James J. Hill was in the wrong game and lived in the wrong era. Hill, the “empire builder” who directed construction of the Great Northern Railway to Seattle as well as the newly renovated King Street Station, joined a cabal involving some of the richest men of the Gilded Age — John D. Rockefeller, E.H. Harriman and J.P. Morgan — to create a giant rail network including the Great Northern, Northern Pacific and Chicago, Burlington & Quincy. They pooled their holdings in a trust called the Northern Securities Co.
The 1901 deal was especially good for Hill and Harriman, the latter controlling the Union Pacific. The UP received favorable treatment from the Hill lines. The competing Burlington Route was taken out as a rival. Hill kept control of railroads to the Puget Sound. These rich men were saved from the cost of “ruinous competition.” Shippers were forced to pay high rates and had no alternatives. (The Milwaukee Road’s extension to Seattle and Tacoma would not arrive until later in that decade).
What none of them counted on was Theodore Roosevelt, the new president. Unlike his predecessors in the 1880s and 1890s, he responded to the popular outcry against the monopoly and sued Northern Securities under the Sherman Antitrust Act. The case went to the Supreme Court and the rich men lost. Northern Securities was broken up, the biggest coup of the Trust Buster. I wonder what TR, who enjoyed sports as much as he loved “fair play,” would make of David Stern and the National Basketball Association?
One important aspect of Seattle’s rough handling by the NBA is that the league is a monopoly. To be sure, we live in a new Gilded Age where highly consolidated industries and players such as Wal-Mart and Amazon.com are de-facto monopolies and cartels, helping to keep wages low, inequality high and destroy smaller rivals by their control of the supply chain. But they are smart enough to keep prices low, so “consumers” think they are getting a good deal. Big business has re-written antitrust law and controls the Supreme Court as well as administrations of both parties. But prices are low.
With professional sports such as the NBA, however, we do see classic monopoly behavior. Prices are set as high as possible. Included in those prices is the blackmail of cities to build new stadiums and arenas. Barriers to the entry of competitors are sky high. Previous attempts to bring competition (the ABA, the USFL), were properly disposed of. Major League Baseball enjoys a specific antitrust exemption, upheld by the Supreme Court. And unlike shippers and passengers at the turn of the 20th century, the wealthy owners of these teams control a product of desire but not necessity.
But as you watch the Sonics saga play out, with a sterling ownership group and arena deal shut down because it threatens the NBA’s status quo, just remember: This is a monopoly in action. It’s one of many reasons why Theodore Roosevelt knew they were bad for America.
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Today’s Econ Haiku:
Windows 8, New Coke
Messing with success can hurt
Now they’re in the drink