Daniel Crane (guest article): Democracy and Monopoly in Governments, Markets, and Firms

Dear readers,

As previously announced, I am incredibly happy and honored to publish guest articles authored by some of the world’s most renowned antitrust scholars every month of the year 2020. The one for February has been written by Daniel A. Crane, Frederick Paul Furth Sr. Professor of Law at the University of Michigan, and it explores the topic of “Democracy and Monopoly in Governments, Markets, and Firms.” I am confident that you will enjoy reading it as much as I did. It opens up new perspectives. Dan, thank you very much!

All the best, Thibault Schrepel


Democracy and Monopoly in Governments, Markets, and Firms

My ongoing research on democracy and monopoly has me thinking about the relationship between concentrated economic power across organizational boundaries, particularly governments, markets, and firms. This thought started as I researched the relationship between highly concentrated economic power (through cartels and monopolies) in Weimar and Nazi Germany and the rise of the Third Reich (see my forthcoming article Fascism and Monopoly). I was looking for, and found, abundant evidence that highly concentrated economic power facilitated the extreme concentration of political power in the Nazi Party and the person of Adolf Hitler. But what I also found, at first tangentially and then because I began to look for it, was evidence that, as power consolidated dramatically in government and markets, it also consolidated dramatically within the boundaries of the firm. Two examples:

First, the IG Farben chemical conglomerate formed as a tight cartel between the major German chemical companies in the early twentieth century and then, in 1925, merged into a single corporate firm. However, for the remainder of the Weimar period and into the early Third Reich, the power remained relatively decentralized within the firm. The company’s 46 distinct subsidiaries continued to have significant autonomy; there were numbers managing and supervisory boards; records, reports and audits were widely circulated and available. But, as the firm first threw its support behind the rising Nazi regime and then became intertwined in the regime, it moved to consolidate power in the company. By 1937-38, the company reorganized to centralize power in a few senior managers: the 46 once distinct subsidiaries were absorbed into the main enterprise, the number of managing and supervising board members was reduced, the governing powers of the firm’s Central Committee were largely transferred to the company’s president, company minutes and records ceased to be widely circulated, and board members were denied access to financial reports.

Similarly, before the Third Reich, the Krupp armaments firm had been family owned and controlled for centuries, but its corporate form allowed for some degree of influence by external directors. After managerial conflicts arose during the war, Alfried Krupp made a personal appeal to Hitler for the firm to be reorganized by state decree, arguing that “the concentration of responsibility in a single head, especially in critical times . . . cannot be valued highly enough.” On November 12, 1943, a Fuhrer decree that became known as “Lex Krupp” specified that “the owner of the Krupp family wealth is empowered to create a family enterprise with a particular regulation of succession.” The decree resulted in a complete centralization of corporate power in the Krupp family.

From the economic history of late nineteenth and early twentieth-century Germany, a pattern seems to emerge of cascading effects of concentrating power. Farben and Krupp were very different firms in terms of corporate structure (one was widely held, the other family-owned) and they arrived a market dominance through very different paths (Farben through cartelization and merger, Krupp through economic cronyism with the German military, a willingness to buck the Treaty of Versailles and lead re-armament, and unilateral exclusionary conduct). But, in both cases, their achievement of market dominance put them in a position to enable to consolidation of political power by aiding the Nazi regime, and that in turn contributed to a concentration of power within the firm. The progression seems to be Concentration of Market Power → Concentration of Political Power → Concentration of Intra-Firm Power.

But then I wonder whether there is anything special to this order of progression, or whether market power, political power, and intra-firm power are generally complementary and mutually reinforcing. In the usual way of things economically, an increase in price of one thing reduces the demand for its complements, but the converse is true as well. If extreme concentrations of power within markets, governments, and firms are interrelated necessities to the extreme concentration of power over society as a whole, it stands to reason that, as dominance is achieved in any one of these quarters, it becomes easier to consolidate power in the other quarters as well.

To be clear, I am very far from being able to make any sort of a strong empirical claim about these relationships. For now, I am pondering a potential set of relationships which could prove consequential to better understanding the interplay between economic power and democracy.

Prof. Daniel Crane

Recommended citation:

Daniel A. Crane, Democracy and Monopoly in Governments, Markets, and Firms, CONCURRENTIALISTE (Feb. 17, 2020)

Read other guest articles over here: link

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