Elizabeth Warren Has a Theory About Corporate Power

The left forgot what Roosevelt knew: Small businesses and corporate behemoths have different interests.

Elizabeth Warren
Madalyn McGarvey / Reuters

Elizabeth Warren has been talking a lot about small business, a constituency that hasn’t figured in Democratic Party politics in a long time. The senator from Massachusetts and Democratic presidential candidate has sparred with Amazon over how the tech giant treats the businesses that rely on its platform to sell their goods. She’s unveiled a plan to put small businesses on a more equal footing by closing tax loopholes that allow “the very largest companies to pay a lower effective corporate tax rate than smaller companies.” She’s pledged to reverse consolidation in the banking industry on the grounds that the decline of local banks has “made it more difficult for small businesses and farms to get loans.”

In her speeches, Warren has linked the hopes and fears of small businesses with those of a more familiar constituency of the left. It’s time, Warren has said on the campaign trail, “to put more economic power in the hands of the American people — workers and small businesses.”

To connect these two groups today is to confound our expectations about who belongs on which side. Americans have grown accustomed to seeing small businesses as supporters of the GOP. Since the 1970s, lobbyists backed mostly by big corporations have portrayed taxes, labor unions, and government regulation as the primary threats to the success of smaller enterprises. In reality, the interests of Main Street businesses and the largest corporations are often at odds, but Democrats have done little to discourage the latter from speaking for the former.

Warren is now advancing a different theory—that big corporations’ political influence and market dominance are killing smaller rivals, and that small-business owners share interests with other victims of corporate power. (Full disclosure: Warren’s team contacted my organization for input on policy proposals. We provided feedback, as we have for other candidates.) While other Democratic presidential hopefuls have questioned the power of the tech giants, Warren’s rhetorical embrace of small business has been emphatic. She is at once bidding for votes that Democrats don’t normally seek and inviting her party to see small businesses in a new light. She’s also reviving what once was a core tenet of her party: In a democracy, a primary purpose for government is to disperse economic power.

The past three Democratic presidents—Jimmy Carter, Bill Clinton, and Barack Obama—all oversaw and indeed welcomed periods of significant economic consolidation. But before then, from the 1930s until the 1970s, Democrats recognized the threat that monopolies and other corporate behemoths posed to workers and small-business owners alike.

In accepting renomination at the 1936 Democratic convention, President Franklin D. Roosevelt decried the concentration of economic power in the hands of “new dynasties” of “economic royalists.” “There was no place among this royalty for our many thousands of small-business men and merchants who sought to make a worthy use of the American system of initiative and profit,” Roosevelt declared. “They were no more free than the worker or the farmer.”

As Democrats of this era saw it, forming a union and starting a business were two avenues toward the same ends: checking corporate power and giving ordinary people economic agency and a fair share of the returns from their labor. The career of Senator James E. Murray was a case in point. Elected in 1934 with support from Montana’s miners and timber workers, Murray spent the next 26 years championing the twin causes of labor and small business. He blocked several bills that would have made it harder for workers to unionize. He also founded and led the Senate’s Special Committee to Study Problems of American Small Business. Through a remarkable series of reports, his committee detailed how the same monopolistic corporations that menaced the rights of workers were also using their market power against their smaller competitors.

Another leading Democrat of the period was Estes Kefauver, who served in Congress from 1939 until 1963. The son of a Tennessee hardware-store owner, he was a lifelong supporter of organized labor and a fierce opponent of concentrated economic power. During a live address on ABC in 1956, Kefauver denounced President Dwight Eisenhower’s support of a bill to limit the ability of workers to strike. “It is easy to see what happens when an administration favors big business over the working man,” he said. He then turned to the plight of the nation’s independent enterprises. “Small businesses are not getting protection against the onrush of monopolistic big entrepreneurs,” Kefauver declared. His signature legislative achievement was the Celler–Kefauver Act, which vastly expanded the government’s authority to review and block mergers.

For more than four decades, Democrats governed from this vantage point. They sustained majorities in both the House and the Senate for nearly all of those years.

But then, in the 1970s, the party underwent an ideological shift. A group of young, newly elected lawmakers spurned economic populism and dismissed concerns about the power of big business as old-fashioned. This new bloc used its growing majority in Congress to marginalize the party’s long-standing anti-monopolists. It helped elect Carter, who, beginning with the airline and trucking industries, dismantled regulations that had previously constrained big business. Ronald Reagan continued this project in sweeping fashion. His Justice Department reinterpreted the nation’s antitrust laws in a way that all but gutted them.

Clinton went further still. In 1992, the Democratic Party scrubbed all references to economic concentration and antitrust from its platform. Clinton then led a successful, multiyear effort to overturn the Depression-era laws that had constrained the size and reach of banks. Obama followed in the same vein, presiding over a period of extreme consolidation that saw aggressive new forms of monopoly power emerge, uninhibited, from Silicon Valley and Seattle. While Democrats still evoke the image of small business in political speeches, it’s not a serious focus of the party’s policy making.

Meanwhile, small businesses have seen their numbers and market share plummet in one industry after another. From 2005 to 2015, the number of independent retailers fell by 85,000 and small manufacturers by 35,000. Local pharmacies, community banks, family dairy farms, and independent grocers have all been in decline. Meanwhile, starting a business has become much harder. The number of new firms launched each year has fallen by nearly two-thirds since 1980.

These trends are often dismissed as proof that larger corporations are simply better and more efficient than smaller ones, but the evidence suggests otherwise. Take local pharmacies. As they shutter their doors, we assume that they just can’t compete with national chains. But according to studies by Consumer Reports and by my organization, local pharmacies provide lower drug prices and better care. The problem is that their reimbursement rates are set by three dominant pharmacy-benefit managers, all of which also run their own competing pharmacies. Last year in Ohio, the largest of these, CVS Health, further slashed the rates it pays local pharmacies and then sent many of them letters offering to buy their struggling stores.

This kind of predatory behavior is widespread. It can be found in the hefty swipe fees Visa and Mastercard impose on independent retailers that have no alternative but to pay up, and in the loss of shelf space that local breweries face when Anheuser-Busch InBev buys or bribes their distributors. Over the past few years, I’ve talked to hundreds of small-business owners about the challenges they face. Most describe dynamics in their industry that are largely about the exercise of unconstrained market power. In 2016, my organization surveyed more than 3,000 independent businesses. By a 61 percent to 7 percent margin, they said the federal government “should more vigorously enforce antitrust laws.”

Right now, though, neither party speaks to these fears and frustrations. It’s not only that Republicans and Democrats alike are corrupted by corporate dollars and lobbyists. Both parties are ideologically captured by the very idea of bigness itself. As a result, efforts by groups such as the U.S. Chamber of Commerce to blame government—rather than monopoly power—for the troubles of small business go largely unchallenged.

While reliable data on the actual voting habits of small-business owners are hard to come by, surveys suggest that they’re only loosely attached to either party and that, like other Americans, many identify as independents. What might happen if the Democratic Party offered a different story to explain what’s happening to America’s small businesses—a story that speaks to the common cause that entrepreneurs and workers share in breaking the grip of dominant corporations?

For many voters, the idea of independent business evokes something they desperately want: the freedom, as Kefauver put it, to govern their own fate, subject to no master. Warren’s focus on small business is more than an appeal to a constituency that lacks a political home. It’s also a kind of shorthand for Americans’ deep-rooted desire to govern ourselves.