The last three chapters of Mordecai Kurz’s The Market Power of Technology contain his public policy recommendations. These are based on his conclusion that a capitalist economy left to its own devices will not produce the optimal, most efficient outcomes—the greatest good for the greatest number imagined by utilitarian philosophers. The accumulation of market power and monopoly wealth ultimately undermines economic growth and mass prosperity.
It also undermines democracy:
[I]n a democracy, the rich can shift society to an equilibrium favorable to them simply by putting together a winning coalition that establishes a free, laissez-faire economic policy. Capitalism then does the rest by enhancing their wealth and preserving their power at the expense of the rest of society. My conclusion is that, in the age of technology, democracy under unregulated free-market capitalism is an unstable economic system; it results in the decline of social cohesion and in a political progression toward plutocracy. For a capitalist market economy, a policy to contain market power is a necessary condition for both democracy and economic growth to succeed.
Reversing these negative trends will require a change of thinking on the part of policymakers and judges. They will need to stop regarding successful companies as so useful to society that their concentrated market power can be overlooked. While new technologies do increase productivity in general, the most profitable firms are not always as productive as they appear, or as they could be. Their high revenues create the appearance of producing great value at low cost, but those revenues also depend on high prices and profit margins.
Technological progress is necessary but not sufficient for strong, broad-based economic progress. Public policy must both restrain the expansion of market power and promote the general good by facilitating upward mobility and expansion of the middle class.
Restraining the expansion of market power
The goal here is to balance the need to reward technological innovation with the need to place reasonable limits on the market power of technology users. Kurz argues for a new principle of antitrust policy, “restraining an entity’s technological market power down to the level granted by patent law.” That is:
If its privately owned technology is entirely innovated by the firm itself (as distinct from having been acquired) and it does not take any actions to erect additional barriers to entry, its market power is then protected by patent laws.
The main way that big firms expand their market power is not by innovating for themselves, but by buying the innovations of smaller companies. Microsoft made 237 acquisitions between 1987 and 2020. Antitrust law should place limits on such acquisitions.
Another target of antitrust law should be large technology “platforms” such as Google, Facebook, and the Apple Store, which are able to extract monopoly profits from advertisers or developers. Kurz would like to see them regulated like public utilities.
Many European countries have gone beyond U.S. antitrust law to develop a concept of “abuse of dominant market position.” That makes it easier for European courts to take action against firms that erect barriers to free competition or raise prices to unreasonable levels. [That was the basis for the European Union’s $1.95 billion fine on Apple last week.]
Kurz has several recommendations for patent reform. He would tighten the requirements for granting patents, allow patents shorter than the standard twenty years, and cut the length of patents in half for those acquired through merger or acquisition.
Since firms with market power use it against workers as well as competitors, Kurz would strengthen protections for workers. He would target practices that restrict a worker’s right to seek the best wages and benefits, such as noncompete clauses for low-wage workers, long-term contracts classifying workers as independent contractors, or “no-poaching” agreements preventing one franchiser from hiring a worker from another. He would raise the federal minimum wage—now a paltry $7.25 an hour—and index it to the cost of living. He would facilitate the formation of unions, not just to increase wages, but “to develop cooperative institutions for addressing the social problems of workers.” That’s because labor’s falling share of the national income is associated with problems like family instability, lower morale, and drug addiction.
Taxation, public investments, and redistribution
The final policy chapter discusses ways to strengthen the economy by promoting the general economic welfare.
The first of these is a return to a more progressive personal income tax. Recent studies in economics support the idea that a higher top bracket rate can provide needed public revenue without reducing taxpayers’ incentive to contribute to society through valued work. (See, for example, my earlier post on this topic.) Higher tax rates did not stop the mid-twentieth-century from being a time of technological innovation and rapid economic growth.
Kurz is also in favor of corporate taxes, if they are carefully designed. Critics of corporate taxes complain that they tax savings and investment. But Kurz would tax only revenue in excess of the cost of materials, labor, and capital, thus taxing only monopoly profits, not investment. He would then use the additional tax revenue “to finance investments that promote long-term efficiency and growth, and for active antitrust policy to remove some of the distortion in factor prices.” Many multinational corporations escape U.S. taxes by moving profits to low-tax countries. Kurz would deal with that by apportioning taxes according to country of sale. If half of sales are in this country, half of revenue should be taxed here.
Kurz would like to see more of the national income going to benefit the lower half of the population. He does not, however, favor direct cash distribution programs, such as the frequently proposed Universal Basic Income. He believes that “the most decisive argument against them is that they do not address the main goal of all long-term egalitarian policies, which is to help individuals improve their skill and motivation to earn, on their own, income above poverty level and perhaps join the middle class.” He prefers health and education programs targeted at the children of low-income families, who he calls “the most wasted human resources in our society.” The evidence shows that such programs are more likely than tax cuts for the wealthy to pay for themselves in future tax revenue and reduced social costs.
Kurz proposes a National Fund for Equity and Democracy that would invest in markets through an index fund, but use the earnings to support a flow of workers into the middle class. For example, it could provide scholarships for low-income students to attend college or technical school, or pay the moving costs for families to move to places with greater economic opportunity.
Several proposals address the continued need for technological innovation. One calls for reversing the decline in public support for basic research, which has dropped dramatically as a percent of GDP over the past forty years. (Recall that publicly-supported basic research is a major source of technological innovation.)
Kurz is also concerned about the impact of technology on jobs. Giving low-income children more skills will be futile if the economy has no jobs for them to do. Machines that are designed to replace workers can create private gain, but they come with a high social cost. However, many smart machines are intended to be used by smart humans! “A policy needs to be crafted that encourages innovations that promote partnership of workers with machines and enhances the productivity of the unskilled rather than replaces them.”
All these proposals are consistent with Kurz’s general argument. The best formula for prosperity is the one that characterized the mid-twentieth century—a technological revolution yes, but also egalitarian policies to curb the power of the few to monopolize the benefits, and to provide avenues of upward mobility for the many.
Beneath the Surface 