Consolidation is messing with the economy
Mar 15, 2022
Episode 620

Consolidation is messing with the economy

See: record-breaking corporate profits.

Corporate consolidation has been getting a lot of attention lately. But it isn’t a new phenomenon. It’s been on the rise since the ’80s, and it’s led to just a handful of companies controlling entire industries and fewer companies out there to deliver goods and services.

“One really good example would be health care — this is a pretty concentrated sector in the U.S. economy,” said Kate Bahn, director of labor market policy and chief economist at the Washington Center for Equitable Growth. “[Consolidation] is when there’s hospital mergers … maybe one big management company overarching a whole sort of sector in one location.”

But it means a lot more than companies just getting bigger. Corporate consolidation has a big impact on the way our economy is shaped.

On today’s show: How corporate consolidation influences wages and consumer prices — and why it calls into question the success of capitalism.

In the News Fix, we’ll discuss how a spike in global food prices could trigger unrest around the world and the fate of Sarah Bloom Raskin’s nomination to the Federal Reserve board. (We taped today’s episode before she withdrew her nomination.)

Also, listeners celebrate Kimberly’s official spot in the host chair and a debate over who is more introverted!

Here’s everything we talked about today:

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Make Me Smart March 15, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Kai Ryssdal:  Hey everybody, I’m Kai Ryssdal, welcome back to Make Me Smart. None of us is as smart as all of us is what we say on this podcast.

Kimberly Adams: It is indeed. And I am Kimberly Adams, it’s Tuesday, which means it’s time to take a deep dive into a single topic. And today we’re going to talk about corporate consolidation and how it’s shaping our economy today.

Kai Ryssdal: And I guess maybe the way to think about this is sort of a continuation of some of the stuff that Molly and I did a number of years ago about whether capitalism is working the way it ought to because as companies consolidate, the companies generally win, but there are losers. And there are losers on the supply side, there are losers on the demand side, it’s tricky to make sense of all this stuff. And that’s what we’re going to try to do today.

Kimberly Adams:  Yeah, I mean, in the simplest of terms, consolidation, which, you know, we’re going to get into the definitions of that later. It’s been going on since the 80s, in the way that we think about it today, which means that there are just fewer companies out there period. Sometimes that’s because one company bought out smaller ones, you know, eating them alive, sometimes fewer different employers competing for workers, fewer companies out there competing with each other, whether it’s to make you know, your mustard or even deliver you your health care. So here to make a smart about this is Kate Bahn, who is the chief economist at the Washington Center for Equitable Growth, which is a brand new title for you. Hey, Kate.

Kate Bahn: Hey, thank you very much. Yeah, as of today, so it’s great. Good timing.

Kimberly Adams: Yeah. So okay, what do you make of our premise that consolidation is something that we should look at? And that we need to understand if you want to understand why the economy works the way it does right now?

Kate Bahn: Yeah, I think that is a great premise. And I think Kai was very right that this calls into question the success of capitalism in organizing our economy. And one piece, I would sort of want to add to that, and keep in mind is that consolidation is a distinct phenomenon, but it intersects with other phenomenon that’s going to help us explain some of these outcomes we see, particularly for workers also for consumers. So consolidation, as it intersects with other trends is really where we want to be looking at the detail here.

Kai Ryssdal: As regular people, not people who are in the news, business of business in the economy, and certainly not economists who are, you know, thinking about this stuff in very profound ways. But if I’m a consumer of news, and there’s a story about corporate consolidation, how do I best think of it other than, “Oh, companies are just getting bigger?”

Kate Bahn: Sure, I mean, the way I would think about it, One really good example would be healthcare, I think we know that this is a pretty concentrated sector in the U.S. economy. For example, I’m from eastern Massachusetts, where Partners Healthcare operates a huge majority of all the health care facilities in eastern Massachusetts. And so that is sort of – that’s consolidation. That is when there’s hospital mergers, that is when there’s maybe one big management company overarching a whole sort of sector in one location. But that’s going to intersect with some other phenomenon. How many people live there? So how many people need access to health care? Is there good transportation? Is it easy to get around to a new job, or if you’re consumer, find another health facility to get to? Who are the people who are going to be accessing that? So when I think of healthcare, too, it’s an industry that has a majority of women workers, particularly in some occupations like nursing. And so then we have to think of other factors, like women workers are much more likely to be primary caretakers in their families. And so that might constrain how they look for jobs to if they know, you know, they’re going to be the one getting a call from a school and having to go pick up a kid when they’re sick. So maybe they can’t commute two hours to work. And so that’s sort of what I mean is when you want to look at both concentration of the companies themselves, but also that sort of environment around where concentration is happening that helps us understand the ways in which companies are able to exercise their market power.

Kimberly Adams: Okay, so let’s get a little bit deeper into that example. Let’s just take healthcare when you’re talking about consolidation and companies exercising their market power. What does that look like in terms of its impact on wages or even on the prices that consumers pay?

Kate Bahn: Sure. So research has found when we to look across all studies, that employers are facing what economists call low or low labor supply elasticity, it’s not a very intuitive term, but it basically means pay sensitivity. Workers are not as pay sensitive as we would think they should be in a in an economy. And so you know, if it’s a perfectly competitive market, if your employer cuts your wages by one cent, you would quit, and you’d go find another job. But that’s not actually what’s happening. So the research has found, for example, that if you cut wages by 5%, you’re only going to lose maybe 10 to 20% of your workers. So you lose some but not a lot. And ultimately, for an employer when they’re thinking about this, that might be worth it to them to lose 10% of their workforce, if it means they get to keep more of that money in their profits.

Kai Ryssdal: Wait, can you – can you back up for a second of that part. And I’m taking us a little bit off the rails here, where workers workers are not as as price sensitive as as pay sensitive, as you might think, what?

Kate Bahn: Yeah, so workers are not responding to competition in the way we think they could. And there’s a couple of reasons for this. That are, you know, one of them is that workers might not have perfect information, they might not know how much different jobs are paying, employers might have better access to information on those kinds of factors. Workers have really complicated preferences for the types of jobs they take, and preferences. I mean, as you know, talking to economists, it’s not totally a perfect term to describe this, it could be constraints. Again, if you’re that secondary income earner in your family and a primary caretaker, maybe it’s more of a constraint than a preference. And then the final one is just mobility costs. It just, it is hard to move around between jobs, you know, you’re not going to pick up and move to a new city within a week to find a better job. And so all these factors mean that workers just are not that pay sensitive, in ways that we would predict in a perfectly competitive market,


Kimberly Adams: 

Or even in a tight labor market, which we’re in supposedly.


Kate Bahn: 

Yeah, exactly. And I think that’s what we saw at the end of the last expansion. It was, you know, the longest expansion in, you know, the American economy. But what happened was that the labor market still had a lot of slack, even though we had had 10 years of employment growth, wages had not really been increasing, it took 10 years of to finally get a little bit of pressure on wages, which I think is good evidence that, again, like employers are not – have not had to compete for workers the way we think they would in a competitive economy. And they tend to take advantage of that by keeping wages pretty low.

Kai Ryssdal: Okay, so back to consolidation. So we know what it looks like, sort of on the on the labor side, what about on the corporate side, right? Because, look, the corporate mantra is, you know, grow or die, right? I mean, Ed Bastian, the CEO of Delta has said to me one time, if you’re not getting bigger as a company, you’re in slow motion liquidation.

Kate Bahn: Well, there’s two ways that concentration or something like the growth of a company can impact what a company is doing. Sometimes it does make a company more efficient, that, you know, certainly can be the case when there’s economies of scale. So maybe it’s just, you know, easier to produce more. But it also seems that, you know, that’s not necessarily what’s been happening in the past 20 years or so in the US economy, that companies are growing, but not because they’re becoming more efficient. Rather, they’re just doing what is called rent seeking. So they’re sort of making outsized profits markups above and beyond the value of what they’re creating. So you know, it’s hard to do that research and dig in to delineate between efficiency and rent seeking, but it does seem to, you know, evidence does seem to suggest that the growth we’re seeing now is not because of efficiency gains to the economy.

Kimberly Adams: They just have a lot of money. And so they’re buying it, right.

Kate Bahn: Yeah, and I think and I think we see some of that now, too. I mean, most recently, we see a lot of reports about trying to make sense of the direction of prices right now. And this is happening in particular sectors in the economy. Meanwhile, we see you know, corporate earnings calls talking about runaway profits. And so I think we do see see a little bit of that, because it’s important to keep in mind and our like classic textbook, economic models, company shouldn’t make any profit or really a minimal profit. So when you see huge profits, that is evidence that there is a corporate power problem.

Kai Ryssdal: Or wait, hold on, man, I’m taking this thing sideways, like 19 different ways. Companies, companies aren’t supposed to make profits?

Kate Bahn: Not in a traditional model. It should be zero profits, because it should be competed away. If there are profits, other companies would open up in that sector and compete with them. And then profit should compete down to zero until it’s an efficient market. So that might be part of it, too, is there’s just big barriers to entry. I think some sectors, you see that particular like airline industry, I think as a good classic example of big barriers to entry, it’s hard to start your own airline. So they take advantage of that and are able to mark up prices.

Kai Ryssdal: Okay. That’s wild I’ve been I’ve been doing this a long time. I’ve never heard that. That’s fascinating. Then again, I never took an econ course, so that’s a whole different thing.

Kate Bahn: Economics, I mean, abstract economic models are sort of useful tools and it is sometimes important to remember that they do not reflect real life.

Kai Ryssdal: Right? Right.

Kimberly Adams: Okay. So then, again, circling back to consolidation.

Kai Ryssdal: Sorry, sorry, sorry.

Kimberly Adams No it’s interesting. I thought that was fascinating. What, if anything, should be done about consolidation? I mean, is this something where the US government needs to step in? If so, does the government have any tools to step in?

Kate Bahn: Oh, for sure, I would say I put it sort of in two broad categories. One category is competition policy. And so that includes things like antitrust enforcement done by the Department of Justice and the Federal Trade Commission. But not only because there’s other federal agencies that do influence competition, like the Federal Communications Commission could also try to foster competition in communications, for example, which is not a dig at you all as media personalities. But so one side is to try to  – yeah, so this, one side is to focus on antitrust enforcement, make sure that we are reviewing mergers to make sure that they are pro-competition, make sure we are going after anti-competitive behavior on the part of companies with things like perhaps maybe a non-compete agreement for a worker or an employer says that they are they sign say they will not go for work work for another employer. So that’s one bucket. The second bucket is also just what I sort of called countervailing power, which is, you know, as you noted, sometimes big companies, growth is good. And sometimes big companies can lead to sort of efficiency gains. But what we need is power on the opposite side of work for workers and consumers to make sure that we are balancing that, that they can’t, you know, raise profits too high above and beyond what is reasonable, that workers are able to share in the value that they help create. And so that would be through things like making sure workers can unionize, increasing statutory minimum wages, making sure that employers aren’t engaging in wage theft, things like that would I would put on this sort of of countervailing power side.

Kai Ryssdal: Sorry, can I just be the realist jerk here for a second and ask you what you evaluate the odds of any of that happening being?

Kate Bahn: There –  I think there’s some evidence that maybe we can move forward on a couple things like, for example, the wage theft argument, the Department of Labor, is looking into ways to address wage theft, or the National Labor Relations Board is looking into ways to make sure that we have deterrence for unfair labor practices that would illegally prevent workers from unionizing. So there’s a little bit of work that can be done, particularly on the enforcement side, and the executive action side. But if we really want sort of massive structural change, you’re right, that something like reforming labor law or a forming consumer protections through our legislative process is not probably going to happen anytime soon. But the fact that you know, more people are paying attention to consolidation as an issue means maybe we’re you know, we’re part of the long term arc toward making sure our economy is more competitive.

Kai Ryssdal: Kate Bahn, she is the director of labor market policy, also chief economist at the Washington Center for Equitable Growth. Okay, thanks a lot. Really, totally interesting stuff.

Kimberly Adams: Thanks Kate.

Kate Bahn: Thanks for having me. Talk to you soon.

Kai Ryssdal: That was great. That’s good. And I learned just like a whole slew of stuff too other than what the subject was.

Kimberly Adams: I was gonna say, my brain broke a little bit.

Kai Ryssdal: Profits aren’t supposed to exist. What? That’s so fascinating!

Kimberly Adams: It’s logical!

Kai Ryssdal: I know it should be competed away. Totally. Totally makes sense. Totally makes sense. . Holy cow.

Kimberly Adams: Man, so, I’m gonna have to sit with that one for a while.

Kai Ryssdal: No joke, goodness. All y’all sit with it to let us know what you think about what Kate said or any of those random sidebars that I inserted into that interview. And let us know what you think. Our numbers 508-827-6278. 508-UB-SMART.

Kimberly Adams: Or you can send us a voice memo at and we will be right back once we finish head exploding.

Kimberly Adams:  Okay, time for the news fix, I’m gonna start because I have – not that one yet I was get to that later. We’re gonna save that for the end. No, mine is a Ukraine story. And I know we’re doing this every day. But this is something that’s been sort of percolating in the back of my head, mind, brain, whatever, throughout this as we talk about the different long term economic impacts of the global disruption to supply chains, particularly around food supplies. And we’ve mentioned before that Ukraine and Russia are big exporters of grains, and wheat, and corn and all these things. And those are cut off. For the most part, Ukraine has banned the export of wheat and other vital food commodities. And Russia is obviously under all these sanctions. And these are big suppliers of a lot of countries in the developing world, to the point that the U.N. International Fund for Agricultural Development, said that they are worried about conflict and hunger and other parts of the world as a result of this. And now the Pentagon is apparently having a look at this and just kind of keeping an eye on things and where these disruptions to global food supplies might potentially trigger additional rounds of conflict. And this is a real thing. And Government Executive which has a has a good piece on this, which is – gets into this quite a bit. And some of the places they’re worried about instability, Egypt, Iraq, Syria, Iran, places that really rely on those exports. And, you know, it’s not like we don’t have relatively recent history of spikes in food prices, triggering unrest in that part of the world. And so, you know, it’s just worth keeping an eye on that part of it.

Kai Ryssdal: Yeah, totally. Totally. I mean, I’ve, we’ve done a couple of interviews on Marketplace about this, and it’s the – war and food hunger go together, hunger go together, and this one’s going to exacerbate it more than most because of the role that Ukraine and Russia play in global food supplies, and it’s really bad. It’s really bad food and edible oils. Okay, mine is a little more, a little more dorky, but but that’s okay. And it comes with the observation that tomorrow, which will be Wednesday, I don’t know when all y’all are gonna listen to this. The Federal Reserve and chair pro tempore Jay Powell will raise interest rates, probably 25 basis points, a quarter of one percentage point. And that will be big news, because inflation and the Fed and all of that stuff. But I do want to point out that the Fed is not playing with a full deck as it were. And I say that not pejoratively, there are three vacancies on the seven member board of the Fed. And as the Fed tries to handle this economy and inflation and post pandemic, and a war, it would be great if they had all seven people because it’s a full time job figuring out what to do with this economy. And I’ve mentioned this because Senate Republicans and one Democrat are blocking one of President Biden’s nominee Sarah Bloom Raskin. She’s a noted economist, she teaches at Duke. She’s been on the Federal Reserve’s Board of Governors once previously, in 2010, confirmed by the Senate, she’s been Deputy Secretary of the Treasury, also confirmed by the Senate. And now she is going to, in my humble opinion, have to withdraw because of the opposition of Senate Republicans and Joe Manchin on the Democratic side. And that’s kind of too bad. And I just it needs to be noted that that I just I don’t get it understand how you can be confirmed twice. And then just because you think the Federal Reserve ought to do something about climate change, you’re somehow not acceptable to a senator from a coal-producing state. Oh, wait, I just figured it out. Sorry. I just figured it out. And just to add some additional, additional clarity. Sarah Bloom Raskin has what I guess written in the past and spoken in the past on the importance she believes in integrating the effects of climate change into economic planning, and long term decisions by the Federal Reserve and the West Virginia coal producing state senator, is Joe Manchin in this context. Also, also though, we should say Susan Collins from Maine has come out against her we should say Lisa Murkowski from the oil producing state of Alaska has come out against wind Raskin, so this one’s pretty much done and she’s you know, nine and a half chances out of 10 She’s gonna have to withdraw to let the White House a face and move on. But it’s, it’s quite something. Quite something

Kimberly Adams: Well, alright, one entity that is not going to be able to save face.

Kai Ryssdal: You go, that’s a good pivot. You come up with the pivot you get to do the item.

Kimberly Adams: The same company that had the ships stuck in the Suez Canal. Now as a huge cargo ship stuck in the Chesapeake Bay.

Kai Ryssdal: It’s too funny. It’s too funny. The other one was called the Ever Given this is the Ever Forward and it is not blocking the Chesapeake Bay because thankfully the Chesapeake Bay –

Kimberly Adams: It’s not moving forward either.

Kai Ryssdal: Chesapeake Bay is wider than the Suez Canal. But come on, how do you do that get stuck twice in a year.

Kimberly Adams: It ran aground it seems and but yeah, I mean, it’s not going to gum up global shipping in the same way. But the irony is a lot.

Kai Ryssdal: It’s it’s kind of rich. Yeah. It’s kind of lovely.

Kimberly Adams: Okay, that’s it for the news fix. Let’s go ahead and do the mailbag.

Kai Ryssdal: New sting there courtesy of Drew Jostad that I do believe. Yeah. Which I kind of like kind of peppy kind of beat. Okay, so here’s the deal. A lot of you’re really happy that Miss Adams is gonna be making us all smarter every single day and some of you by which I mean a lot sent in voice messages. So here we go.

Listener montage:  Hi, Make Me Smart team. Kimberly and Kai. Kimberly’s awesome. I have loved every episode that you filled in for and I was just gonna say she should be the next co host. I love the perspective and humor and cocktails that Kimberly brings to the show and I am so looking forward to more make me smart. On Thursday, Kai laying out all that love for Kimberly and saying how great she is and then Miss Adams just sneaking in with a freakin’ sucker punch about Neverending Story. A plus. 100% Please more.

Kai Ryssdal: That was Mary out of Hendersonville, North Carolina. Emily’s from Watertown, Massachusetts, Lauren out of Oakland and Beth from New York. Yeah, well, it’s gonna be one of those runs for me on this podcast. Is it? Fine. Good stuff. Good stuff.

Kimberly Adams: It was fun. Okay, thank you all for that. That’s really sweet and makes me feel all warm and fuzzy inside. I appreciate it. Okay, but before I get full awkward. Here is today’s answer to the Make Me Smart question, pandemic edition, which we asked you to tell us what is something you thought you knew, but later found out you were wrong about specifically about the pandemic?

Ian: Hi, this is Ian from Boston, Massachusetts. I think I thought I knew before the pandemic and found out I was wrong about what I was an introvert. I’m not an introvert. I should have known better. The pandemic made that very, very clear.

Kai Ryssdal: That’s kind of deep actually. But yeah, yeah, I get that.

Kimberly Adams: I have to say I think the pandemic kind of reinforced the fact that I was an introvert because I saw my extroverted friends have a meltdown –

Kai Ryssdal: Shut up. You are not an introvert. Shut up. I’m an introvert. You – there’s no chance you are. Get out of here. We’re gonna have to do a Myers Briggs on this show. That’s ridiculous. Seriously? Yeah. No, I refuse to believe that.

Kimberly Adams: It doesn’t make it any less true.

Kai Ryssdal: Well, yeah, that’s fair. That’s fair. But wow, that is I did not have that down on on any personality thoughts that I had about you, which, which granted, we’re just you know, professional. But wow, that’s interesting.

Kimberly Adams: No, I mean, like all my friends who are extroverts, they’re like, “We must meet up, meet up, let’s go for a walk. Let’s do this.” I’m like, “I will stay in my house.”

Kai Ryssdal: Really? Really.

Kimberly Adams: But, you know, I had the privilege of being able to do that. Not everybody did. And, you know, having a safe home and all the perks of being who I am made that possible. But yeah, I had some other friends who were just like, “must escape.”

Kai Ryssdal: Wow. Yeah. Yeah, fastening. So if you’ve got more well, so two things number one, the straight up Make Me Smart question. Which we’ll always take your answers on but also what you thought you knew, from this pandemic and later found out you were wrong about let us know. Leave us a message at 508-827-6278, if you’d like. 508-UB-SMART.

Kimberly Adams: I guess something you thought you knew that you later found out you were wrong about is that I’m an extrovert.

Kai Ryssdal: Oh I know. That’s too funny.

Kimberly Adams: Make Me Smart is directed and produced by Marissa Cabrera. Our team also includes producer Marque Greene and Ellen Rolfes, who writes our newsletter. Our intern is Tiffany Bui.

Kai Ryssdal: Today’s program is engineered by Jayk Cherry, Drew Jostad’s gonna mix it down later. Ben Tolliday and Daniel Ramirez composed our theme music. The senior producer is Bridget Bodnar. Ben Tolliday update by the way, is going on vacation soon. Ssked me about my thoughts on him flying on a 787 Max, er 737 Max, I said I thought it’d be alright. Senior Producer is Bridget Bodnar. Donna Tam is director of On Demand. Marketplace’s Vice President and General Manager is Neal Scarbrough. And there we go.

Kimberly Adams: I feel like we’ve talked about this introvert thing before.

Kai Ryssdal:  I don’t think so. But maybe I’m wrong.

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