do their manufacturing, or better yet, contract out the work. Often rival firms depend on the same suppliers. As in the case of Boeing's Dreamliner, they even contract out the design. This delegation of work increases short-term profits both by saving costs and by allowing the lead firms to focus on market control. But it results in a lack of supervision and eventual disasters like the battery and hip implant.
The "new monopoly capitalists" don't just fail to supervise. They adopt a deliberate business strategy of "rationalization": simplifying product lines by eliminating variety, cutting R&D, and suppressing research by buying up patents and freezing them. As Matt Stoller recently reported, "Lazy Corporate Monopolies Are Why America Can't Have Nice Things."
The new monopolists squeeze suppliers and play off governments against each other to obtain tax and regulatory concessions. Josh Eidelson at the Nation reports that before the disastrous garment factory fire in Bangladesh, Walmart apparently forced its suppliers to cut corners on safety. The New York Times ran a recent series on how Amazon and others manipulate local governments in the U.S. Reuters reports "Japan eased safety standards ahead of Boeing 787 rollout."
Of course the new monopolists also do what the old ones did: raise prices in captive markets. In his new book, The Fine Print, David Cay Johnston reports how AT&T has sneakily raised prices over the years by adding little "fees" to our phone bills.
Today, giant international monopolists dominate every corner of commerce: Boeing and Lockheed in aviation, or JBS Swift and Cargill in meatpacking, or Johnson & Johnson and Beckton-Dickinson in medical supplies, or Exxon-Mobil and BP in oil, or Deutsche Bank, Barclays and JP Morgan in banking. All by itself there's the Italian firm Luxottica, which controls the entire world eyeglass business from manufacturing to retail outlets.
I call Barry Lynn "prophetic" because in his 2006 book, End of the Line, he predicted that the rationalizing and contracting out strategies of the giant monopolists would lead inevitably to collapses of key industries, and greater and greater dependence on government support. His prediction came true with the 2008 collapse and bailout of the banking industry. (See Matt Taibbi's "Secrets and Lies of the Bailout.") In the pharmaceutical industry we're already seeing periodic shortages of key vaccines and medications, as squeezed suppliers go out of business. The lithium-ion battery and hip implant stories bode ill for the aerospace and medical supply industries. Who's next?