How Lockdowns Bolstered an Industrial Cartel

This article originally appeared in the Brownstone Institute. 

Among the many grim memories from the depths of lockdowns were boarded up local shops and long lines outside the big-box stores like WalMart, Kroger, Whole Foods, and Home Depot. For very strange reasons, small business was universally declared to be nonessential whereas the big chains were deemed essential. 

This amounted to a massive industrial subsidy to large companies, which emerged from the pandemic period richer and more bloated than ever. Meanwhile, millions of small businesses were utterly wrecked. 

Nearly every day, my inbox fills with tragic stories of family businesses that were just getting going when the lockdowns came and destroyed everything. Not enough of these stories were ever told. Major media were not interested. 

The government loans (PPP), later mostly forgiven, could not possibly make up the difference for the losses from old-fashioned revenue. In addition, their supply chains were wrecked because they were either starved for business or gobbled up by the large companies. There are no firm numbers but it is possible 25-40 percent of small businesses closed permanently. Dreams were shattered and millions of jobs were disrupted or destroyed. 

As a result, retail trade (declared nonessential except for chosen businesses) has yet to recover in employment, despite the frantic hiring. Neither has hospitality. However, the information sector (declared essential across the board) is larger than ever. 

It was a brutal attack on commercial freedom but what a way to gain an industrial advantage! 

The American economy is supposed to rest on competition as an ideal. This was the opposite. Lockdowns were the bolstering of industrial cartels, particularly in the information sector. Even today, all these companies benefit from this period in which they were able to deploy their unfair advantages against their smaller competitors. The entire disaster was an attack on property rights, free enterprise, and the competitive economy. 

Incredibly, the regulators offered a public-health rationale. They were issuing every manner of edict concerning ventilation, social distancing, plexiglass, silly stickers everywhere, and capacity restrictions. Later these companies added vaccine mandates. These all benefited the large corporations and exterminated the small businesses that could not afford to comply or could not risk alienating labor with shot demands. 

Consider the capacity restrictions alone. If you are a restaurant that serves 350-500 people – like Golden Corral – a capacity limit of 50 percent isn’t going to hit the bottom line too hard. It’s rare even in normal times for these places to fill up. But across the street, you have a family-owned coffee shop with seating for 10. It is almost always packed. Cutting that by half is devastating. It cannot survive. 

It was the same with the distancing requirements. Only the largest businesses could implement and enforce them. 

I can recall standing outside waiting in lines to be chosen to be the next person entitled to go into the store. As I approached the door some masked-up employee would sanitize a shopping cart and push it my way so as to maintain six feet of distance. Smaller and local shops could not afford to hire extra employees for such ridiculous jobs and needed to serve everyone who showed up. Only the well-heeled places could afford such antics. 

And that is precisely why the large corporations did not complain too much about lockdowns. They watched their bottom lines swell even as their competitors were crushed. It was the perfect embodiment of Milton Friedman’s dictum that big business is often the biggest enemy of genuine capitalism. They far prefer industrial cartels of the sort created during the lockdowns. 

If we look back at 20th century commercial history, we observe that in totalitarian societies, such cartels thrive. This was true in the Soviet Union, which featured state-owned companies that held a full monopoly not only in its stores but also for the products they would sell: one brand of everything you need. The principle of essential and nonessential thrived under Soviet communism like never before. 

But it was the same in fascist-style economic structures too. The German economy under Nazi rule privileged the largest industrial players who became agents of state power: this was true for Volkswagen, Krupp, Farben, and a host of munitions manufacturers. It was the opposite of a competitive economy. It was socialism with German characteristics. Italy, Spain, and France did the same. 

Prevailing intellectual opinion in the 1930s celebrated the cartelization of industry as more “scientific” and less wasteful than competitive free markets. Fashionable books at the time cheered on the way such cartels made possible scientific planning for the whole of society. Reading through Benito Mussolini’s manifesto on fascism today prompts the question: once you replace nation with globe, what precisely would the WEF disagree with here?

Fascism asserts not the rights of commerce but its fundamental duty to serve the state. What can be more consistent with this view than the claim that some businesses are essential to state priorities and others are not? 

This is what was created during lockdowns in the US and around the world. I’ve tended to think that this was all an outgrowth of disease panic and bad thinking. Well intentioned policy that went very badly. But what if it wasn’t? What if the whole point of the industrial segregation and cartel creation was to run a real-time test of the full vision of a corporatist state? It’s not a crazy speculation. 

The case of Amazon is particularly intriguing. It benefited massively from lockdowns. Meanwhile, its founder and CEO, Jeff Bezos, had already bought the Washington Post, which very aggressively and daily pushed the lockdown narrative throughout the entire period. There is nothing wrong with gratitude for Amazon’s performance throughout but the involvement of its founder and CEO in actively pushing for lockdowns, anxious to prolong them as long as possible, raises alarm bells. 

Or have a look at the March 2020 viral article called “The Hammer and the Dance,” pushed hard by all the major social-media outlets. The man who signed it is Tomas Pueyo, an educational entrepreneur pushing digital learning. He and the industry he represents made a windfall from lockdowns. 

The companies that massively benefited from lockdowns have been forced to pull back in hiring due to higher interest rates, but they are still much larger than they were pre-lockdown. They will cling to their power and market domination through all means fair and foul. 

How to dislodge them and restore competition? 

The historical precedent is postwar Germany. When Ludwig Erhard took over as finance minister following the destruction of the Nazi government, he worked to dismantle industrial cartels but faced massive resistance. The richest and most powerful corporate actors pushed back against his introduction of competition. You can read his story in the great 1958 book Prosperity through Competition. 

His priority focus was on decentralization, deregulation, cuts and eliminations of taxes that are barriers to business formation, bolstering property rights, ending subsidies, stabilizing the current, and otherwise encouraging as much freedom in the economic sphere. 

“Freedom for the consumer and freedom to work must be explicitly recognized as inviolable basic rights by every citizen,” Erhard wrote. “To offend against them should be regarded as an outrage against society. Democracy and a free economy are as logically linked as are dictatorship and State controls.”

His efforts produced the “German economic miracle,” during which time the German economy grew an annual average of 8.5 percent between 1948 and 1960, and caused the nation to be the most prosperous in Europe. And this happened at the same time that the UK was adopting ever more socialist and corporativist forms of governance. 

The point is that industrial cartelization is not an unusual pattern. Big business has traditionally loathed competition and free enterprise. It would be naive to believe that they had no role in the destruction of American liberty and rights in those fateful days of lockdowns. 

The norm in commercial life from the Middle Ages through the modern era has not been competition and freedom but cartelization and despotism, with some exceptions beginning in the late 18th century through the Great War, also known as the great age of liberalism or the Belle Epoque. What followed in the 20th century in many countries– coupled with economic crisis and war – was an egregious public-private partnerships and the regulatory state that benefited the largest corporate players at the expense of start-ups and local companies. 

The introduction of digital commerce in the late 20th century threatened a new age of commercial freedom that came to a screeching halt with the lockdowns of 2020. In this sense, lockdowns were not “progressive” at all but profoundly conservative in the old-fashioned sense of the term. It was an establishment fighting to preserve and entrench its power. Perhaps that was the whole point all along. 

All those crazy mandates, protocols, and recommendations served some purpose and they sure weren’t disease mitigation. They benefited those institutions that could afford to implement them while punishing their lower-capitalized competition. The response should be obvious: reparations for small business and the restoration of real commercial competition along the lines of postwar Germany. 

We need our own Ludwig Erhard. And we need our own miracle.