- The Washington Times - Wednesday, February 13, 2019

ANALYSIS/OPINION:

It’s a little ironic that even though ours is the era of the Entrepreneur As Hero — Mark Zuckerberg, Jeff Bezos and Elon Musk are feted like World War II generals were more than a half century ago — we live in a decidedly non-entrepreneurial age. The number of new businesses in the U.S. has been falling steadily for decades. In 1985, 13 percent of all businesses were less than two years old. Two decades later, that share had fallen to 8 percent.

It’s commonplace to blame those zany millennials (those of us born roughly between 1982 and 1996), and their supposed lack of entrepreneurial spirit for this decline. The “Millennials in the Mist” genre — lazy stereotyping disguised as cultural anthropology — has accused millennials of murdering all sorts of American traditions, including marriage, dinner dates, home ownership, beer, cars, napkins, cereal, running, golf and the restaurant chain Applebee’s. (In the last case, we can only hope.)

But this obscures the fact that it has become increasingly difficult to start and maintain a small business. While this may have happened by accident, it was the result of policy decisions — policies that can and should be reversed.

Take a recent Federal Trade Commission decision regarding the office supply chain Staples. It’s unlikely many people dream of going into the office supply business, but it’s a good racket. Even in this era of market concentration, more than 25 percent of office supplies are still sold by independent businesses, notes Stacy Mitchell of the Institute for Local Self Reliance. “These dealers are also significant in their local economies,” she writes. “Many employ 100-300 people. Because they don’t have storefronts — it’s mostly a B2B market — you may not know they exist in your community. But they do.”

Or at least they did. Because the FTC’s decision will make these small businesses much harder to operate — let alone for an entrepreneur to enter the business.



What the FTC did, by 3-2 decision, was allow Staples to buy Essendant, one of the two dominant suppliers of office supplies. This is what’s known as a vertical merger — one in which a company buys or merges with one of its suppliers. (A horizontal merger, by contrast, is when a businesses buys one of its competitors.) Think of an auto company absorbing a tire manufacturer. The FTC’s decision puts independent office supply companies in a bind. They will be forced to buy supplies from their chief competitor (thereby not only enriching their competitor but giving up a bevy of sensitive business information, too), or from the other remaining supplier, which will now find it easier to raise prices knowing that its customers will be loathe to buy supplies from Staples. Because of the inherently anti-competitive qualities of vertical mergers, regulators used to take a dim view of them. That began to change in the late 1970s after Robert Bork argued in his highly influential Antitrust Paradox that “vertical mergers are means of creating efficiency … may cut sales and distribution costs, facilitate the flow of information … create economies of scale in management, and so on.” All the better for consumers.

But Americans aren’t just consumers. Many of them are entrepreneurs too, or at least they aspire to be. That’s why it’s alarming that, as Matt Stoller, a fellow at the Open Markets Institute notes in an interview, vertical mergers have become rife across scores of industries. Hospitals have Hoovered up doctors’ offices. Insurers are buying up pharmacies. Monsanto has acquired seed suppliers. All of these make it much more difficult for the newly-minted doctor, pharmacist or farmer to strike out on his own.

Republicans, ostensibly the party of small business, have begun to wake up to this threat. Sen. Josh Hawley, newly elected from Missouri, has been particularly attuned to the issue, focusing on the near-monopolistic power of big tech companies.

Indiana Rep. Jim Banks has targeted the negative effects of hospital consolidation. During William Barr’s confirmation hearing, four senators asked the likely next attorney general about antitrust issues. All four, notes Mr. Stoller, were Republicans.

Of course, there’s a large distance between expressing concern and actually acting. And indeed, all three Republicans on the FTC supported the Staples acquisition of Essendant. But unless something changes, America’s entrepreneurs of tomorrow may, rather than start a business, be forced to “learn to code” instead.

• Ethan Epstein is deputy opinion editor of The Washington Times. Contact him at [email protected] or on Twitter @ethanepstiiiine.

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