Nicholas Shaxson: Monopoly Money

Nicholas Shaxson, author and expert on the global economic system, looks at the intricate web of global finance, exploring the unseen forces shaping our economies and societies and exposing the hidden impacts of tax deregulation and monopolistic market practices.

From the United Kingdom’s economic struggles to the pervasiveness of big tech firms, this episode unveils the hidden mechanisms of monopolistic power, particularly in the energy and financial sectors, and shows how their immense power affects everything from income inequality to climate action. Nicholas sheds light on the profound effects on workers, consumers, and democracy, and the emerging global movement challenging these monopolies as well as the detrimental effects these have on societal wellbeing and long-term growth.

As we navigate a world shaped by recent economic shifts, Nicholas explores the complexities of regulatory challenges, offering a pathway towards a more equitable, inclusive, and sustainable economy. Join us in uncovering the intricacies of monopolistic power and learn how addressing these economic forces can pave the way for a wellbeing economy that caters to the needs of society and the planet.

Voiceover 1:
I’m terrified at the monopolies. I’m from a small town, so I have been seeing the impact in the last years. So, every time I go back, I see how all these shops that I used to go as a child, they have disappeared and they have turned into like companies that it’s just like a chain. I feel like there’s a lot of people, even including myself that, for example, I always dreamt of having my own company. When I see the situation that we have right now, it feels impossible. You know, I have to choose between surviving and following my dreams, which is really depressing. 

Voiceover 2:
It makes you feel stuck in this sort of bubble where you can’t really do anything else because you’re not getting paid enough to buy from independent businesses and small shops buying the things you need. But if not, you have to, I think, change things. You can try and buy independent as much as you can, even if it’s not everything you’re buying. I think just doing as much as you can and it doesn’t have to be perfect. It really helps.

Carl Schlyter:
Welcome to SystemShift. People are all too aware that the world’s biggest companies are using monopoly power to effectively rip off customers, while exploiting workers and citizens and suffocating smaller businesses. Excessive corporate power is shaping an economy based on destructive production and consumption patterns, fuelling inequality and division, undermining democracy and worsening the climate crisis. Today, we welcome Nicholas Shaxson, investigative author and journalist and expert on the global economic system, to uncover the unseen threats that weave through our economies, including the intricate web of monopolistic power and its far-reaching impact. For the last 30 years, Nicholas has written extensively on global businesses and politics for the Financial Times, Vanity Fair economist and its sister publication Economist Intelligence Unit, Reuters, International Affairs, Foreign Affairs, American Interests and the BBC, Africa Confidential and African Energy, and is also working for the Tax Justice Network; an expert led lobby group focused on the harmful impacts on tax avoidance, tax competition and tax havens.

He is a bit of a global phenomenon himself. Born in Malawi, educated in Britain, he has lived at various times in India, Brazil, England, Lesotho, Spain, Angola, South Africa, Germany, Switzerland and Netherlands – all over the place. In this episode, Nicholas unravels the hidden effects of tax deregulation and monopolistic market practices, from the economic struggles faced by governments to the pervasive influence of colossal tech conglomerates.

Nicholas expose uses the obscure mechanisms underpinning monopolistic power, especially within the energy and financial sectors. He demonstrates how these titanic entities wield immense control, influencing everything from income inequality to climate action and profoundly impacting workers, consumers and democratic processes. But Nicholas also looks at how the complexities of regulatory challenges could offer hope for a kinder economy that is more equitable, inclusive and caters to the needs of society and the planet. So, without further ado, a warm welcome to you, Nicholas Shaxson.

Nicholas Shaxson:
Hi, good to meet you.

Carl Schlyter:
And I hope our listeners will enjoy this rather bumpy ride around the more darker sides of our economy, like tax havens and monopoly building, and competitiveness fight among countries, so you will guide us through this ride. How would you describe tax haven?

Nicholas Shaxson:
Okay, there are lots of people who’ve tried to define this term tax haven.

And it never it never really works. So, what I did I boiled it down to two principles or two kinds of ideas really. One is escape and the other one is elsewhere. So, a tax haven is a place you go or you take your money there to escape rules and regulations and laws that you don’t like. So those laws might be taxes. They might be disclosure, secrecy, you might be running from the police, you might have committed a crime. You might be running away from financial regulations, a lot of banks set up subsidiaries in other jurisdictions in order to escape financial regulations at home. Billionaires who get divorced, they put their money in offshore trusts, so that their ex-wives, I’m saying billionaires nearly always men so that their ex-wives don’t get hold of it. And elsewhere is this concept of offshore. So, it’s not you don’t do this at home. You take it somewhere else. Where the laws are different, you can escape your own laws. And so for me, that’s what a tax haven is. And it’s not really a definition, but it’s sort of a pair of ideas. Escape. You escaped too somewhere else and you know, there are similarities with the old pirate coves back hundreds of years ago, pirates would do sort of terrible things; they wouldn’t be allowed to do them back at home but they’re allowed to do them when they’re out in the Caribbean. And there’s actually historically, continuity between pirate coves in the Caribbean and the tax haven activities.  

Carl Schlyter:
Yes, some of them are located in the same places today. 

Nicholas Shaxson:
Yeah, and it’s not a coincidence. I mean, it’s you kind of develop a sort of a mentality, a worldview, and these things kind of, yeah, they reproduce themselves. 

Carl Schlyter:
When you try to say that you should regulate this and so on, they tend often to say, well, we have no control. We can’t control what they do. But actually, many of them have a very strong British connection, don’t they? 

Nicholas Shaxson:
Yeah, actually most of the big tax havens in the world are either big, powerful, rich countries in their own right. So, the United States is a very big tax haven. A lot of people can put their money in the United States and it will stay secret. Their own countries, their own tax authorities, their own criminal authorities will not be able to penetrate the United States if they set it up right, to find out where that money’s gone and what it’s doing. So, the United Kingdom is itself a significant tax haven, you know, in my broad way of looking at it, it is a regulatory haven for finance. So, many banks can do things in the City of London in the UK that they wouldn’t be allowed to do elsewhere. So, the UK kind of makes a lot of money out of that. But also, these countries often run a series of sort of satellite tax havens around them.

And particularly you highlighted Britain and Britain is kind of the granddaddy of this system.

So, there are many overseas territories like the Cayman Islands and Bermuda and Crown dependencies like Jersey, Guernsey, the Isle of Man, which are kind of offshore satellites of the United Kingdom. They’re sort of British. Britain sort of underpins their foreign relations and their defence, but they also have their own kind of low independent local politics going on, and they’re sort of half way and half way out. So these places, the City of London, the UK financial centre, benefits from these places because you will have a lot of activities going on in, for example, the Cayman Islands, but it will be intimately connected with UK financial actors. So, UK banks will be very active there, you know, law firms and so on.

When they have these kinds of activities going on, often very shady activities, often illegal activities, the UK can kind of say, well, that’s not ours, that’s someone else’s.

So that’s nothing we can do. Let’s just let them, you know, we can do that. But in fact, there’s a lot of sorts of money flowing into vested interests in the UK from these places.

So, Britain is kind of having its cake and eating it, getting the benefits, but pretending it’s nothing to do with it and sort of absolving itself of responsibility. 

Carl Schlyter:
And even giving juridical backing of it. Because if you have a court case, where does that end up in the end?

Nicholas Shaxson:
Yeah, a lot of structures that are set up, for example, in the Cayman Islands, you know, the legal regime will come back to London. So, investors who structure some things through the Cayman Islands, whether it’s for reasons of secrecy or otherwise, know that if there is a dispute, they will have access to the courts in the UK that will regulate it, not some banana republic court that no one can trust. It’s actually courts in London. So these places, you know, that intimately connected to the UK. UK financial interests make a lot of money out of these places, but the UK kind of keeps them at arm’s length. It’s a sort of game of smoke and mirrors, really.

Carl Schlyter:
So, when politicians in the US and the UK say, oh, we can’t regulate this, it’s actually not the truth.

Nicholas Shaxson:
It’s not true. They can do an awful lot. Britain has absolute power at the end of the day to close these places down. I mean, that was a huge sort of corruption scandal in the Turks and Caicos Islands. The British overseas territory and UK eventually stepped in and imposed direct rule, that’s the way these things operate. And it can do that. It just doesn’t want to. So yeah, it’s a you know, it’s a very dirty game. but it has become a really major central part of the global economy. I mean, estimates are that, you know, global tax losses to tax havens, running about $500 billion a year. That’s just the economic damage as, of course, the Democratic damage. You know, when you have your elites able to escape offshore and do things they’re not allowed to do at home, you get enormous popular anger about this kind of thing. And especially when these scandals break with, you know, things like Panama Papers leaks, it’s profoundly corrupting to democracy because you have one set of rules for the elites.

They go offshore and do what they like, and another set of rules for everybody else. You kind of has to stay home, and you can’t afford to set up these expensive offshore structures.

Carl Schlyter:
I think that’s really important here, because when you talk about the cost of these places, you only mention the direct loss of tax. But if actually you include not only what you mentioned, also the impact on democracy, but additionally, then in Season 1 of this podcast, we had, Wilkinson and Pickett, who made a lot of research on how inequality in a society is negatively impacting almost any good part of life in the society. And of course, inequality is aggravated by these tax havens existence.

Nicholas Shaxson:
Yeah, absolutely. I mean, you have, the simplest example would be, someone rich putting their money in a tax haven, not paying their tax. You know, they, they are richer as a result of that. And people in other countries, they have to either suffer worse public services or, they have to pay more tax themselves to compensate. But, you know, many of the effects are more indirect. You know, if you have secrecy, someone can put their money and hide from creditors or hide from the forces of law and order. They can get away with crimes at home and then keep their winnings. Many of these things are unmeasurable. So that $500 billion a year, which is a widely touted statistic, is really just part of much bigger picture.

Carl Schlyter:
Talk about financial regulation. What is the link between lack of financial regulation and giving opportunities for organised crime?

Nicholas Shaxson:
Well, that was a giant global crisis, financial crisis back in 2007, 2008. What happened there is you had financial players who were able to take enormous risks with basically gambling in markets, and they knew their role in the economy was so important that governments, if these risks turned bad and things started to collapse, governments would have to step in. Taxpayers would have to pick up the bill. So, in terms of the winnings, they were able to take the winnings when times were good and when things did blow up, as they did back in 2007, 2008, then it was taxpayers who had to take the flip side of that. So, it was basically free money for them. Heads I win, tails you lose situation that not only creates enormous economic dislocation, that dislocation from the crisis will ripple down the years. And it’s still, in a sense, with us. there’s been a decade or more of lost output. So there’s economic damage. But also, there was such popular anger that began to build up. It began to kind of corrupt our democracies and damage our democracies. One of the things that infuriates so many people is that the finance sector continues to play these games, and government regulators didn’t really step in. They did some things after the crisis. But many of this, chicanery is still going on all across the global economy. And people can see it. People are not stupid. They may not understand that the technical details of private equity firms are up to in there, you know, dividend recapitalisation strategies, but they know that they’re being ripped off. And this, I think is a is essential contributed to some of the anger we’re seeing in countries all around the world.

Carl Schlyter:
When bankers and others talk about the financial sector, it’s often described as a lubricant to the societies function. It helps allocate resources where they are most useful and so on. But many of the mechanisms that are lying behind this financial collapse, many of you still might remember the term credit default swaps. That was a huge gambling technique, using tax havens to avoid taxes and leverage the risks so they became enormous. It was a pure gambling scheme in many ways. But how can tax havens be used as vehicles for destabilizing the functioning of the financial system, like it’s not anymore just a lubricant?

It’s so much more. And what does the tax haven’s role in expanding that role.

Nicholas Shaxson:
Yeah, so you know we all need financial centres. We need finance to channel our savings into productive investments. We need finance to help us build things that we wouldn’t otherwise be able to afford to build and to buy houses and so on. What’s happened, particularly since the 1970s, is that finance has grown far beyond this role as a utility sort of serving society, serving the economy. And it has grown into something much, much bigger. And there’s plenty of research out there that shows that it’s kind of like if you look at a graph of financial sector development on one hand and economic growth on the other, it’s kind of like an upturned banana shape. So you have, if a country’s financial sector is really underdeveloped, you can improve your country’s prosperity by developing it further.

But there comes a kind of optimal point. And there’s various measures of this. I mean, the IMF and others have produced studies showing this point is, you know, when credit to the economy becomes about equivalent to about 100% of GDP, that point is a sort of optimal point. That’s where finance is doing what it’s supposed to be doing. And it’s, you know, serving society. But then finance grows beyond that. And as it grows beyond that, it starts to damage prosperity. It starts to damage economic growth and also causes other damage. So, what that is, is a transition from finance being a utility, a sort of support to the economy, to a kind of profit centre in its own right, where growing finance to getting bigger and bigger becomes an end in itself. And what happens then is finance moves from this kind of utility activities towards much more kind of extractive activities. So, it will start, you know, the example of the global financial crisis where financial actors gambled with the public’s money and then the public had to pay when things went south. That’s an example of it. But there’s all sorts of tricks going on now, you know, private equity firms are great examples of this. They will go around the economy buying up companies perfectly good companies that are sort of making profits and doing, you know, there might be veterinary practices or whatever. And then they financially engineer them. So they say, okay, I bought you. Now you haven’t run your financial affairs enough through tax havens to escape tax. So let’s do that. We’ll set up a structure and they do that. And then they say you’re paying your workers too much. So we’re going to slash wages, we’re going to fire a bunch of people and you’re going to have to work harder for less pay. They will say you haven’t borrowed enough money. They will do tricks like the dividend recapitalisation. Now, what that is, it’s one of these tricks that your kind of almost can’t believe it’s legal. A private equity firm will buy a company. Then they will order the, you know, the bosses of that company they will tell them your company must not borrow, you know, let’s say $50 million. So the company borrows that money, pays that money straight through to the private equity owners, the people who bought it up that the moguls, the titans and those owners go and spend it on yachts and caviar and champagne, whatever they want. But now, who has the debt? It’s not the owners, it’s the company. So now those in the company, they have to work harder to pay off those debts. And for the private equity people, maybe they bought it for 50 million and they got this dividend for 50 million. So they basically got that company for free. And now you have a perfectly good company. It’s much more fragile, it’s sort of hollowed out. It’s having to pay off these huge debts and it’s like a magician’s trick. I mean, people sort of can’t believe it. You kind of have to hear it twice to be sure you know what exactly is going on. But it’s actually a very simple trick. 

Carl Schlyter:
And it’s a good explanation of why risk capital is often void of risk.

Nicholas Shaxson:
Exactly. Yeah. So the people, the owners, you know, they got this company for free. They didn’t really take any personal risks. They get outside investors like sovereign wealth funds and union pension funds and others, they invest their money so that they can buy these companies. The owners, they hardly invest any of that, their own money.

I mean, it’s like, you know, 1% or 2% of the pot, the private equity money has to invest in companies come from the owners. It’s almost nothing. But the winnings go to the owners.

They get massive winnings from these things. So it’s exactly as you say. They are not taking risk. They are taking risk with other people’s money. And that concept of other people’s money, they call it OPM, other people’s money it’s right at the heart of the financial system today and that’s really the centre, I think.

Carl Schlyter:
When we talk about risk taking job creators, how true is that statement?

Nicholas Shaxson:
Well, it’s a lovely slogan. And, the sort of billionaire classes who are increasingly extracting money from our pockets rather than more than creating wealth. And we can get into some examples with, you know, people like Jeff Bezos of Amazon and others, how they do it. But it’s an it’s a brilliant political slogan. You know, we are the wealth creators they say. In our increasingly financialized and monopolised economies, they are increasingly the wealth extractors and the real wealth creators, you know, the teachers and the and the entrepreneurs, you know, just ordinary people who are doing, you know, honest work. And increasingly, the Titans, the moguls, the people who are getting richest out of the system are actually causing damage. They’re not only redistributing income and wealth upwards, they are also kind of shrinking the pie. They’re also making overall prosperity lower, as they get richer. So that kind of damaging system.

Carl Schlyter:
You talked about before that if you have a to a big financial sector, it tends to reduce growth. Now in this podcast, we have often questioned growth because it’s linked to environmental destruction. And the way it is structured today is increasing social injustice. But if I’m a genuine innovator, innovating things, that is good for humanity and people, actually, a two big financial sector will make investments in my company and my innovation less attracted to many of the financial vehicles. So actually, sometimes, two big financial sectors actually harmful for innovation. Can you explain a little bit?

Nicholas Shaxson:
Well, yeah, absolutely. So, you can contrast an economy that is characterised by lots of kind of local banks and local financial institutions, a local banker will know their local businesses. They will go and spend time looking at what’s going on in their factories and so on, and they’ll understand their needs. And there’s lots of examples, historical examples where this is, you know, led to very vibrant, resilient economies. But what you increasingly have now is very large global mega banks. they don’t care and they aren’t interested in small local businesses, really. So what you have, is you have an economy increasingly outside of the financial sector, an economy increasingly kind of dispersed between dominant monopolistic players, which are at the top of the pyramid, and then a much larger number of kinds of smaller businesses, smaller players who are much less profitable now, the financial sector is a driver of monopolisation. It is forcing these firms apart because for one thing, it is throwing cheap capital at a monopolist. They know the monopolistic and make huge profits, so, they’re very happy to lend money to them. And the old saying is the banker is someone who will lend you an umbrella when the sun is shining and they want it back when, when it starts raining. So when someone’s doing very well, they will lend them money. But smaller firms ask them about getting access to finance, especially if they’re competing against a monopolist who has the power to crush them. It’s much, much harder for a big mega bank to lend to smaller firms these days. And also, if they do lend, they’ll lend a much higher interest rate. So they’re already tilting the playing field in favour of the monopolies. But there’s other factors, too. There’s in the financial sector, the mergers and acquisitions departments of investment banks are the biggest and most profitable parts of those banks, so they love mergers and acquisitions, and that’s what’s bringing companies together, making them bigger and bigger, more and more dominant, whether it’s in the oil sector or in the tech sector, finance is kind of bringing these companies together, merging them, joining them, making building monopoly power. And it’s a really powerful driver of, you know, and the more power these companies have, the more monopolistic they are, the more they can extract from other parts of the economy. So finance is not just monopolies in its own right. They are monopolising the rest of the economy, too, because of the financial sector it’s kind of like, you know, like the DNA for the other part of the economy because they are monopolies. They are spreading monopolisation. 

Carl Schlyter:
Today’s banks are actually not that safe because of the very reduced capital requirements but what you have been explaining now is also how the huge financial system, it’s actually promoting, another development that you have been warning about in your book for 2018 – monopolies. But when politicians talk about that, they seem to say, oh, as long as it’s good for consumers, I don’t care. But that’s a really flawed argument dating back to an economist from the 1960s that I know you would like to mention.

Nicholas Shaxson:
Yeah. So, what we’ve seen since the 1960s, 1970s is the growth of an ideology, a kind of pro monopoly ideology. So before then, in the United States and in Europe, for example, the US’s had a long and vibrant tradition of what they call antitrust. And that is when they see big concentrations of power, they see them as a political threat, and they also see them as an economic threat. And so, they do things like break them up or they regulate them very heavily. In Europe there’s more of a tradition also worrying about concentrations of power, but more leaning towards taxation and nationalization, but also breaking up concentrations of power. Then from the 1970s onwards, there was a particular economist from the Chicago school called Robert Bork. So regulators had been worrying about different stakeholder groups, about farmers, about producers, about workers, about citizens with rights, about the public interest, just the general public interest. And they also worried about power. They also worried about companies becoming too big and too powerful, and therefore, too dangerous. So they kind of check this power. And then Robert Bork came along and he said, don’t worry about all that stuff. Don’t worry about power. Don’t worry about the public interest. Don’t worry about any of those other stakeholders. There’s only one group of stakeholders in matters and that’s consumers. And everyone’s a consumer. So if you sort consumers out, then everything’s going to be fine. So he said the way to help consumers is to allow corporations to get bigger and bigger, because you get economies of scale and that’s efficient. And those efficiencies, as they call it, it’s kind of neoliberal speak efficiencies.

Those will trickle down to consumers. And that’s all you need. Now. The big money obviously loves this argument. They began funding think tanks and education programs for judges. And this sort of started in the United States. And it kind of spread out in the United States really quickly. And then it kind of spread internationally. This idea that we should just not worry about corporate size, not worry about corporate power, not worry about anything except these so-called efficiencies of big corporations, and just let it all grow and deregulate.

And so that’s what happened. You had this kind of explosion of mergers and acquisitions, starting from around the 1980s, the era of Ronald Reagan and Margaret Thatcher, and companies just getting bigger and bigger and bigger with almost no regulation. And this spread to Europe. So now in Europe, people sort of see the European authorities as kind of famously fighting against dominance, mostly American firms in big tech and other sectors.

But in fact, they’ve been almost as pathetic as the US authorities in opposing this stuff, because, you know, the number of mergers that have been blocked by the European Commission, I mean, many, many mergers should be blocked because they’re going to create dangerous concentrations of power. but it’s around half a percent of mergers notified to European Commission have actually been blocked. So, they’ve just been asleep at the wheel. They’ve been letting this stuff happen. They fallen in thrall to this ideology created by Robert Bork called consumer welfare, where everything’s about consumers and don’t worry about other stakeholders. And so, we’re in a situation where, yeah, we need to reclaim the idea, the vision for how a market should be structures, how much power is acceptable. And, yeah, what our market regulators should be doing. 

Carl Schlyter:
One thing, when you talk about efficiency, people, it has generally a positive connotation. Something efficient is good. But when we talk about financial efficiency of monopolies, it’s not really producing more out of less is it. 

Nicholas Shaxson:
No, it is not. And efficiency is an if it’s a word that sounds great, but it is really in finance speak, it means it is often very harmful. So if you have a company that is able to pay its workers less, the finances will say, well, that’s efficient. if it is able to run its financial affairs through tax havens and dodge tax, that is count as an efficiency. Of course, from the perspective of a firm, it does feel efficient because profits are bigger. But from the perspective of society as a whole, that is profoundly inefficient. It is just really the extraction of wealth from one group of stakeholders and giving it to shareholders. Owners of these companies. And so efficiency is one of these very loaded terms that is really useful as a slogan, and it’s very effective as a slogan to persuade politicians to do things and to persuade general public to accept things. But at the end of the day, it is actually, a word that it’s like a crowbar to sort of open the safe and shake out the money. 

Carl Schlyter:
Another such term is competitiveness amongst states like you had in the end of the 90s, like Tony Blair of England and Göran Persson in my own country, Sweden, and a lot of social democratic leaders was embracing this competitiveness amongst states. That is a rather flawed concept too.

Nicholas Shaxson:
Exactly, the word competitiveness sounds wonderful. Who wants to be uncompetitive? And you get politicians still today saying we must be competitive. We must be competitive against China, against America. What they really mean when they’re saying this is we must give our biggest companies subsidies from other parts of economies so that they can compete on the global stage. So you know, Germany had these kind of wage negotiations, wage agreements where workers’ wages were pushed down. Now that was very good for German car companies and so on. Was it good for Germany as a whole? Well, that’s a big question that’s much debated. The UK talks about competitive financial regulation has been a big battle over that recently. What competitive financial regulation means deregulation to allow UK financial actors to stride the world stage, but that deregulation is very dangerous and it is allowed those financial actors to act in a very predatory way, not just with people in other countries, but with people in the UK as well. They talk about competitive tax system. That means low taxes for big banks, for big corporations, but the effect of course, of that is lower public revenues, worse public services. Is that good for the UK as a whole? Generally, not, because inequality is already terrible. So competitive is one of these words that is just used to get things for particular sectors. and it sounds great and people don’t really question it. And the result of it, of course, is you get a race to the bottom between countries. So secrecy is another example. You know with tax havens, they kind of they’re always using this word competitiveness. I remember I was in Panama City straight after the Panama Papers scandal came out, and there was a big conference, and they had all these politicians coming up on stage saying, yes, we must clean up. We must do something about this. And then they all said, but, but we must stay competitive. And what that meant was we must actually not clean up. We must actually find new ways to do what we were already doing. So when you have a country, for example, puts in place a clever new secrecy, the law that attracts certain kinds of money, other countries will look at that and say, okay, that’s sucking money away from us. So we got to put in place an even better, stronger, deeper, darker secrecy law and that will make us more competitive. And then you get other countries looking at that and, and it kind of goes on like that. And it’s a race to the bottom. And it’s the same with financial regulation and it’s extremely damaging. 

Carl Schlyter:
What’s the science behind secrecy and financial deregulation that that’s good for the average person and good for our environment and good for our planet and good for the population and good for global peace. What’s the scientific evidence for that? 

Nicholas Shaxson:
And there’s no good scientific evidence for it. I mean, the scientific evidence all piles up in one direction. You know, these, you know, secrecy and financial deregulation deliver benefits to a relatively small group of people, and they deliver those benefits at the expense of those people. So you can provide a lot of scientific evidence saying, you know, this stuff has helped these companies or these rich people. And often the studies end there, you know, okay, these companies are benefit. That’s great. And they just stop there. And so politicians think, oh, that’s good. That’s made, you know, more profits for these companies. 

Carl Schlyter:
But is there evidence that if you do the opposite, if you spend money on education, safety and, health care and funded this in the proper way and gives access to people, are there any evidence that’s good for the country and not only the people, but also the economy? 

Nicholas Shaxson:
There’s plenty of evidence about that. I mean, studies show that, if you measure economic growth or overall economic growth, that low tax countries, we’re talking comparable countries here. So high income countries, the lower tax countries and the higher tax countries generally grow at sort of similar rates in the long term. But the difference is the higher tax countries have much better indicators on inequality and just sort of all sorts of measures of well-being, you know, life expectancy and so on. So the higher tax countries generally would perform much better on all the things that people care about and all the things that matter, even if there’s not much difference in the sort of, growth since the global financial crisis, the studies have now started showing that countries that the lower tax deregulated countries actually suffer, you know, long term growth rates as well. The United Kingdom is doing terribly at the moment, and I would argue that significantly, because of the sort of heavily financialized nature of the economy. So competitiveness seems to harm growth as well as seems to harm all the things people care about as well, the sort of environment and, you know, a good life. But it just sounds so good. And politicians love saying we’re going to be more competitive, but the best way to be competitive, if you’re going to use that word, is exactly to do as you’re saying is to invest in your people, invest in workers, you know, rebalance your economy so that it’s a it’s not highly unequal and deregulated and low tax, but a really nicely balanced economy that is the formula for prosperity on a broad measure of prosperity. All the things that people, people care about on the environment and so on. 

Carl Schlyter:
And we had a time when capital was actually rather strictly regulated. at the end of the Second World War, we had the Bretton Woods Conference, where they regulated capital. And many countries, including the US and the UK, had, with today’s standards, ridiculous marginal tax rates of about 90% in some cases. And that time was economically very successful time – at the same time. And now when we have tax reductions, especially for the rich and corporations and very deregulated financial systems, the general economic outlook is not that good. Is there a direct link here or is it unconnected? 

Nicholas Shaxson:
No, it’s absolutely connected, I think, after the Second World War, you had a period of about a quarter century. When is exactly you said, you know, marginal tax rates on rich people, exceptionally high, up to 98% in some cases. You had what they call financial repression so that financial institutions weren’t allowed to speculate across borders. They were contained in very heavy financial regulation. And, they hated it, of course, and they were screaming about it. But that quarter century when there was all this, you know, high taxes, very heavy regulation monopolies, it was strongly regulated relative to now that was a period of world history that that’s the strongest period and most, most broad based period of economic growth in world history, before or since and when you deregulated after that and sort of cut taxes and stuff like that, you had seen falling economic growth, widening inequality, and also, much more financial crises. A financial sector has become much more unstable as it’s become bigger and more extractive. So, when we talk about growth or it’s actually about productivity gains and actually, building up a society, so it doesn’t necessarily need to be economic or consumer growth, it can be taken out as reduced working time or other benefits. Yes, I see when people talk about that, I see kind of, you know, human flourishing and prosperity as very sort of broad-based things, you know, the things that people care about. And economic growth is a very problematic concept, which is, you know, economists talk about it all the time. I mean, these big, big tech firms are kind of the tip of the spear when it comes to the dangers and the harms of market power. I’ll start with an example of Amazon, because Amazon is a company that lots of people use, lots of people love it. My elderly parents as sort of find it hard to move about. They order a lot of stuff on Amazon; it has become a kind of essential service. Now, a lot of people think that Amazon delivers low prices because it’s this giant marketplace. But in fact, right now there’s a fascinating case. The federal Trade Commission, a lawsuit, the Federal Trade Commission in the US is taking against Amazon, which argues that Amazon delivers higher prices all across the economy. Now, how does this work? Well, first of all, Amazon has immense power. There’s lots of companies, independent businesses selling on the Amazon platform. So you can go out there and you can click on stuff would be made by Amazon. It’ll be made by someone else and sold through the Amazon platform. Amazon has become so ubiquitous that these firms have to be on Amazon. They know that if they get locked out of Amazon, particularly that Buy Box, it’s that little box that you click at the end before you make your purchase. If they don’t get into that buy box, they’re dead. So they will do anything, any conditions that Amazon imposes on them. 

Carl Schlyter:
And they’re not friendly. 

Nicholas Shaxson:
And they’re very unfriendly. And they have to pay huge fees and they have to hand over all their data to Amazon. And they have no choice, because if they if they don’t, Amazon will say, okay, we’re going to we’re going to prioritise someone else. So these fees now reach roughly 50% of the sale price. 50% of the sale price of stuff sold on Amazon is now going in fees to Amazon. That includes logistics and so on. But look, 6 or 7 years ago, those fees were only 20% of the sale price. And you would think as Amazon grows, you’d get economies of scale and those fees would go down. But instead, they’ve gone up from 20% to 50%. It’s incredible. So that difference of 30% that just Amazon has extracted from companies in the last 30 years, it’s like a private tax system. It’s just because of Amazon’s power. It’s not because of anything else. 

Carl Schlyter:
And judging from the news reports about their warehouses and distribution centres, it hasn’t really gone to increase the salaries either for the people working for them. 

Nicholas Shaxson:
No, absolutely. It doesn’t go to Amazon workers. It goes to Jeff Bezos and Amazon shareholders. Now because those fees are so high, the sellers must bake those fees into their prices on Amazon. So when you buy something on Amazon, it’s a lot more expensive than it should be just because of Amazon’s power. You are paying a private tax there. To Jeff Bezos and other Amazon shareholders. 

Carl Schlyter:
According to Bork, the economist you mentioned before, his theory would now be like, okay, but if this is the case, you would have a lot of new companies outcompeting. Amazon, is that happening? 

Nicholas Shaxson:
No, it’s not, Amazon is getting more and more powerful. And you can see it in these rising fees. So Amazon is unchallenged and nobody can come in and really compete with Amazon I mean you know there’s eBay and there’s a few other place you know you can go and buy in online shops and in shopping malls. But Amazon is just so, so much more convenient. And it’s kind of like a one stop shop. So it’s leveraging its power to become ever more powerful and ever more dominant. You know the monopolist has so many tricks that’s able to you know, where they’re able to outcompete other companies. You know, people don’t think of other companies online anymore really very much when they want to buy something. I mean, you can go to an online seller, but often the system is not as efficient. and so you just go back to Amazon where it’s so easy and you’ve got your Prime subscription. It’s just a couple of clicks away. 

Carl Schlyter:
What I was studying local, economical multipliers. You could see that if you spend your money locally, like if you would buy from the farmer’s market, that farmer wouldn’t hire people locally, that would pay taxes locally. They would spend their money mostly locally. If you buy this fruit basket cheaper at the huge supermarket chain, and then the profits would mainly go out of your county and less money would be recirculated locally. And the lower price you paid when you bought this fruit basket would actually be worse off in the end, because you would have to pay more for unemployment taxes locally that has been lost. So, do we see the same global effect here on Amazon actually buying there? Maybe it might be cheaper today, but in the end, you pay a higher cost. Is that the case?

Nicholas Shaxson:
Absolutely. I mean, my glib sort of summary of that is, you know, we’ve exchanged good jobs for cheap TVs but in fact, because of what’s happening, because of monopoly power, those TVs aren’t even that cheap. Economists study something called markups, which is the difference between costs and selling prices. So, and markups have gone globally. So, there’s a great study by an economist called Jan Eeckhout he looked at a book called The Profit Paradox. Global markups have gone from about 1.2, which means 20% above costs. so the sale price of something is 20% above the cost of producing that goods or services. and it gone to to 1.6, so they’re gone to 60% above costs. Then it’s the big firms that are doing at the dominant firms, the monopolies, they’re doing that. And again, the difference between 20% above cost and 60% above costs is huge. It means that if you spend 16 pounds on something, 12 of that is a kind of normal profit for the company. But there’s 4 pounds in that that is just power and it’s just you paying extra. It’s a monopoly tactic. Exactly that. and the great irony is, you know, Robert Bork, his consumer welfare ideology that was supposed to focus only on consumers isn’t even helping consumers. It isn’t helping anybody. It’s just helping the monopolists and their shareholders. And if you look at, we’ve got a report that looks at the top 20 richest billionaires in the world and the top 20 biggest companies in the world, and explaining why they’re all monopolists using a broad definition of monopoly. All of them use extensive market power to get their wealth. it is the secret sauce of the wealth and power of the biggest, richest people and biggest corporations in the world. 

Carl Schlyter:
I start to get the feeling that it’s going to be in the future. The left that is pushing lower taxes because they want to push down the monopoly tax system. 

Nicholas Shaxson:
Yeah, I think that would be a great argument for the left to make. We want lower taxes in these private tax systems that is a great, I haven’t even thought about it in those terms. And these private taxes are not even the biggest harms that come from monopoly power. 

Carl Schlyter:
That’s compared to 1980, for example, in almost all OECD countries, if not all, the workers share of total income has been reducing, while the profit share of total income has been increasing. And there’s a clear link here to this development of deregulation of financial markets. 

Nicholas Shaxson:
Yeah, for centuries even there was a kind of standard split of the share of income in economies. And it was around two thirds of national income went to two workers and a third went to kind of, you know, capitalist’s profits, whatever you want to call it. What’s happened since the 1980s, that share has gone down to kind of, you know, the mid 50s percent. And what that means in real terms is that workers incomes globally are now roughly $5-$6 trillion lower annually than they would have been if we still had the same kind of markets back then. Now, some of this, of course, is due to technological change. Some of it’s due to globalisation, but a big chunk of it is due to market power. Monopolisation taking, you know, having the power to take money away from workers and give it to monopolies. Now this it’s true that some of it is due to monopolies paying their workers really badly. But that’s not the main effect. The main effect is an economy wide monopoly power. You see it in Big Tech, you see it in Big Pharma. You see it in too big to fail banks. You see it in big energy companies. Bigness is everywhere and all around us and collectively together. This is just a sort of, it’s like a force sucking wealth away from other parts of the economies. Workers and so on, and giving it to the capitalism. And so, more and more share of national income goes to the sort of richest, shareholders, owners of these companies. 

Carl Schlyter:
And we have been talking about monopolise here but there is another terminology here that might be less known, and that is monopsony. And that is when you don’t have a competition in who buys your stuff. So if you’re a farmer and there’s only one person or company going to buy your stuff, you have a very poor bargaining position. How does that work?

Nicholas Shaxson:
What we try and do is we try and talk about monopoly and monopoly power in very broad terms. so a dictionary will tell you that monopoly means just one seller in a market. But the dictionaries do not capture these definitions, do not capture what’s actually going on. So Amazon is not the only seller in a market. It’s not the only marketplace. But boy is it a monopolist. It has power. So regulators, describe monopolists in much broader turn to like the the Federal Trade Commission defines monopolies as having sustained and durable market power. The European Commission talks about, the ability to act independently of, you know, other players in the market of other sellers or other workers or competitors, or in the words of one of them, you know, they’ve become too big to care if other competitors are doing something else. And that’s because they are monopolies. When you think about this concept, we use the term monopoly very broadly and you know, there’s words like monopsony and oligopsony but the concept is very important. You know, it’s not just when you’re selling, you can jack up your prices. It’s also when you’re buying, whether you’re buying labour or whether you’re buying inputs from your suppliers, your power can be very damaging to them. 

Carl Schlyter:
Today when we’re recording this podcast, you just published an article on monopoly power in the energy sector. What was your point in this article?

Nicholas Shaxson:
Well, there are lots of players in the energy sector, lots of companies. But we have seen in the last few decades merger after merger, so that oil companies have got bigger and bigger and bigger. And one of the points about power is that when you join, when you merge companies together to build monopoly power, the merged company is more powerful and more profitable than the sum of its constituent parts. That’s kind of the whole point. And so, you are building power in the system you get with all these mergers. And we just at the moment we’ve got Exxon, wanting to buy Pioneer Natural Resources in a $60 billion deal. You’ve got Chevron wanting to buy Hess in another $60 billion deal. These will make these companies even more powerful. Now, this power, economic power is or translates into political power. So you’ve had these giant energy firms, basically funding climate denial. Not all of them, but Exxon is well known in that case, I looked at a particular energy firm called Koch Industries. Now, there’s this wonderful book come out recently by Chris Leonard called Koch Plant, which looks at, Koch Industries. And his point was that Charles Koch, the sort of, the person who runs Koch Industries, this is the mastermind behind it, is a monopolist. He seeks out positions of market power, pricing power, and he exploits them ruthlessly. It’s an incredibly profitable company. Charles and Julia Koch are now, both in the top 20 richest people in the world, according to the last Forbes list. And they have got rich through very substantially through monopoly power, through market power. They have decried government, they have funded all sorts of anti-tax, anti-government organisations. They’ve also funded climate denialism. They’ve funded sort of pro fossil fuel lobbies, and they have used their awesome political power to fund think tanks and so-called grassroots organisation fighting on behalf of fossil fuels. And so, you see, monopoly power kind of fusing into political power but here’s a kind of irony there, because, you know, his sort of anti-tax, anti-government stance, he’s sort of like, we don’t like socialist central planning, but in fact, monopoly power is a system of central planning. The more you build this kind of private, autocratic system and you plan it centrally and within that domain, you have enormous awesome power over all the constituent parts. And it is in many ways like Soviet central planning is very autocratic. 

Carl Schlyter:
I love that you say that because when I, I use often this analogy that, you know, huge corporations todaykind of set their prices on an administrative basis, not on the market basis. They set up an administrative logic. 

Nicholas Shaxson:
Yeah. 

Carl Schlyter:
And profit logic. And that’s not so different from the old Soviet corporations that had planning goals.

Nicholas Shaxson:
Absolutely. I mean, that’s what monopolies do. And so, you know, they fund the sort of anti-government, you know, free market, all this free market stuff. But what they actually want for themselves is the opposite of free markets. It’s no markets. It’s markets where they can set the price.

Carl Schlyter:
Exactly. When I was a young boy, right wing politicians quite often defend that market economy. They would not have been in favour of monopolies. They believed in small enterprises and that they should thrive. But today, I don’t see much resistance against these tendencies, neither among the right nor the left. How is that possible? 

Nicholas Shaxson:
Monopolies are a terrible thing for our economies and for our democracies. And it is quite possible, and historically, it has been very possible for there to be a great unity across the political spectrum, from right to left, about this being a danger. So people on the left who might be worried about inequality, they may be worried about coercive power over workers because of access. 

Carl Schlyter:
So, access to services. 

Nicholas Shaxson:
Access to services, power, and people on the right will be worried about the corruption of markets. They’ll be worried about autocratic rule in private domains that be worried about, government not being able to do what it wants to do. And so they shouldn’t like private tax systems like the monopolies have, unless of course they’re the ones they are the vested interests who are benefiting from it. But in general terms, it’s a sort of conceptual thing on the right. Monopoly has always been a dirty word, as it should be, and on the left as well. So you have the potential for kind of great coalitions across the political spectrum to oppose this. And I see this is a very positive thing as we see regulators beginning to wake up to this stuff, I think there’s enormous potential to create change that goes across the political spectrum. in fact, even some of the most right-wing politicians in the United States, you know, sometimes for strange reasons, some of them are really having it out monopolies and really saying, we don’t like this, we don’t like these big tech firms. And of course, people on the left as well. So you get these kind of potentially strange bedfellows. But I think that is a source of strength in any movement to tackle them is that you can, you know, you’re not just having, you know, left wing NGOs, for example, pushing for something. You have left wing NGOs, you have small businesses and you have some conservative politicians, at least the ones who aren’t kind of representing vested interests, also opposing it. And I think this is, you know, there’s some potential for some really interesting coalition building here. 

Carl Schlyter:
And also, for environmental NGO’s when corporate power is too large, regulators will fail to regulate them, and you will have more LAX Environmental Regulation, social protection, which negatively harms our environment. So everybody should just go behind, not if you’re left right or green or whatever. Yes. Just go ahead with this. 

Nicholas Shaxson:
Absolutely, because, I mean, one thing to understand is that these monopolies, they are concentrations of power, they’re concentrations of political power, and they are blocking change in their own interest. So if you are interested in, tackling climate change or more have more broad environmental concerns, if you want to achieve those things, you’re going to have to get through those concentrations of power. You’re going to have to get over them. So, I think a lot of people spend a lot of time thinking about the behaviour and actions of these companies, whereas in fact, they should be thinking about those behaviours. And actions are kind of symptoms of this power. It’s kind of like this impunity. They have to do what they want in the name of profit. If you start using these very powerful tools that governments have to tackle the power of at source from the beginning, it will open up space for all these other things that you want to do to, you know, help the environment to tackle, inequality and so on. All of these things will become easier if you tackle power at source. And that’s where I think there’s great potential. 

Carl Schlyter:
Let’s say we convinced everybody to be upset now, how do we regulate the financial market? How do we avoid monopoly power in the broad sense that you mentioned? What can people do? How can they act? 

Nicholas Shaxson:
Actually, there is some very good news that we can start to work with. So first of all, the whole concept of consumer welfare that has dominated our regulators minds in countries all around the world is ready to fall. Regulators are increasingly saying this stuff doesn’t work. They’ve been trying to use it to grapple with big tech in particular, and they just see this stuff isn’t working. We really need something new. So we have the beginnings of a real mind shift in among regulators. And the most dramatic expression of this was you had in the United States, you had this fantastically vibrant anti-monopoly movement which began about ten years ago. And it was, they started getting a lot of media traction, and it grew and grew and people, people started to see this monopoly power everywhere and, and start getting angry about it. And in May 2021, the Biden administration appointed leading anti-monopolies from this movement. Radicals, people like Lina Khan to positions of power. So the chair of the Federal Trade Commission now Lina Khan, she was appointed when she was 32. She was a, you know, a leading proponent of like, let’s break up Amazon, let’s break up Big Tech and let’s completely, completely revolutionize, our laws. So that’s happening in the United States. Europe is some way behind. Other countries are some ways behind. but there are a lot of regulators kind of taking inspiration from a new movement, a new set of ideas.

I’m a co-founder of it’s a small organization called the Balanced Economy Project, which is seeking to sort of promote these, these new ideas. in many cases, you can use laws that are already on the books in many countries around the world that is sort of anti-monopoly laws. I just they’ve just been kind of fallen into disrepair. They’re still there. The laws are still there, many of them. And we can use them and we can revitalize them. But also we do need new laws, which you do need new ways of grappling with big tech. But the time is now for overthrowing this ideology and what we need to do is now reclaim these laws for ourselves, create new laws. And there is, you know, we are right now and it’s literally just in the last year or two at the beginnings of a kind of sea change in regulatory attitudes about market power, and people are starting in positions of power, are starting to worry properly about dominance. And you are having big countries, big regulators, United States, the European Commission, UK, Australia, Brazil, India all starting to really get serious about doing something about this. And so we can now join at the beginnings of a kind of global movement. We just had a big, event in Berlin where we were, you know, anti-monopolies from around the world came together. And there is the beginning of the sense of the sort of global anti-monopoly community that is beginning to articulate new ideas and put pressure on their governments to start properly taking down these monopolies. 

Carl Schlyter:
Let’s go ahead. Let’s join this movement and community then.

Nicholas Shaxson:
Thanks very much, good to talk to you.