Biden executive order unlikely to increase competition
On July 9, President Joe Biden signed an executive order that is mainly geared towards increasing competition in the U.S. economy. Citing the heavy consolidation that has been going on in recent years, Biden emphasizes just how much his executive orders are meant to save Americans from the harm being caused by lack of competition.
For decades, corporate consolidation has been accelerating. In over 75% of U.S. industries, a smaller number of large companies now control more of the business than they did twenty years ago. This is true across healthcare, financial services, agriculture and more.
That lack of competition drives up prices for consumers. As fewer large players have controlled more of the market, mark-ups (charges over cost) have tripled. Families are paying higher prices for necessities—things like prescription drugs, hearing aids, and internet service.
Barriers to competition are also driving down wages for workers. When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace. In fact, research shows that industry consolidation is decreasing advertised wages by as much as 17%. Tens of millions of Americans—including those working in construction and retail—are required to sign non-compete agreements as a condition of getting a job, which makes it harder for them to switch to better-paying options.
In total, higher prices and lower wages caused by lack of competition are now estimated to cost the median American household $5,000 per year.
There is indeed some evidence –– albeit debatable –– that market concentration has been increasing in recent years, but big companies are not always a cause for concern. Most big companies have grown by providing services that people value and are willing to pay for — for example, Facebook, Amazon and Apple. Additionally, big size enables businesses to enjoy economies of scale from which all consumers benefit.
This is not to say that all market concentration is good for customers. Some big companies may indeed hurt consumers by raising prices. However, it is important to note that in areas like finance and health care, where consolidation has been shown to raise prices, government action has been one major contributor to rising concentration.
The Dodd-Frank Act, for example, which Biden has always supported, forced many small banks out of businesses and encouraged surviving ones to consolidate in order to survive. By imposing complex and costly regulations, Dodd-Frank hurt small community banks which are usually the go-to line of credit for small businesses. Similarly, the Affordable Care Act has been found to be the reason for increased consolidation in the health care market in recent years.
To be fair, Biden’s executive order does contain some good proposals that would indeed foster much-needed reform. For example, the idea to limit occupational licensing, make drug importation easier, and allow hearing aids to be sold over the county would save consumers money.
However, the mere fact that these provisions are being undertaken through an executive order, rather than through legislation, means an unnecessarily increased centralization of government power. Some of the reforms Biden is initiating, like occupational licensing, can be undertaken by individual states. In fact, numerous states have enacted significant reforms removing barriers to occupations in their states.
But leaving that aside, the executive order also contains provisions heavily expanding government control on private businesses, e.g., antitrust laws, regulatory oversight on fees, net neutrality rules, and numerous others.
Biden is indeed right that increased competition in the market is a source for innovation, higher wages and increased incomes all around. But competition in the market thrives under less government intervention, not more. Excessive rules hurt businesses, especially small ones, and ironically lead to the same consolidation that he is speaking against.
It also does not help that executive orders are usually subjects of court battles and are bound to be changed when a new administration takes over, which leads to increased regulatory uncertainty in the economy.
On top of all that, one cannot help but admire how ironic it is for Biden to call for competition while continuously advocating for policies that have been shown to kill small businesses, reduce entrepreneurship and hurt Americans like high taxes, minimum wage and unionization, and excessive environmental regulations.