Break the Big Banks and Monopolies, Save Small Business
Break the Big Banks and Monopolies, Save Small Business
A big relief package is good, but there's more to do
Welcome to the big Sunday edition of Progressives Everywhere!
There are now officially less than three days left in Donald Trump’s disastrous presidency, though his impeachment and expulsion from Twitter have made it feel as if he’s been removed from the White House and banished off the face of the Earth already. No complaints here about that.
This coming week will be a time for celebration, vigilance, and hard work. Trump’s frothing lunatic army is going to be trashing DC and state capitals, Joe Biden and Kamala Harris will enjoy the strangest Inauguration Day in modern history, and then we’ve got to get started on the whole rescuing and bettering America thing.
I’ve got a very stacked issue for you today, including:
A really informative interview about economic policy, monopolies, and how both the Biden administration and local governments can even the playing field for small businesses and working people
Big news stories from around the country
An update on my effort to identify and document all of the elected lawmakers and Republican Party officials who were at the Trump rallies and/or Capitol coup attempt that followed.
But first, thank you to our latest crowdfunding donors: Norman, Christiana, and Dennis!
A Long-Term Plan to Rebuild Small Business and Avoid Total Corporate Takeover
Last week, Joe Biden released an ambitious and very packed economic recovery plan. It’s a smorgasbord of moderate and progressive Democratic priorities, including beefed-up stimulus checks, a $15 minimum wage, expansion of unemployment insurance, SNAP benefits increases, child care tax credits, and much more. It’s a solid plan (even if pushing it all through at once may not be the best strategy), but it’s also largely a temporary measure, with most benefits set to expire within the year.
With a Democratic Congress, some of those items could ultimately be extended more permanently, but either way, the biggest challenge will be restructuring the rigged, winner-take-all economy that created record inequality long before COVID-19 engulfed the United States.
To create a more equal economy that can sustain itself, the Biden administration and Democrats in Congress will have focus attention on helping small businesses and reigning in the corporate boehemoths that currently dominate the landscape. By this fall, over 100,000 small businesses had been permanently shuttered across the country, a number that is only increasing as the vaccine distribution rollout continues to sputter.
Stacy Mitchell, the co-director of the Institute for Local Self-Reliance and head of its Independent Business Initiative, has been documenting the fall-out and offering up detailed policy recommendations to the incoming administration. I spoke to Stacy recently to learn more about the problems that small businesses are facing, how monopolies like Amazon factor into it, and how some regulatory changes can make a big difference.
Progressives Everywhere: The pandemic has devastated small businesses, from the city to rural areas. How effective would you say PPP has been in helping those businesses.
Stacy Mitchell: If we were going to put everything on pause, then we needed to create a bridge and that needs to be cash assistance to cover fixed costs and to keep people employed. That is essentially rent and payroll. The PPP fulfilled that in the sense that it is effectively a grant provided you meet the terms to make it a forgivable loan. The problem with the PPP was [and still is, with renewed funds] that its delivery was through the banking system, and that meant very uneven distribution. It meant that banks could legally give a fair amount of the money to big hotel chains and other entities that aren't actually small businesses. At the big banks, their preference was to give to relatively bigger businesses and to focus more on well-heeled clients, as opposed to actual small businesses.
We did a study looking at the distribution of PPP and there are some states where there was a much lower amount of money going out than in other states. That was connected to whether a state had a robust network of community banks. Small local banks do the lion's share of small business lending, so places that have a lot of those banks had much more PPP dollars given to actual small business owners.
One of the reasons that black-owned businesses were much less likely to get PPP loans is that they don’t have those banking relationships, so that aspect of it was really problematic. We had called in March for there to be direct cash assistance delivered through the Treasury. The IRS has a touchpoint with every business in the country, so we said they should push the money out.
Why did big banks give so much more money to big businesses? Did they make more money by doing that?
They got a percentage fee, so if they gave a bigger loan, they got a bigger cut, while the paperwork was the same for big and small loans. And it's just the nature of JP Morgan Chase, Wells Fargo, these giant banks, as they do very little small business lending. So if you're a bank, the first businesses that you're going to want to push PPP cash to are the businesses that have a loan on your books, because you want to make sure they survive and pay back that loan. They deliberately reached out to very well-heeled boutique businesses and law firms that were part of their extra special client list, and they rolled out PPP to them right away, far before it was available to ordinary people who came into the bank.
Community banks were very different. The loss of community banks is one of the worst things that's happening in the economy. A lot of community banks really taxed themselves and worked long hours and through weekends to actually get this money out to businesses in their communities. So the success of the PPP in any given location was largely dependent on what the mix of banks in that local area looks like.
So how do you stop the disappearance of community banks?
If we adopted banking policies that were more in keeping with the policies we had prior to the 1990s, when Bill Clinton made big changes in banking law, that would be the key thing. Separating investment banks from commercial banks, splitting these institutions apart with something along the lines of a Glass-Steagall, and then you can do a deposit share cap. And you can also do a deposit market share cap, which, depending on where you set it, would require the banks to spin off or divest parts of themselves to be smaller.
And then you need to make regulations a lot less complicated. And that means having hard and fast, bright-line rules around what banks can and can't do. One example is capital requirements. You have to have a certain amount of capital as a cushion against losses. Those requirements are written in these complex rules, and that’s true of every little aspect of our banking regulation. It’s a situation where regulators are in this morass of complicated rules trying to control behavior and the big banks have no problem — they have floors full of lawyers and other folks who can navigate and finesse their way around those rules.
Local banks don't have all those lawyers, so they end up spending a lot of time on compliance for things that have nothing really to do with them. They already have higher capital ratios, unlike the big banks, which know that the government will bail them out and therefore feel free to operate close to the line. Local banks are not in that situation. Big banks know we will let them fail, so are actually are already maintaining much lower levels of capital than the small community banks.
The Bank of North Dakota functions as a kind of wholesale bank that supports local banks and enables them to be stronger. And in North Dakota, over 80% of the deposits in the state are held by local banks, compared to only 20% nationally. You see it in elevated levels of lending to small businesses, elevated lending to farmers, a much larger share of the mortgage debt in the state of North Dakota is held locally. All those mortgage interest payments are going back into the state in one way or another and not off to Wall Street, and it benefits North Dakota in so many ways.
During quarantine, we’ve seen Amazon grow more ubiquitous and powerful than ever. They’ve faced a lot of criticism for their business practices and now investigations from various states. They allegedly rig their own algorithm, steal ideas from companies, and more. How can that be reigned in?
Technology is great and technology is neutral. There's a difference between e-commerce and having things delivered versus Amazon specifically controlling most of it. Amazon likes to conflate those things, but they’re not the same. The question is, what kind of policy do you have around the technology that enables it to be an open marketplace for both buyers and for sellers for businesses?
There is certainly a segment of independent businesses that were early adopters of e-commerce and built up a fairly significant share of their business online. But things started to shift four or five years ago with the growth of Amazon Prime. They know that once you sign up, you will spend a lot more money on their site, because by paying them $129, you want to get the most value out of that. So it just makes you naturally default to choosing Amazon.
As that began to happen, Americans were no longer going to a search engine like Google and typing in what they wanted to find and getting different results and maybe choosing a local business. Instead, they were just starting right on Amazon. That’s the network effect and we’ve seen it with a lot of the internet, where you end up with these sort of larger platforms aggregating a lot of users.
Amazon has achieved this partly through the network effect and partly through monopoly tactics that should be illegal and should have been blocked, but weren't. If we're going to have one or more dominant platforms that are the primary place to serve as the primary marketplaces for e-commerce, then we need to have those platforms be neutral and under regulations that make them fair.
So in the case of Amazon, which captures about 50% of all online shopping in the US, that means that Amazon as a marketplace needs to be spun off from Amazon as a retailer. We need to break up the company because there's an inherent conflict of interest there, and then we need to establish rules for that marketplace.
It has to be similar to the kinds of rules that we put in place around railroads 100 or so years ago. The government said, look, if you're a railroad, you have to be neutral, you can't also own interests in other commodities that also ride the rails, because you're going to use your control over the rails to disadvantage your competitors in those industries. And then they also said that the railroads had to be a common carrier, so they had to accept everyone on equal terms. When you function as an essential facility, you have a higher standard of obligation.
If we do that, and if we stop Amazon from engaging in predatory acquisitions and predatory pricing and other anti-competitive behaviors that it's currently engaged in, we then create a world in which we're going to see other platforms come along.
I also want to note that having a physical presence, brick and mortar stores play a really vital role in the health of neighborhoods and in the health of communities. And there's a lot of social science research to back this up — people who live in communities, whether they run their errands in neighborhood business district, or if it's a small town with a Main Street, those people tend to be more invested in their community, they tend to know more people, there's just a lot of happenstance interactions that happen in that environment that have a ton of social and civic democracy benefits.
And so, it's also important to think about what it looks like to have e-commerce in a way that's supportive of local locally owned businesses and a local presence for business? So you think about being able to find and order from businesses in your neighborhood, when you for whatever reason don't want to go visit them in person. Maybe they have that delivered through a local courier service that offers high-quality union jobs. That’s a way we should be going, so you don't end up with a lot of small towns and a lot of urban neighborhoods that are just increasingly devoid of any commercial activity.
One thing in your report that blew me away was the fact that when an Amazon or Walmart comes to town, local wages fall. And yet cities continue to give them subsidies. Where is the disconnect?
I wish there was a great answer to that. Lawmakers do a lot of dumb things, but subsidizing low wage retailers is about the dumbest. Studies show that the vast majority of those dollars go to the very largest companies. Governments are completely abetting local governments, completely abetting concentration and hurting small businesses.
If you approach a local government as a small business and you're like, “hey, I want to open a second location, will you give me a 10-year tax break?” you'll just be laughed out of City Hall and told that this is a free market. But they’re all on the big corporate subsidies train, it’s like a disease. We saw this with Amazon HQ 2, hundreds and hundreds of cities bid, and there are so few governments that stood up and said “Screw this, we're not going to play this game”. Even many of the leading lights in terms of liberals city mayors that are considered to be progressive leaders in many cases offered massive subsidies to Amazon. It obviously didn't need them and wasn't bringing much of value in terms of jobs.
They all feel afraid to just get off the bandwagon on their own. There have been various attempts at compacts where leaders said let's get all the municipalities in a metro area to agree to stop doing this, but only with very limited success. So I’ve concluded, despite being someone who really believes in not trampling local authority, that the only solution to this is for a state or federal policy that basically tells cities they can't do it anymore.
So how can smaller businesses compete? How can cities change that behavior and start subsidizing or at least evening the playing field? Here in New York, it’s been happening for a long time, but COVID has hastened the gutting of a lot of neighborhoods and closed so many small businesses, and their storefronts stay open for years until a bank or Walgreens move in.
In the wake of the pandemic, there's a lot of commercial property that's in a distressed state where owners may not be able to pay their mortgages. And private equity is licking its chops to buy all that stuff up and rent to the latest chain salad lunch concept a million times over. I think [NYC Councilman] Brad Lander has a bill around land banks, which is the idea that the city could step in and start buying up those properties, and then selling them or turning them over to community nonprofits.
Small businesses are already disadvantaged in the real estate market and that's because a lot of times the financing that a property owner is relying on to buy a building or build a building or redevelop a building is contingent on them leasing the space to “creditworthy” tenants, meaning S&P-rated companies. There are developers that I've spoken with who would actually very much like to rent to independent businesses but can't because they're barred by their financiers from doing so or they would have to pay a substantially higher interest rate. And it doesn't even matter if the local businesses are established and have two existing locations and like a 30-year track record of profits, it doesn't actually have anything to do with the creditworthiness of the business. Everything favors the chains.
Important News You Need to Know
Here are some stories from around the country — I deliver more news and keep up on these stories throughout the week in the issues sent out to premium members!
Worker’s Rights
Alabama: Speaking of Amazon, the NLRB has scheduled a vote to unionize the Amazon warehouse in Bessemer for early February, bringing 6,000 workers one step closer to making history. While plenty of Amazon facilities are unionized in Europe, this would be the first one to win collective bargaining rights in the United States.
Amazon wanted to have an in-person election, but the NLRB ruled against that, citing COVID. Now, workers will get to vote for their economic interests without having anti-union consultants screaming in their ear as they cast their ballot. It’s still going to be an uphill battle to win unionization, especially in Alabama, but this gives them a better shot for sure.
The company is doing everything it can to mislead workers into thinking that a union would be bad for them. It recently set up this pitiful website that is chockful of misinformation, including this asterisk found right in the first paragraph:
Amazon hires a lot of part-time and temporary workers and sticks them in crushing conditions. It’s hard to become full-time there, given the churn in the warehouse, and even those that do make it to full-time are often reliant on food stamps and other federal benefits to survive. Jeff Bezos made $74 billion in 2020 alone; his actions here are not surprising, but remarkably greedy nonetheless.
National: There’s a fast food workers strike happening right now around the country, in protest of continued low wages. This is a good visualization of just how uneven wages are right now:
Voting Rights
Pennsylvania: After finally agreeing to sit a Democratic representative who lawfully won a close election, legislative Republicans are now setting their sights on gerrymandering the Democratic state Supreme Court that blew up their congressional gerrymanders a few years back.
State Rep. Russ Diamond, a COVID denier and one of the absolute most contemptible Republicans in the game, introduced a new amendment that would carve the state judiciary into geographic districts, turning statewide races into regional ones that would benefit Republicans even before they gerrymandered the districts. Republicans were also enraged that the State Supreme Court, which is right now 5-2 Democrat, rejected all of its challenges to voting laws this past fall, and as is the GOP’s wont, their idea of revenge doesn’t involve making themselves more attractive to voters, but rigging elections.
The proposal passed the committee by a single vote this week and should it pass the legislature in February, it’ll go on the state primary ballot on May 18th, giving voters in a very low turnout election full sway over the state judiciary. Unfortunately, Gov. Tom Wolf is unable to veto this one, so we’re going to have to run a crash campaign to defeat this potentially cataclysmic change on the ballot in May.
Texas: While Democrats didn’t flip either of the legislative chambers in Texas last year (ughhhh), they did pick up a few seats. Now, they have 13 out of 31 seats in the State Senate, which under traditional rules would allow them to block a bill from reaching the floor. But knowing how much Republicans hate both rules and democracy, it should come as no surprise that they’re moving the goal posts to deny Democrats their rightful say.
Texas Lt. Gov. Dan Patrick was blunt in saying his push for the rule change was absolutely political. If the rule was not changed, he said 13 Democrats in the Senate would essentially be controlling the flow of legislation despite Texas voters putting more Republicans in the Senate than Democrats.
“We can’t do anything you want us to do if we don’t change the rule,” Patrick told members of the conservative Texas Public Policy Foundation just before the Senate passed the rule package that will dictate the operations of the Texas Senate.
Dan Patrick is an absolute nightmare, but hopefully Democrats in Washington take notice of this and decide to take some inspiration and abolish the filibuster.
Right-Wing Terror Watch
I have been keeping an ongoing list of Republican elected officials who were in DC for Trump’s pre-Electoral College rallies and the Capitol coup attempt, and I am depressed to inform you that it continues to grow by the day. It’s up to nearly 35 names now and will likely swell past that by tomorrow.
The gist is that local and state governments are infested with these hateful, anti-democratic monsters, who quietly poison policy and civic culture through the country. They need to be called out and tagged with the scarlet letter of treason, both so their constituents know what their leaders have been up to and so that as these politicians try to move up in electoral politics, they are rightfully recognized for their participation in sedition. I’m also now including leaders from local and state Republican Parties, since they control so much of the politics that go on in those places.
You can find the list right here — please email me if you know of an elected official who should be on the list but isn’t there yet!
Quibis
This is a great piece about the state of the Democratic Party, the DNC, state parties, and organizers. New DNC Chair Jamie Harrison is said to be a supporter of state parties in red places, which makes sense given his former role as chair of the South Carolina Democratic Party. His long history as a corporate lobbyist is worrisome, but hopefully he delivers on his promise to provide a lot of funding and infrastructure to state and local parties (as well as other groups) to continue work done by the grassroots over the last four years.
Austerity politics and the filibuster have their origins in white supremacy. It’s time to reject them both.
Speaking of local parties, my friend Chris, who is the chair of the Washtenaw County Democratic Party in Michigan, runs the great Eclectablog.com, did years of essential work that helped get Gov. Rick Snyder indicted for poisoning Flint. Even Rachel Maddow says it!
Real Quick, Read This
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