Commentary — January 25, 2012, 10:44 am

An Excerpt From “Killing the Competition: How the New Monopolies Are Destroying Open Markets”

Barry C. Lynn is the author of Cornered: The New Monopoly Capitalism and the Economics of Destruction. He directs the Markets, Enterprise, and Resiliency Initiative at the New America Foundation. His Harper’s Magazine article “Breaking the Chain: The antitrust case against Wal-Mart,” from the July 2006 issue, is available for free here.

Fear, in any real market, is a natural emotion. There is the fear of not making a sale, not landing a job, not winning a client. Such fear is healthy, even constructive. It prods us to polish our wares, to refine our skills, and to conjure up—every so often—a wonder.

But these days, we see a different kind of fear in the eyes of America’s entrepreneurs and professionals. It’s a fear of the arbitrary edict, of the brute exercise of power. And the origins of this fear lie precisely in the fact that many if not most Americans can no longer count on open markets for their ideas and their work. Because of the overthrow of our antimonopoly laws a generation ago, we instead find ourselves subject to the ever more autocratic whims of the individuals who run our giant business corporations.

The equation is simple. In sector after sector of our political economy, there are still many sellers: many of us. But every day, there are fewer buyers: fewer of them. Hence, they enjoy more and more liberty to dictate terms—or simply to dictate.

Over the past four years of financial collapse, many of us have come to view markets as a fantastical scam: a giant mechanism geared to transfer our hard-earned dollars into the hands of a few select bankers. And when it comes to the Wall Street markets we rely on to trade our equities and debt and commodities, this sentiment is not all wrong.

But as every previous generation of Americans understood, a truly open market is one of our fundamental democratic institutions. We construct such markets to achieve some of our most basic rights: to deal with whom we choose, to work with whom we choose, to govern our communities and nation as we (along with our neighbors) choose.

And so, as every previous generation of Americans also understood, monopolization of our public markets is first and foremost a political crisis, amounting to nothing less than the reestablishment of private government. What is at stake is the survival of our democratic republic.

This rush back to the feudal past is nowhere more evident than in that region of California we have so long viewed as the incubator of our future.

Until recently, few places in the world could boast of markets as open as those of Silicon Valley. Yes, large corporations thrived here for decades. But true denizens of the Valley would rarely let themselves get caught inside those walls. Why should they? Their skills were portable, venture capital was abundant, and California refused to enforce the “non-compete” agreements that tech firms elsewhere often used to control their employees.

It was in Silicon Valley that America’s entrepreneurs seemed to rediscover their roots—or rather, their primal rootlessness. Serial founders staked out tech venture after tech venture, in much the way Daniel Boone once cleared homesteads as he wandered from Carolina to Kentucky to Missouri. And behind these pioneers swarmed freelance engineers and cowboy coders, hardly distinguishable from the first-generation entrepreneurs and soon in direct competition with them.

These days the Valley is once again abuzz. Headlines report bulging wallets and a smorgasbord of new perks. Venture capitalists hum down Route 101, and angel investors lurk and listen in the bars. But instead of a disruptive melee like that of the late 1990s, with its diversity of players and voices, the overwhelming tendency today is a further consolidation of power by the already powerful.

During the past decade, a few giants have managed to fence in market after market for hardware, software, and content. Some did so simply by buying up their competitors. Oracle CEO Larry Ellison once said that acquiring another company was “a confession that there’s a failure to innovate.” But Ellison himself decided to opt for the more reliable profits that come from buying one’s competitors, which in Oracle’s case included PeopleSoft, Siebel, BEA, Sun Microsystems, and more than sixty other firms. During the same period, Google—even while branding itself as the dreamiest of inventors—vacuumed up close to a hundred companies, including such core components as YouTube, DoubleClick, and ITA.

John D. Rockefeller, whose Standard Oil ruled the energy industry for decades, liked to present his predations as acts of altruism. “We will take your burdens,” he would tell his target. “We will unite together and build a substantial structure on the basis of cooperation.” But all understood perfectly the ultimatum hidden in the honeyed words: Join or be crushed.

So, too, today’s lords of the Valley, who enjoy the power to choreograph competition among the latest generation of upstarts and then buy whom they please, when they please. Yet this de facto license to govern a trillion-dollar industry—and with it, entire swaths of the American economy—appears to have left these high-tech headmen unfulfilled. Or so we learned when the Justice Department complained in 2010 that senior executives at Apple, Google, Intel, Pixar, and two other corporations had “formed and actively managed” an agreement that “deprived” the engineers and scientists who work for them of “access to better job opportunities.”

Even in those reaches of society long accustomed to the rule of the few, the fact that some of the biggest and the richest had agreed not to poach one another’s workers managed to shock. In an editorial, the New York Times wondered “What Century Are We In?” When all six companies settled with the DOJ in September 2010, they denied any legal wrongdoing, and simply agreed to abstain from such labor practices for the next five years.This sentence was added to the online version of the story, to clarify a later reference. Yet in the Valley itself, from those most directly affected, we’ve heard only the rarest of whimpers. The anger is there. But it’s tamped down by fear.

To see how these employees react to their bosses getting busted for running a labor cartel, I recently toured Apple’s hometown of Cupertino, California. I strolled the Infinite Loop, the road encircling the six edifices at the heart of the empire. I wandered the side streets lined with low-slung buildings adorned with discreet Apple logos. I ambled down North De Anza Boulevard to the center of town. All around I saw Apple employees, easily identifiable by the white badges dangling from their necks or clipped to their pants pockets. And I approached many of them to ask what it felt like to work in the company’s town.

An older fellow named Steve, with scraggly white hair, told me he had read all about the settlement, and that the news had come as no surprise. “They treat us like dirt,” he said before unleashing a string of curses. “Market capitalism should be a two-way street, no? If they get to make us compete against one another, then they too should have to compete.” At this point Steve walked off. He’d like to talk more, he said. But his contract renewal was coming up, and someone might see him with me.

At a crossroads just south of Apple headquarters, in front of a Valero gas station, I caught up with John, who was speed-walking to the dentist. “Of course I don’t like it,” he told me, and proceeded to recount the facts of the settlement in detail. “But what can we do? It’s not like anyone ever dares to speak about it. I mean, they actively encourage us not to talk to one another. It’s all taboo.”

Outside the Bagel Street Café, in the lines for the shuttle buses that carry employees north to San Francisco, at BJ’s Restaurant and Brewhouse, I come upon the same urge to talk, followed by the same mumbled apologies as prudence takes hold. Sometimes the fear kicks in almost instantaneously. One employee actually spun on his heel, jumped back into his pickup truck, and sped away, though not before hissing that “even if I did know anything, I wouldn’t ever be able to talk about it.”

Eventually I did find one employee willing to speak up. Last spring, a San Francisco law firm announced plans to file a class-action lawsuit against Lucasfilm and the six corporations named in the DOJ settlement. Such lawsuits require at least one person to publicly represent the class, and finally a former Lucasfilm software engineer named Siddarth Hariharan stepped forward. After some back-and-forth with his lawyers, Hariharan (who also goes by the name Neil Haran) agreed to discuss how the masters of these estates treat their tenants.

Over lunch in San Francisco, Hariharan, dapper in a stylish sport coat, starts by telling me all the reasons he loved his job, especially the opportunity to take part in sprawling, complex projects. Sure, the pace was grinding, the hours crazy. One team, he recounts, worked for 110 hours per week for nine months straight. But “everyone believed they were making something important.”

Hariharan says his attitude began to sour after Lucasfilm completed a particularly ambitious project. The very next day, he says, shaking his head, executives came in and “fired almost everyone.” These were employees who hadn’t had a day off in months. “People were running around the office,” says Hariharan, whose own job was not affected. “They were running around crying. It was a bad sight.”

He pauses, and looks at me. “Then, on top of that, I hear they were conspiring to lock people in a box?” It was the allegations about the labor cartel, Hariharan says, that angered him sufficiently to join the lawsuit. “It’s simple,” he says. “If you do something bad, you should be punished.”

Many entrepreneurs and workers in Silicon Valley want to speak out, Hariharan believes. Many would love to restore the open job market of the early 1990s. But for most, “it would be career suicide.” Even Hariharan might have thought twice if he hadn’t already established himself as an independent entrepreneur. “I’m not rich,” he says, “but I never have to work for anyone else again. So I felt I had to do something. I had to stand up for those who couldn’t.”

Subscribers can download and share a .pdf of “Killing the Competition” here. Non-subscribers are invited to sign up here, for as little as $13.50 per year.

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More from Barry C. Lynn:

Commentary February 3, 2012, 1:58 pm

Obama’s Big Shtick

From the February 2012 issue

Killing the Competition

How the new monopolies are destroying open markets

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