Apple's Cash Reserves Show Need For Real Antitrust Enforcement

Apple's current cash holdings have probably reached over $250 billion at the time of this writing which, with the exception of the top 40 or so economies, is greater than any country's GDP and is greater than the market capitalization of Wal-Mart.  As the Wall Street Journal reports, that is also larger than the current foreign currency reserves of the UK and Canada combined and it is more than the annual interest on our national debt. Note that we are not talking about Apple's market capitalization but their current cash reserves.

In the last quarter of 2016, Apple was socking away cash at a rate $3.6 million per HOUR. More than 90% of this cash is stashed offshore in an attempt to avoid US taxes on those profits. With the latest Trump tax proposal showing that the repatriation of offshore profits would only be taxed at a rate of 10%, it would provide an opportunity for Apple to successfully avoid billions of dollars in taxes. As the Journal states, "Apple Chief Executive Tim Cook early this year said he was eager to bring cash home if tax changes enabled it. Chief Financial Officer Luca Maestri said such a move would give Apple flexibility to do more capital returns." Of course, there is no reason that Apple could not "bring the cash home" right now. The only thing that the "tax changes" would "enable" is to massively lower Apple's tax bill. And when Maestri talks about capital returns, he is probably talking about a special or higher dividend or a stock buyback. In addition, acquisitions might also be considered but, unlike Google, Apple has been leery about purchases outside its specific space. Perhaps the most tempting business out there for Apple would be Netflix. But it is likely that whatever Apple buys will simply consolidate its place in the tech oligopoly.

While Apple continues to build its cash reserves, it apparently pays far less attention to the workers who actually build its products. For years, Apple's factories in China have abused workers and, despite Apple's insistence that it continually audits its suppliers and improves working conditions,  things hardly seem to change. And it is not just Chinese factory workers who face abusive conditions. Employees at Apple stores complain that "they are treated like criminals" and other have sued the company for wage theft.

Since the inception of this country, there has always been a concern about the deleterious effects of monopoly power. And that concern was not based on concern for consumers but on the fear of the concentration of political power by those monopolies. Thomas Jefferson wanted a "restriction against monopolies" included in the Bill of Rights. But any real restrictions on economic power did not come until the late 1800s and the passage of the Sherman Antitrust Act. While the specifics of that law were more designed to protect consumers, it was largely driven by "a popular revolt against the political corruption perpetrated by large corporations" according to professor Luigi Zingales. Ever since then, there has been a tension between those two directions to antitrust policy.

Largely driven by the work of Robert Bork, antitrust policy in the US has solely been focused on whether consumers would be hurt by mergers and industry concentration. This policy has led large sectors of the American economy to be dominated by oligopolies, with just a handful of companies dominating the airline, health insurance, drug store, chicken, beef, and pork production, tech, cable, and banking industries. And the political power of these oligopolies are enormous.

Now, at last, the political implications of monopoly power are beginning to make a come back in economics discourse, at least. According to Diana Moss, the head of the American Antitrust Institute, "Growth in income and wealth inequality is fundamentally an antitrust problem, because of the growth of dominant firms from what is a relatively lax period of enforcement". And Zephyr Teachout adds, "People do not believe that Apple, Amazon, and Google get the same treatment when it comes to tax policy or criminal law. They are not wrong in that belief. The too big to jail problem is as threatening, if not more, than the too big to fail problem that we have." I would certainly add Wall Street firms and executives avoiding prosecution in the wake of the financial crisis as a prime example of the political power of an oligopoly.

In addition to the obvious, at least to some of us, political ramifications of lax antitrust enforcement there is now increasing evidence that increased concentration has real negative economic implications. Recent studies have show that mergers in some sectors, rather than leading to greater efficiency and lower prices, actually lead to an opposite result with higher prices and lower productivity. Jonathan Baker adds that it has turned out to be a false assumption "that greater business freedom to pursue efficiencies would lead to long-term consumer welfare gains without facilitating substantial and durable market power. From today’s vantage point, market power appears to have been widening for decades, while economic dynamism and the rate of economic productivity growth have been declining."

And what could be a greater example of market inefficiencies than a company sitting on a quarter of a trillion dollars in cash. Surely, the principles of economics would dictate that the company invest in new or improved products, or increase the knowledge and wages of its workers, or, at worst, return much of that cash to its shareholders. Instead, the company holds the money offshore and pressures our government to give it an enormous tax break in order to put that money to use. All of which is as good a reason as any to have strong antitrust policies in place to ensure that a virtual monopoly like Apple never gets this kind of money and power in the first place.

Now we all know that the Trump administration is not going to increase antitrust enforcement. In fact, it will do exactly the opposite. But making the political and economic case for reducing the power of American oligopolies can be a powerful political message for Democrats in the next four years. Let's hope we can take advantage of it.