It will strengthen labor and help fight the increasing concentration of corporate power
By Stacy Mitchell and Susan R. Holmberg. NOVEMBER 18, 2020. (The Nation)
On September 5, 1955, the indomitable Walter Reuther, a towering figure in the labor movement and the head of the Congress of Industrial Organizations (CIO), began his Labor Day message to Americans by commemorating all that unions had achieved, from higher wages to greater dignity on the job. Reuther, who’d been an architect of the sit-down strikes that unionized the auto industry and who became an important ally of Martin Luther King Jr., then turned to another subject: the conditions facing the nation’s small-business owners. “Big corporations are getting more and more of the market,” he lamented.
The CIO intended to fix this problem. Its legislative platform during these years called for easing the tax burden on small businesses, extending them more credit, and stepping up antitrust enforcement. In 1957 the labor federation, which by then had become the AFL-CIO, cheered a Supreme Court antitrust ruling that went against General Motors and DuPont. The decision, the federation reported, set a legal precedent that would help prevent small businesses from being “unmercifully squeezed.” That year, the AFL-CIO demanded a “thorough-going investigation into monopoly, and legislation to protect the legitimate interests of small business.”
Reuther’s support for small business was not some strange anomaly in left-wing politics. For much of the 20th century, labor was allied with small business in the fight for a fair economy. For decades starting in the 1930s, the Democratic Party counted small businesses as a core constituency, alongside organized workers, and made their welfare a central concern of its policy agenda. This fact surprises many today because it’s a history long ago abandoned. The shift came in the 1970s, when Democrats embraced the ascendancy of big corporations, reasoning that these large entities were more easily unionized and could deliver more for consumers. In turn, liberals began to see small businesses as not worth fighting for. They were, at best, irrelevant to the left’s vision and, at worst, an obstacle to it.
Around the same time, conservatives realized that they could lay claim to small-business politics and recast it to propel an agenda that served the economic elite: cutting taxes, weakening democratic institutions, and dismantling labor and environmental protections. The dark irony of this platform was that it swelled the market share of big business at the expense of small. But the right’s small-business rhetoric was so successful that many on the left believed it, and it reinforced their idea of small business as inherently regressive, antithetical to worker interests, and opposed to Democratic values.
However, a look at the trends of the past 100 years suggests a reassessment is in order. The fates of working people and small independent businesses have risen and fallen more or less in tandem. The heyday of unions in the mid-20th century was also a period of flourishing small businesses. The 1970s were likewise a turning point for both, albeit a dire one. The number of unionized workers and of small businesses has plummeted over the past 40 years. Inequality, in turn, has risen sharply.
It seems the left got it wrong. Independent businesses have been crushed by the same concentration of corporate power that has debilitated unions. It’s not simply that these groups have common enemies, from Amazon to Tyson Foods. It’s that having a robust small-business sector disperses power, which has significant economic and political benefits for working people. Rebuilding small businesses is thus crucial to achieving the left’s vision of broad prosperity and a thriving democracy. It’s also key to developing a coalition and a politics that can expand the Democratic Party’s appeal and deliver reliable congressional majorities, especially in the Senate.
This task has become urgent in the wake of the disastrous federal policy response to the Covid-19 pandemic. Tens of thousands of small independent businesses have already been wiped out, with Black-owned enterprises taking the biggest hit. Many more are at risk. Their demise would further consolidate wealth, reduce the leverage of workers, and hasten the unraveling of small towns and urban neighborhoods alike. Ready to fill the void are some of the most predatory and extractive forces in our economy, including the tech giants, private equity firms, and dollar store chains. At the same time, the harrowingly close presidential election made clear that Democrats must govern differently if they intend to fundamentally shift the electoral map. All of this has made it well past time for the left to look at the economics and politics of small business with a fresh eye.
FDR’s “red-headed engineer”: Walter Reuther, the president of the United Auto Workers, speaks at a UAW-CIO meeting in October 1958. (Hulton Archive / Getty Images)
It may be difficult for many to imagine labor and small business as natural allies. But at the time of the New Deal and in the decades that followed, Democrats believed that concentrated private power was the paramount threat to the nation’s democracy and the well-being of its people, and they made dispersing economic power an overarching goal of their agenda. Strengthening unions to give working people more of a say was one way to do this; safeguarding small businesses and family farms from the predations of Wall Street and monopolistic corporations was another. These two strategies thus fit together.
As Franklin Roosevelt put it, the struggle was between the large-scale “units of finance and industry on one side and the great mass of workers and small-business men on the other.” A central aim of the New Deal, he said, was to secure “economic freedom for the wage earner and the farmer and the small-business man.” He and his congressional allies pursued this agenda by using antitrust laws to check corporate power, enacting fair labor laws, and adopting policies that kept banks small and locally focused. Campaigning in Cleveland in 1940, he described his vision of an America free of poverty and domination, “where no businessman can be stifled by the harsh hand of monopoly…where the workers are really free and…their great unions undominated by any outside force.”
This way of thinking and governing predominated in the Democratic Party for decades. James Murray, a Democratic senator for Montana from 1934 until 1961, was beloved by his state’s mining, timber, and railroad workers for his fierce commitment to labor rights. He championed small businesses with equal vigor, helping to establish and, for six years, chairing the Senate’s Special Committee to Study Problems of American Small Business. The committee’s findings fueled years of aggressive antitrust enforcement against big corporations and laid the groundwork for the creation of the Small Business Administration. Another Democratic leader of the period was Estes Kefauver, who served in Congress from 1939 until 1963. The son of a Tennessee hardware store owner, he was a lifelong supporter of organized labor and small business. In 1950 he coauthored a major expansion of the country’s anti-monopoly laws.
During these decades, income inequality shrank dramatically. Although people of color and women were deliberately excluded from many of the New Deal’s benefits, the gap between Black and white earnings also narrowed in these years. Some have attributed the gains of this period to monopoly capitalism, pointing to industries such as auto and steel, in which big unions bargained with big companies. But this is a wildly incomplete picture of the economy of this era. In many sectors—notably banking, farming, and retail—New Deal policies worked to ensure that small enterprises predominated. More than 70 percent of retail sales in the mid-1950s went to independent retailers with a single location. Of the nearly 9 million people working in retail then, nearly 2 million owned the store in which they worked, either as a sole proprietor or in partnership with others. The expansive middle class of this era thus rested on two kinds of economic agency: the ability to bargain collectively and the ability to start a business.
Triumph of the neoliberals: Bill and Hillary Clinton at a 1992 campaign rally on Wall Street. As president, he pushed for deregulation, which led to greater concentrations of corporate and financial power. (Andrew Lichtenstein / Corbis via Getty Images)
Perhaps owing to the success of these policies, concerns about economic concentration faded from the public discourse in the 1960s and ’70s. While antitrust enforcement remained vigorous, mentions of monopoly in newspapers and books declined as Americans turned to other issues. This opened the way in the 1970s for a new faction to ascend within the Democratic Party. Distancing themselves from both labor and small business, this new group of liberals instead embraced large corporations, seeing them as good for growth and dismissing concerns about the political nature of their power. This faction remade Congress and elected Jimmy Carter, who, amid the confusion of the oil shock and runaway inflation, began dismantling regulations in finance and transportation.
Ronald Reagan continued this project in sweeping fashion. Under the influence of Robert Bork and other Chicago School scholars, his Justice Department all but gutted our country’s arsenal of antitrust laws. Bill Clinton went further still. In 1992, for the first time in more than a century, the Democratic Party’s platform included no references to monopoly power. He then led a multiyear effort to overturn the Depression-era laws that had constrained the size and reach of banks, protected the economic security of small farmers, and ensured dispersed ownership of the news media. Barack Obama followed suit, allowing Amazon, Facebook, and Google to grow unimpeded and assume control of much of the infrastructure of commerce and communications.
The Democratic Party’s new stance was that independent businesses didn’t matter much. To the extent that the party continued to talk about them, it was mainly as growth-oriented “entrepreneurs” creating a “new economy.” The message was clear: Small businesses are valuable only to the extent that they may become big. The neighborhood bodega and local hardware store had become irrelevant. Their contributions to a more democratically structured economy and their role in the life of their communities were no longer recognized, let alone protected. In 2001, Senator John Kerry underscored this shift when he changed the name of the Senate’s Committee on Small Business to the Committee on Small Business and Entrepreneurship, in order, he said, to better represent its focus on “high growth businesses.”
As the left abandoned small businesses, the right seized the opportunity to reinvent small-business politics. “Small-business men and women like yourselves are the risk-takers in America,” Reagan declared in a speech to home builders in 1983. “Who better to explain [to] Washington’s political elite that…free enterprise, not government, is the source from which our prosperity has flowed?”
Before the 1970s, the US Chamber of Commerce had no interest in talking about small-business problems. But when it decided in the ’70s to become a lobbying powerhouse, it chose to center its messaging on small businesses, which served to disguise an aggressive pro-corporate agenda. Historian Benjamin Waterhouse explains, “By defining small-business interests in terms of deregulation, regulatory reform, and lower taxes, these policy entrepreneurs [including the Chamber and right-wing ideological groups like the National Federation of Independent Business] successfully blurred the distinctions between large and small firms.”
One reason the Chamber has been so effective at persuading Americans to think of small business as a conservative faction, allied with big corporations in pursuit of an elite agenda, is that small businesses have never been well organized. Today and historically, they’ve belonged to a scattershot collection of small organizations. Meanwhile, the Chamber counts only a tiny fraction of America’s small businesses as members, and it derives much of its massive budget and board of directors from large corporations.
Tellingly, the success of the Chamber’s policy agenda and the triumph of neoliberalism generally has devastated the ranks of small businesses. Between 1982 and 2017, the share of US business revenue going to firms with fewer than 100 employees plunged, from 40 percent to 23 percent, according to Census Bureau data. And the trend is accelerating. In the last decade alone, the number of small independent retailers has fallen by nearly 65,000—about one-sixth. It’s not only that existing small businesses are failing; the number of businesses launched each year has shrunk by almost two-thirds since 1983.
Our economic trajectory is thus the result of a two-pronged attack directed against workers and small businesses. Today there are signs that some Democrats are making this connection. Senator Elizabeth Warren launched her presidential campaign by declaring that it’s time “to put more economic power in the hands of the American people—workers and small businesses.” In 2016 she gave a speech that led to the return of an anti-monopoly plank in the party’s platform, 24 years after Clinton erased it. Representative Pramila Jayapal has also taken up the cause, fighting this year for long-term federal assistance for small businesses hit by the pandemic. (Her bill was blocked by House Speaker Nancy Pelosi.) Rohit Chopra, a Democrat in the minority on the Federal Trade Commission, has issued a series of pathbreaking dissents that call for the agency to take an aggressive stance against corporate malfeasance so that “independent businesses [can] chart their own destiny and contribut[e] to their communities.”
In late July, Americans got a glimpse of what it might be like if the Democratic Party flexed its muscle on behalf of independent businesses. At a hearing of the House’s antitrust subcommittee, led by Representative David Cicilline, one Democratic lawmaker after another grilled Amazon CEO Jeff Bezos about his empire’s predatory tactics toward small firms. The committee even played an audio recording of the immigrant owner of a textbook company who described how her family’s livelihood was wiped out after Amazon, which also sells textbooks, suddenly removed her product listings without explanation. Watching the hearing “brought tears to my eyes,” a small-business owner e-mailed one of us that night. “It was so long awaited to just feel even a little bit like the playing field would become even.”
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If Democrats began to fight for small businesses—if they worked to get Tyson Foods off the necks of chicken farmers, break up and regulate the tech giants, and channel capital to Black-owned enterprises—they could reconfigure the political map, becoming more competitive in rural areas and heartland cities by defining a politics that knits people together around a vision of freedom from corporate domination.
The stakes are significant. If small businesses continue to disappear from the landscape, it will fuel more extreme inequality and further entrench the corporate giants that rule our lives and menace our democracy. To turn the tide, the left first needs to challenge deep-seated misconceptions about small businesses and offer a clear account of what’s driving their demise. And Democrats need to deliver by confronting concentrated corporate power aggressively.
Small-business champion: Representative Pramila Jayapal speaking at a House Judiciary subcommittee meeting on antitrust in July 2020. (Mandel Ngan / Pool via AP)
Americans are so steeped in the ideology of bigness—the idea that large corporations are naturally more efficient and effective—that they’re often unable to see beyond its biases. They tend to interpret the shuttering of another small business as further confirmation that small doesn’t measure up and can’t compete. When an independent store vanishes or a local funeral home becomes part of a conglomerate or a dairy farm goes bankrupt, there’s a resigned sense that this is the pain of progress and therefore inevitable. To fight the demise of these businesses is to engage in sentimental protectionism, preserving something quaint rather than something valuable and productive.
But a closer look often reveals a different story. Take the case of independent pharmacies, which, according to Consumer Reports and others, offer significantly lower drug prices, make fewer mistakes, and provide better health care than chains like Walgreens and Walmart. Yet local pharmacies are declining in number, and their market share has fallen to about 18 percent. How can it be that they are both superior and losing ground? The answer has to do with a handful of obscure companies called pharmacy benefit managers, which reimburse pharmacies on behalf of insurers. The largest of these is CVS Health. CVS has slashed reimbursement rates to independent pharmacies and leveraged its contracts with insurers to steer patients to its own drugstores. They are “really squeezing us,” said Ben Okafor, who opened a pharmacy in a poor, underserved corner of Maine six years ago. The two agencies charged with policing monopolistic behavior, the Federal Trade Commission and the Justice Department, have mostly sat idly by. In 2018 they gave CVS permission to enlarge its empire by acquiring Aetna, a major health insurer.
In our research, we’ve uncovered similar dynamics in a host of industries. Small banks outperform big banks in several key metrics: They offer lower fees, have better interest rates, and devote more of their capital to productive, community-based lending. Yet one-third of local banks have disappeared in the past decade. Cattle ranchers, like slaughterhouse workers, are being squeezed by the four corporations that dominate beef processing. Even sectors that seem like entrepreneurial success stories are often riven with market power abuses. Craft brewers have revolutionized beer drinking, yet they’ve been blocked from supermarket shelves in states where their giant rivals, Anheuser-Busch InBev and Molson Coors, control wholesale distribution and have opted to stock stores with their own “craft” beers.
Independent businesses must also submit to a host of digital gatekeepers that levy increasingly steep tolls. App developers fork over a hefty share of their revenue to Apple. Amazon takes a 30 percent cut of the sales made by the small sellers on its site, up from 19 percent five years ago. Visa and Mastercard impose credit card swipe fees on small merchants that are six times higher here than in Europe, where they’re regulated.
Policymakers have not only failed to stop such abuse; they’ve saddled small businesses with tax and regulatory disadvantages too. Under federal tax rules, for example, Amazon paid virtually no income taxes in recent years. The average effective tax rate paid by competing local businesses is around 20 percent. These disparities are not simply a result of Republican policies. States and cities, including many led by Democratic officials, hand out upwards of $90 billion a year in economic development subsidies. Almost all of that goes to large corporations.
Leviathan: Amazon CEO Jeff Bezos testifies via video at a House Judiciary subcommittee meeting on antitrust in July 2020. (Graeme Jennings / Pool / Getty Images)
It’s hard to overstate the broader consequences of these policies. For one, they magnify racial injustice: Black and Latinx communities are more likely to end up without essential services like pharmacies and grocery stores and to be overrun by dollar store chains, payday lenders, and other ventures that extract wealth rather than build it. These policies have also concentrated economic activity and wealth in a few metro areas while many other cities and towns wither as local businesses disappear. And they impede the very thing market economies are good at—innovation. Industries populated by small businesses generate new ideas at a faster pace than those consisting of only a few large companies.
The absence of political leaders calling out monopoly power and fighting to contain it has made it easier for the right to paint policies like the minimum wage and worker protections as the causes of small-business distress. These can be legitimate tension points, to be sure. For local retailers beset by rapidly rising rents, high credit card fees, and the like, large wage increases can be out of reach and feel like another way that policymakers don’t understand their challenges. Even so, independent business owners are much more in step with workers than the right would like us to believe. A majority of small-business owners favor increasing the minimum wage, according to Public Policy Polling and others. In fact, even though the Democratic Party has marginalized them, 29 percent of small-business owners identify as Democrats, a share that’s only slightly lower than the 33 percent of voters who do so overall. (The electorate splits roughly in thirds when “independent” is among the options.) If the party began to advocate for them, that number would surely rise.
Still, there remains a persistent belief on the left that small businesses are incompatible with a pro-worker agenda. One reason people often cite is that large corporations pay higher wages. This is true, but it’s an argument that unravels upon closer inspection. One wrinkle is that it’s true only if the wages across entire companies are averaged. If you look only at the bottom half of wage earners, they make about the same at small firms as at large ones. In other words, the average income is higher at big corporations solely because of the inflated earnings of those in the upper ranks. Another wrinkle is that this gap has been shrinking and in some sectors has vanished or even been reversed. This is the case in retail, where the average income for employees of small retailers (fewer than 100 workers) is 27 percent higher than for those at large chains (10,000 workers or more).
More significantly, this argument overlooks the pivotal role that small businesses play in local labor markets. Small businesses function as a kind of leavening agent: As they form and grow, they expand employment options and competition for labor, thus causing overall wages to rise. In other words, a strong small-business sector gives workers leverage: They can go work for someone else or maybe even start their own business. Indeed, recent economic research concludes that consolidation is a leading factor in the declining fortunes of working Americans. A 2018 Harvard Law Review paper estimated that today’s median annual wage of $30,500 would be about a third higher, or $41,000, if it weren’t for excessive concentration.
Independent businesses have never been as tuned in to politics and policy as they are right now. Their fate hinges on it. Absent pandemic relief measures, many face bankruptcy in the coming months, in what could be a die-off of unprecedented scale. At the same time, the growing anti-monopoly movement and the work of Cicilline’s subcommittee have enabled small-business owners to imagine a viable future and to consider anew the role of government in structuring the economy.
That makes this a crucial moment for the left. By championing small business, Democrats would embolden a dormant constituency that is eager to rescue the economy and government from corporate tyranny. This is essential to securing the left’s vision of widely shared prosperity and thriving democracy.
It’s also good politics, especially in light of President-elect Biden’s razor-thin margin of victory. Fighting for farmers and small businesses would help Democrats develop a coalition capable of tipping the balance in Congress and the White House solidly to the left. It would help transcend fractures of geography and culture and impede the right’s ability to stoke racism and anti-immigrant sentiment as a way to dodge accountability on corporate power. Anti-monopoly politics has strong appeal in rural and red-leaning America. When the FTC’s Chopra gave a speech on agricultural monopolies in August, for example, one Kansas rancher proclaimed on Twitter, “I have a new hero @chopraftc. Cattle ranchers, we’ve finally found a champion!”
To once again be the party of small businesses, the left needs to do four things. First, it needs to develop a policy agenda that tackles the top issues hobbling them. In the immediate term, this means pushing for pandemic relief, including direct financial assistance and measures to protect businesses from digital gatekeepers.
Over the longer term, the left’s small-business platform should emphasize eliminating monopoly power by reinvigorating antitrust laws and enacting measures to break up dominant firms, restrict their size, and outlaw coercive contracts. It should also champion measures to make the corporate tax system fair; expand access to capital by strengthening community banks and setting up public banks; build a strong social safety net so would-be entrepreneurs can take risks; create a built environment that suits small businesses, including affordable commercial space; invest in critical infrastructure, such as public broadband and a publicly controlled payments system; and provide targeted support to enable minority, low-income, and rural entrepreneurs to start and grow businesses.
Second, the left needs to invest in deep, strategic organizing among small businesses. This is different from the short-term, tactical mobilizing that the left has occasionally done to generate small-business support for policies such as paid sick days. What’s required instead is long-term base building and leadership development that are driven by the issues that local business owners see as the biggest threats to their survival.
Third, the left needs to develop campaigns that unite small businesses with worker and racial justice organizations. One promising model is Athena, a coalition challenging Amazon’s outsize economic and political power. (Our organization, the Institute for Local Self-Reliance, is a founding member.) In the weeks leading up to the Big Tech hearing in the House, Athena organized a press call with small-business owners, held a briefing for lawmakers on the intersection of racism and monopoly, and engaged millions of people on social media as the hearing was broadcast.
The growing anti-monopoly movement offers fertile ground for reestablishing an alliance of labor and small business. In February Change to Win and a group of unions, including the Teamsters and the SEIU, submitted a petition to the FTC calling for an investigation of Amazon. In language that evoked Walter Reuther’s Labor Day address, they urged the agency to “protect workers from…unbridled market power” and “level the playing field for…small- and medium-sized businesses.”
Finally, the left needs to cultivate political leaders who give voice to this new politics. This is about more than appealing to a constituency that lacks a true political home. Small business holds a special weight in American discourse because it evokes something we dearly want: the freedom to govern our own fate, subject to no master. Today’s Democrats have the opportunity to remember what their New Deal predecessors always knew. Fighting for small business signals that they’re fighting for Americans’ deep-rooted desire to govern ourselves.
Stacy Mitchell is co–executive director of the Institute for Local Self-Reliance, which produces research and advocates policies that counter concentrated power and strengthen local economies. She is the author of the book Big-Box Swindle and has produced several influential reports, including “Amazon’s Monopoly Tollbooth” and “Monopoly Power and the Decline of Small Business.”
Susan R. Holmberg is a political economist and the senior editor and researcher at the Institute for Local Self-Reliance. Her writing has appeared in The New York Times, The Atlantic, Democracy Journal, Salon, and Grist.