Siphoning dollars because they can

Paul Krugman suggests that Verizon, for example, fails to invest in its infrastructure—an investment that would benefit its customers—because the company has no need to do so. It enjoys monopoly or near-monopoly status, enabling the firm to charge “rents” without fear of competition.

At one time policymakers believed that the consolidation of companies would free the now-larger corporations to invest dollars that would improve service and boost employment. Krugman traces this thinking back to Ronald Reagan.

For Reagan didn’t just cut taxes and deregulate banks; his administration also turned sharply away from the longstanding U.S. tradition of reining in companies that become too dominant in their industries. A new doctrine, emphasizing the supposed efficiency gains from corporate consolidation, led to what those who have studied the issue often describe as the virtual end of antitrust enforcement.

Verizon and other telecommunications providers exercise monopoly power. Krugman links to a study (pdf) released by the Obama Administration that illustrates the pernicious effects of concentrated economic power. Among other things, the new “robber barons” (Krugman’s term) would be “able to milk their businesses for cash, but with little reason to spend money on expanding capacity or improving service. The result would be what we see: an economy with high profits but low investment, even in the face of very low interest rates and high stock prices.”

Of course, things could be different. And they are elsewhere. I wrote about one example here. The French have access to speedy Internet, high-quality and abundant television content, and telephone service for a mere fraction of the cost charged by Comcast for its bundled products. The contrast has much to do with the concept and reality of “common carrier.” Telecommunications infrastructure in France is open to multiple providers of both content (input) and retail services (output).

Then, again, this is America. And we have nothing to learn from others.