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The Cartels of Silicon Valley


Last week Mark Ames published an article that should forever destroy any connection between the Silicon Valley tech billionaires and libertarian worldviews. The article reports on a court case that alleges that Apple, Google, and other Silicon Valley powerhouses actively conspired to keep their workers’ wages down. According to documents filed in the case, these companies agreed not to compete for each others’ workers dating at least as far back as 2005. Workers in the industry have filed a class action suit that could lead to the payment of billions of dollars in lost wages.

This case is striking at many levels, the most obvious being the effective theft of large amounts of money by some of the richest people on the planet from their employees. This is pernicious, but not altogether surprising. After all, the boss stealing from the workers is as dog bites man as it gets. Few would be surprised that rich people were willing to break the law to get even richer.

The real news here is how the Silicon Valley barons allegedly broke the law. The charge is that they actively colluded to stifle market forces. They collectively acted to prevent their workers from receiving the market-clearing wage. This means not only that they broke the law, and that they acted to undermine the market, but that they really don’t think about the market the way libertarians claim to think about the market.

The classic libertarian view of the market is that we have a huge number of people in the market actively competing to buy and sell goods and services. They acknowledge the obvious — some actors are much bigger than others — but there is so much competition that no individual or company can really hope to have much impact on market outcomes.

This point is central to their argument that the government should not interfere with corporate practices. For example, if we think our local cable company is charging too much for cable access, our libertarian friends will insist that the phone company, satellite television or other competitors will step in to keep prices in line. They would tell the same story if the issue were regulating the airlines, banks, health insurance, or any other sector where there is reason to believe that competition might be limited.

They would tell the same story on the labor side. If we are concerned that workers are getting low wages then the answer is to improve their skills through education and training rather than raise the minimum wage. If workers were worth more than the minimum wage, then the market would already be paying them more than the minimum wage.

They have the same story when it comes to requiring family leave, sick days, or other benefits. Libertarians would say that if workers value these benefits they would negotiate for them and be willing to trade off wages. There is no reason for the government to get involved.

This story about the wonders of the free market is simple in its appeal and it has the great implication that nothing should be done to keep the rich from getting ever richer. However the Silicon Valley non-compete agreements show that this is not how the tech billionaires believe the market really works. This is just a story they peddle to children and gullible reporters.

If they really believed the market had a deep sea of competitors in which no individual actor could count for much, then their non-compete agreements would serve no purpose. If Google, Apple, Intel and the other biggies agreed not to hire each others’ workers, it really wouldn’t affect their pay since there would always be new upstarts ready to jump in and hire away underpaid engineers.

The fact the Silicon Valley honchos took the time to negotiate and presumably enforce these non-compete agreements was because they did not think that there were enough competitors to hire away their workers. They believed that they had enough weight on the buy-side of the market for software engineers that if they agreed to not to compete for workers, they could keep their wages down.

It shouldn’t be surprising that the Silicon Valley billionaires really are not libertarians. After all, much of their fortunes rest on patents and copyrights, both of which are government granted monopolies: the opposite of a free market.

But for some reason, seeing the tech whiz-kids forming a cartel to keep down their workers’ wages seems an even more direct violation of any belief in libertarian principles. This is the same sort of cartel behavior that we associate with the cigar-chomping robber barons of the late 19th century. It turns out that the biggest difference between the tech billionaires of the Internet Age and the high rollers of the railroad age is the cigars.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared in The Guardian


Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

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