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Nobel Prize-winning economist Joseph Stiglitz says it’s time for the US to update its antitrust laws – Finance –




  • There is a debate over whether the United States has a monopoly problem. A monopoly is
  • The economist Joseph Stiglitz says that increased market concentration across several sectors has reduced competition and slowed economic growth.
  • The US government has countered by saying data is being misrepresented and that giant companies today are not harming consumers.
  • At a recent FTC hearing, Stiglitz called for an update of antitrust laws.
  • This article is part of Business Insider’s ongoing series on Better Capitalism.

There are plenty of companies that may feel too big to you, whether it’s trillion-dollar monoliths Apple and Amazon, or even the cable company you’re forced to deal with every day.

But the question of whether they’ve got so much power that they’re harming the economy is the subject of a debate in the spotlight once again.

For Nobel Prize-winning economist Joseph Stiglitz of Columbia University, there is indeed a monopoly and monopsony problem in the United States, and it’s high time to address it with new antitrust laws.

At a recent Federal Trade Commission hearing on the subject, Stiglitz said, “The point is, if our standard competitive analysis tools don’t show that there is a problem, it suggests something may be wrong with the tools themselves.”

Trust busting

The bedrock of America’s antitrust law was primarily built in the late 19th and early 20th century, during the democratic and reform-minded Progressive Era that followed the Gilded Age’s reign of robber barons and progression of inequality.

Even Adam Smith, the father of capitalism himself, warned in “The Wealth of Nations” against the consolidation of market power in the hands of a few. This is represented on the selling side by monopoly and on the buying side by monopsony, a term coined in the 20th century that refers to firms using their size to push down suppliers’ prices (Walmart is arguably an example).

Years of economic research has found that when market power is highly concentrated, barriers to entry prevent new competitors from building businesses, consumers have fewer options, and employees receive lower wages. This in turn slows overall economic growth.

Even before data on market power was routinely gathered, the federal government established the definition for an illegal monopoly and an illegal merger with the Sherman Act of 1890 and the Clayton Act of 1914. It also created the FTC in 1914 to enforce these rules.

Antitrust policy gradually evolved, and in 1982, the Herfindahl-Hirschman Index was adopted to mathematically measure the concentration of a market, clarifying whether it was competitive or not. The HHI, which is defined as the sum of the squares of each firm’s market share in a given market, concisely measures how monopolistic that market is.

According to FTC and Department of Justice guidelines, mergers and acquisitions that would dramatically increase the HHI in a particular market could come under further scrutiny about whether they would cause unfair market concentration. The Obama administration loosened those guidelines in 2010 in the wake of the financial crisis, allowing more freedom for mergers.

Is there a problem?

Last year, Rice University’s Gustavo Grullon, York University’s Yelena Larkin, and Cornell Tech’s Roni Michaely published a paper that used Census data to back up their finding that, “More than 75% of US industries have experienced an increase in concentration levels over the last two decades,” and that this has decreased competition.

One measure provided by the Census Bureau investigated by Grullon and his team — the market share of the four largest firms in a particular industry — suggests varying levels of concentration across industries:




(Andy Kiersz/Business Insider)

The FTC and Department of Justice responded this May by saying this paper and others like it were simply incorrect. It wrote:

“At no level is the Census data capable of demonstrating increasing concentration of ‘relevant markets’ in the antitrust sense, i.e., ranges of economic activity in which competitive processes determine price and quality, and in which the impact of agreements, mergers, and unilateral conduct are evaluated in competition law.”

That is, the federal government is arguing that antitrust law has never been applicable to a massive, broad industry like “pharmaceuticals,” but rather applies to markets for specific, competing products. The government also argued that even if there has been increased market concentration, it’s not necessarily a bad thing. “First, when success and failure are random events, markets become concentrated over time,” the government argued. “Second, when success and failure are driven by relative degrees of innovation and efficiency, markets also become more concentrated.”

The Roosevelt Institute, an economic think tank that works with Stiglitz, felt compelled to respond. Marshall Steinbaum and Adil Abdela wrote that differentiating between industries and antitrust markets is valid, but that it is inaccurate to dismiss industry concentration as irrelevant. They also were able to compile a long list of specific antitrust markets that have been further concentrated over the last 20 years, even though there is indeed less data for such markets than for entire industries.

“If the federal antitrust enforcement agencies do not make significant changes to the enforcement of antitrust policy, first by acknowledging that many markets are highly concentrated, fewer and fewer firms will continue to expand their dominance,” the authors wrote, adding that the first step has to be the government taking the data seriously.

Time for a change

Stiglitz asked the government to take this data seriously at the FTC hearing in September.

He argued that this increase in market concentration has risen simultaneously with growing inequality in the US since the 1970s, when the policies of free market economists perhaps best exemplified by the Chicago School of Economics began to take hold.

He argued that the FTC needs to rethink what types of mergers it allows, break up companies that are eliminating competition and innovation and abusing their control over employees, and increase transparency of contracts with customers.

It will be a necessary step to kickstarting relatively slow GDP growth over the last 20 years.

“Innovation isn’t showing up in GDP, but it is in market power,” Stiglitz said about the companies he deemed to have gotten too big, smiling.



Sordid tale of the bank ‘that would bribe God’




Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
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Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –




Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

Read: Ministry of Agriculture Apologizes After Sending Out Tweets Portraying the President in bad light

Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

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“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

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Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

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William Ruto eyes Raila Odinga Nyanza backyard




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