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One of the more important figures in American capitalism over the last forty years is Warren Buffett, the legendary investor who is now the fourth richest man in the world. Buffett is an icon, the ‘Oracle of Omaha,’ who lives a simple lifestyle based on folksy wisdom, eating Dairy Queen ice cream, and drinking Coca Cola. Or so goes the myth. In this issue, I’m going to do an interview with an author who presents a very different side of Buffett, the side that is key to his wealth and power. Specifically, the monopolist side, and how Buffett’s way of investing has been a multiplier force for dominant corporations.
Also in this issue:
The timing of the Google antitrust case and changing Senate politics
The growing business rebellion against monopoly power
A merger of 7-Eleven
The Intuit-Credit Karma merger
Another weird monopoly
Some housekeeping. First, I was on a lovely Irish podcast called The Stand with Eamon Dunphy. Second, a lot of readers of the last BIG issue, which was on Chinese apps, seemed interested in exactly how Facebook’s market power led to the rise of TikTok. National security expert Lucas Kunce wrote that up for the University of Chicago’s Stigler Center ProMarket magazine.
America’s Folksiest Predator
Journalists have always served an important function in addressing corporate power. The great anti-monopolists of the 1880s were journalists such as Henry Demarest Lloyd, muckrakers whose words gave voice to a movement seeking to reign in corporate power.
Journalist Dave Dayen is an heir to this tradition. He’s the executive editor of one of the most important political magazines today, the American Prospect. He did groundbreaking (and lonely) journalism on foreclosures and financial corruption throughout the Obama years, and his 2016 article on antitrust in The New Republic laid the groundwork for Elizabeth Warren’s key speeches on the issue that rocketed the importance of monopoly into the political stratosphere.
For today’s post, I’m going to do an interview with Dayen on his new book, Monopolized: Life in the Age of Corporate Power. Monopolized is a mix between a business book and a travelogue, a set of stories about people living under the control of various powerful corporate entities, from Wall Street to Amazon to prison and the military. There’s also a roadmap for how to fight back, and Dayen profiles Israeli anti-monopolists who successfully did just that. One interesting aspect of Monopolized is that Warren Buffett is a silent presence throughout, profiting quietly in the background from virtually every monopoly Dayen describes. We don’t often hear of Buffett as a great monopolist, but that’s what he actually is. So in this interview, that’s who we focused on.
If you’re interested in a sweeping but detailed take on the modern landscape of corporate power, you should buy a copy of Dayen’s Monopolized; it’s enormously well-researched, and you will know more about corporate power after you are done. I learned a lot, even though studying monopoly is what I do.
Thanks for writing this excellent book. I want to get into Warren Buffett, but first I want to ask a basic question that I hear a lot in policymaking circles, which is that the problem of monopoly is just too complex for voters to really get. You wrote this book by traveling around the country and reporting stories of people dealing with corporate power. Did you get the sense that the public at large understands the problem of monopoly and concentrated finance?
People know that something is terribly wrong. They might not be able to articulate it using technocratic antitrust jargon, like no one mentioned the Herfindahl–Hirschman Index in terms of market share, but they understand the system is rigged. When I talked to a woman who is renting a home and she got an alert for her own home being put on the market without her knowledge because the house is owned by a private equity giant, well, she knows that something is terribly wrong. She’s a big Trump supporter, but now hates the private equity firm Blackstone, which she also knows is full of Trump donors.
Another woman I interviewed, she lives in Tennessee and classifies herself as a libertarian, she knows something is wrong. Her husband has diabetes, and she’s tracking his blood sugar on this wearable device. If she gets an alert on her phone, when he has low blood sugar, she goes and gives him a little piece of chocolate. Turns out there was a gap in her wifi conductivity, because she lives out in this rural area and they are literally forbidden from getting broadband by a law that the telecom industry got passed. She tells me she saw a 15-minute gap in her tracking, and found her husband slumped over his chair because that's the moment in which he crashed. She calls herself a libertarian, but she knows something is terribly wrong with the governing structures of the economy and the power of these corporations that have insinuated themselves to American life.
People might not be able to call it monopoly power, but they know something isn’t working.
Your book is about monopolies. One character who keeps popping up in the book, surprisingly, is Warren Buffett. He’s a genial kindly old man in the media. But who is Warren Buffett in this book?
Buffett is the avatar of monopoly. This is a guy whose investments philosophy is literally that of a monopolist. I mean, he invented this sort of term, the economic “moat,” that if you build a moat around your business, then it's going to be successful. I mean, this is the language of building monopoly power. He not only looks for monopolies in the businesses he invests in, but he takes it to heart in the business that he's created, Berkshire Hathaway. Berkshire Hathaway owns something like 70 or 80 or 90 companies and they have large market shares in all sorts of areas of the economy.
It's kind of like an old school conglomerate from the sixties and seventies, but there are certain facets of it, where he's clearly trying to corner a market. Buffett's initial businesses that he actually outright purchased were newspapers. It started with the Buffalo News in Buffalo, New York. And he used anti-competitive practices to put the competition, his rival newspaper, out of business. That was literally his MO there.
What are some of the surprising businesses or sectors he's involved in? We don’t typically hear Warren Buffett and opioids in the same sentence. And yet…
Teva Pharmaceuticals is one of the companies in which Buffett has had a huge investment. And Teva is one of the manufacturers of generic opioid based products. Buffett knows well that there's no better way to put a moat around your business than to sell an addictive product.
We don't usually typically think of Buffett as sort of a drug dealer, but he certainly sells a lot of opioids or makes money from those who do sell it by owning the stock. It just seems to me like his real job is to put a happy genial face on abusive power. You know, everybody in the investment world loves Buffett. But the Sherman Act is a criminal statute because traditionally monopolization was understood as a crime.
I think that's true, and it has a very direct impact. Warren Buffett's a huge investor in DaVita, which is one of two dialysis companies. These companies give really terrible service and capitalize on the fact that Medicare covers kidney disease in America. And DaVita just rips off the government, as I show in my book.
Buffett is also an owner of the largest trailer park manufacturers. And he has presided over the complete rip-off of very vulnerable people who can't afford anything more than a mobile home.
What is Verisign and how is Warren Buffett involved?
Verisign is one of the most amazing companies that nobody knows about. It sells really one product. When someone registers a .COM or .NET website, Verisign gets a cut. It is one of the most profitable companies in the world by profit margin. The reason is that it costs essentially nothing for Verisign to register one more .COM website. Once it has the database set up to make sure that when you type in xyz.com that you actually go to that website, once you add one more to that, it doesn't really cost them any money. The profit margins are as high as 65%, which is insane. Like you see that nowhere else in business.
Is Verisign a government-granted monopoly?
Yes. The right to manage .COM and .NET domains is a government contract. It’s done through a a quasi-government entity, technically a nonprofit, called the Internet Corporation for Assigned Names and Numbers (ICANN). Most recently in 2018, ICANN gave Verisign the right to increase the prices for that registry. Now these are small prices for each website, but every time you increase them, it's essentially billions and billions of dollars in free money that Verisign is allowed to grab. And Warren Buffett has nearly 13 million shares of this stock.
This is not a well-known stock, not a high trading stock necessarily, but he recognized many years ago that they have a moat around their business. They're the only ones that get to assign .COM names and take 10 bucks a year for each domain name, which is a small amount in of itself. But if you take it from 150 million people, all of a sudden, you're talking about real money. He’s one of our nation's greatest monopoly spotters.
It's also a bet on corruption, right? Because if ICANN were running domain name registration responsibly, they would be reducing the price, but they're increasing the price or allowing Verisign to increase the price.
Right. If there was responsible management within this market another company who could do it for little as a dollar a domain would get that contract. But these contracts are automatically renewed as long as certain performance metrics are met. And you know Verisign acts like a monopolist because a few years ago ICANN put another domain name suffix, .WEB, on the market. It was seen as a competitive product to .COM. Well Verisign essentially rigged the auction for .WEB; they created a fake company called NewCo that bid this enormous amount of money, $135 million, for .WEB, and won the auction. And two days later, they put out this press release saying, well, Verisign was actually NewCo. To this day, not a single .WEB web address has been created. They bought the company to take it off the market.
That's a classic killer acquisition, obviously anti-competitive. What else does Buffett own?
I tried very hard in the book to get Buffett into every single chapter. Buffett was for many years one of the major investors in John Deere. John Deere not only holds a monopoly over tractors and farm equipment, but exploits its power by forcing farmers to return to its manufacturers in order to repair its products, essentially blocking people from repairing their own equipment. John Deere even says that the only thing people buy when they buy a John Deere tractor is a license to run the machine.
And John Deere has become one of the largest farm credit companies in the United States, and so they are now lending out money to farmers to buy John Deere equipment.
How does Warren Buffett intersect with craft beer?
Warren Buffett has this long-standing partnership with 3G, which is a Brazilian private equity firm, and he has gone in and helped them make a lot of their deals. This includes the merger between Burger King and Tim Horton's and between Kraft and Heinz, now two of the largest food corporations in the world. He also helped 3G have its subsidiary, a Belgian beer company named InBev, buy Anheuser Busch. AB InBev now has hundreds of brands of beer, well beyond just Busch and Budweiser, including craft brewing. You look at the beer market and superficially, you would think, there’s a lot of choice there, but in reality, AB InBev has bought up a lot of these craft brewing companies. And they obscure it on the label, so it’s hard to see that AB InBev owns this brand. Buffett helped engineer this merger, so there’s now a behemoth that has a large chunk of the beer market, not just in the United States, but around the world.
Buffett has become a large investor in Amazon. Even though he had sort of a longstanding history of staying out of anything involved with computers and tech, because he used to say, “I had to understand the product and business.” Well, he understood the monopoly that Amazon was putting together, so he purchased a large share of their stock.
One of the more interesting investments that Warren Buffett has had for a long time is Moody's. Moody’s is one of the big three credit rating agencies, which rates bonds for investors. There was a very interesting moment after the 2008 financial crisis where the Financial Crisis Inquiry Commission (FCIC) came to interview Warren Buffett, not just about the credit rating business, but all the financial services area. He has over $100 billion in shares in financial services arena. Banking is something that has served him well over the years. The FCIC asks Buffett, “what do you know about the credit rating business?” And he says, “I know nothing about the credit rating business. The only reason I bought it is because there are only three credit rating agencies and they serve the whole country, and they have pricing power.”
And if you have a business like that, I believe what Buffett said is ‘even your idiot cousin could run it.’ And so Buffett is not just someone who stumbled into monopolies because he likes blue chip stocks. He seeks them out, and he is very dedicated to this whole concept of finding companies who are bereft of competition and profiting off of them. And this is a strategy where he has led the market rather than being led by it.
For instance, Morningstar now puts out an economic moat index. You know, they're following Buffett’s lead, there's literally a bundle of stocks you can buy that are monopolies that you can take out as an index fund.
One thing about Buffett that strikes me as interesting is that in the FCIC interview where they're asking him about Moody's, he said he didn't even know the name of the CEO. There's an absentee ownership aspect to Buffett’s ownership where he just owns, but has no responsibility for anything that happens, what used to be called absentee ownership.
That’s the correct definition in this case, not just his investments, but with the actual companies that he owns, he claims to have very little to do with them. That’s by design, a sort of a plausible deniability that Buffett allows himself. His philosophy remains the same, build a moat around your business. So he doesn't have to be actively managing that in order to be responsible for it because it's his management philosophy that is governing.
It's tempting to sort of let Buffett off, and say that this is just the way things are, and he’s a smart guy to capitalize on it. But he pioneered this tactic. He's been at it for many, many decades. And by cheerleading for monopoly, he helps cement it in place and he creates sort of a strategy among aspiring business tycoons that this is the way that you succeed in America. And Buffett has a lot of power and influence.
In a fair economy or well-run economy or political system, could Warren Buffett exist?
No, I mean, right from the outset, he couldn't exist because the way in which he created his business is through creating an insurance conglomerate and using the payments for these large investments. And now he just makes money because he has money. When Warren Buffett goes into a stock, the stock moves and, following Buffett is a legit investment strategy that other people have. Buffett is largely untaxed on a lot of this stuff because he doesn't sell very often.
Is Berkshire Hathaway a good roadmap for regulators and antitrust enforcers?
Warren Buffett would be the best informant for an antitrust authority that you could find, because he's already looked into the economy and found the companies that have the most inordinate market power. And so all you’d need to do is subpoena him and say, all right, tell me about this company that you bought and why you bought it. And you would say, well, they have this incredible pricing power. Well, there you go.
Thanks, Dave. The book is Monopolized: Life in the Age of Corporate Power
A September Antitrust Case Against Google? According to CTFN, the Department of Justice is likely to file an antitrust case against Google in September, and the states will launch one in October. The DOJ will focus on the non-search parts of Google, which is basically the plumbing for display advertising on the web, and the states are going to do that part, but also include search. It’s interesting that the states and DOJ are not going together, and suggests there’s little trust between Bill Barr and state officials.
Meanwhile, a whole host of Senators on the right and left sent a letter to the DOJ Antitrust Division and the Federal Trade Commission about Google’s anti-competitive conduct in sending search traffic to YouTube. What’s interesting about this letter is that usually stalwart Google-defender Utah Senator Mike Lee signed on, and Lee is the Chair of the Antitrust Subcommittee in the Senate. Lee has been one of the single biggest obstacles to doing something useful on antitrust, but it looks like he might be shifting. Aside from this letter, he just announced a hearing in September on online advertising.
Other signers of the letter are Thom Tillis (R-NC), Mike Lee (R-UT), Amy Klobuchar (D-MN), Richard Blumenthal (D-CT), Marsha Blackburn (R-TN), Josh Hawley (R-MO), Elizabeth Warren (D-MA), Mazie Hirono (D-HI), Cory Booker (D-NJ) and Ted Cruz. It’s a weird crew, but as Gilad Edelman noted in Wired, Republicans are getting serious about antitrust on big tech.
The Business Rebellion Against Monopoly Picks Up Steam: There’s increasing ferment among business people against monopolization, now that antitrust is becoming a mainstream topic of conversation. For instance, Epic Games CEO Tim Sweeney criticized Apple’s app store as “the most uneven in the history of technology products,” which is something you would not have heard a few years ago.
Meanwhile, Proton Mail came out against Apple’s app store policies with this piece, saying “we have long hesitated to speak out for fear that these tech giants may abuse their market dominance to destroy all who dare to stand up against them.” Proton pointed out that Apple forced them to change their description of their anti-censorship product so as not to offend authoritarian governments, and to make that change everywhere, including in democracies.
Increasing anger about monopolization is not just focused at Apple or big tech. Architects are beginning to speak out against the Architect, Engineering, and Construction software monopolist Autodesk, with an open letter complaining of price increases of 70% and declining software quality and usability. I suspect more and more people are realizing that the law should be on their side, and not on the side of the one with market power.
Intuit-Credit Karma: I wrote up some of the problems with the Intuit-Credit Karma deal back in February. It turns out the Department of Justice Antitrust Division is investigating the merger. Generally speaking antitrust these days hinges on whether a CEO can make Trump’s antitrust chief Makan Delrahim feel that he or she is important enough to matter. If so, the merger goes through. If not, then the staff can have their way. So I'll guess we’ll see how important Intuit is to Delrahim.
7-Eleven Merger: One of the worst franchise relationships in the country between franchisors and franchisees is 7-Eleven, which I touched on a few weeks ago when writing about food delivery apps. And now 7-Eleven is buying 3,900 Speedway convenience stores, to enlarge its footprint. The press release is littered with language of increasing market power, from “clear industry leader in a fragmented industry” to “well-positioned to maximize efficiencies and optimize relationships with vendors and business partners.” If you do business with 7-Eleven or Speedway, look out.
Headset Monopoly: As it turns out, there seems to be a monopolist in the headset market for call centers and telemarketers. Plantronics, the market leader in this space, has had antitrust suits since 2012, when it apparently had 75% of the U.S. market. In 2014, Plantronics was caught destroying records it was requested to hold for the possible case, and it just settled an antitrust case last month with a rival. The claim is that Plantronics forced distributors to only sell its products, and it cuts off distributors who stock the equipment of rivals, which is known as an exclusive dealing arrangement. I’m told Plantronics continues to monopolize. And why wouldn’t it? Who’s going to stop them?
Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.