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Dear Feds: Stop Contracting with Misbehaving Monopolists

From its unquestioned bailout of the venture capitalists that ultimately crashed Silicon Valley Bank, to the funneling of public dollars to corporations that shamelessly bribe public officials, the Biden Administration is developing a track record of empathizing with monopolists to whom empathy is utterly unwarranted. It’s not too late to change course.

In January, Congressional Democrats urged Biden’s Secretary of Agriculture, Tom Vilsack, to bar JBS, a food processing company, from U.S. Department of Agriculture (USDA) contracts following revelations that JBS’s parent company pleaded guilty to charges of bribing Brazilian officials. For its crimes, JBS was made to pay the U.S. federal government a $256 million fine for its parent’s illicit bribery scheme. But Congressional Democrats understand that this supposed justice is undercut by the millions of dollars that JBS makes off the federal government every year in contracts. Since fiscal year 2019 alone, for example, more than $283 million in American public dollars has been ushered into JBS’s coffers. That amounts to nearly $30 million more than JBS’s fine. Democratic lawmakers, understandably, found this disparity to be reprehensible, prompting their outreach to Vilsack. 

JBS has for years received millions of taxpayer dollars in bailout funds and contract awards. Those funds, from our tax dollars, have helped JBS become the largest meat producer in the world and the second largest global food company.

These huge public payouts have then been wielded by JBS (and other contractors like it) to monopolize USDA’s contracting system, creating a toxic cycle of dependency that cements contractors’ dominance in their given market. It is this dependency that led Vilsack, in a letter to Congress published by Politico, to declare that barring JBS “could hurt taxpayers because the company has so few competitors,” and that as a result USDA would continue to accept JBS bids in its contracting services. 

Per The American Prospect, Vilsack himself is also unlikely to implement strict contractor ethic standards, given that he’s a “henchman of the very biggest agribusiness giants,” whose chief of staff went on to become a lobbyist at the very corporation in question. The impetus, therefore, must come from elsewhere.

There are many basic ethics reforms that could address these issues, like closing the revolving door between contractors and government agencies, preventing government awards from being used for stock buybacks and union busting, and enforcing strict standards of corporate eligibility for participation in contracting bids when other parts of the government sue for violations of federal law. 

Such shifts in federal contracting rules would not only protect the public from corporate abuses, but would also advance the federal government’s financial interest.

Monopolists Dominate The Contracting Market

Alas, the government’s kids-glove treatment of JBS is far from novel. Across the federal landscape, agencies continue to contract with corporations found guilty of wrongdoing simply because those same companies have monopoly power in their given fields.  

According to our research, in fiscal year 2022, the federal government gave over $48 billion in public funds to contractors that faced antitrust actions from the Department of Justice (DOJ) in 2021 or 2022. Federal agencies forked over an additional $48.6 billion of taxpayer money in fiscal year 2022 via contracts to firms that faced similar action or inquiry from the Federal Trade Commission (FTC) over monopoly behavior during that same period. All told, that’s just shy of $100 billion dollars that federal agencies have rewarded to corporations that were actively facing—or recently subject to—enforcement activity from other parts of the government for harmful (or illegal) monopoly conduct during 2022 alone.

To look at just the Pentagon, for example, one-third of Pentagon contracts since 2001 have been awarded to five hyper-consolidated companies: Lockheed Martin, Boeing, General Dynamics, Raytheon and Northrop Grumman. This lack of competition has “driv[en] up costs for the American taxpayer, degrad[ed federal] accountability infrastructures, and otherwise creat[ed] ‘Walmarts of War’” that hold hostage actual national security in favor of privatized profits. As the Revolving Door Project has  explained, “the current [monopolistic] system also promotes the iniquitous pursuit of massive gains through ‘questionable or corrupt business practices that amount to waste, fraud, abuse, price-gouging [and] profiteering.’”

Monopolies and their prone-to-labor-abuse corporate models also hurt workers in the short term, hurt the taxpayer in the long-term, and have been found to deliver lower quality services in fulfillment of contracted work.

Last year, corporate profit margins in the United States reached their peak since 1950, as corporations padded their profits by raising prices under the pretext of rising costs, while actually fueling inflation. Meanwhile, American families suffered from runaway (and cruelly unnecessary) cost-of-living increases that have left more and more folks facing crises like homelessness and food insecurity

While the corporate conniving fueling crippling inflation is occurring across economic sectors, it tends to be even more pronounced in highly concentrated industries with monopoly pricing power over crucial goods and services. 

Monopolies are manifestly bad for consumers and they’re also bad for workers. Market consolidation leads to depressed household income and wage decreases; indeed, monopolies cost workers approximately 15-25 percent of their wages while charging the public more for less.

The Federal Government Should Be a Champion of Its Own Laws

Despite the selling power of contractors, the federal government wields significant buying power over contracted firms, as the government is the single biggest purchaser of goods and services in the world. The federal government oversees and distributes hundreds of billions of dollars to contractors each year, reaching nearly $700 billion in 2020 and $637 billion in 2021. 

The sheer purchasing power of the federal government is unparalleled, leaving it with significant authority to implement and to enforce strict ethics standards for contractors. Despite this power, the government continues to casually fund JBS and other such companies’ grossly inflated profits (that hurt American consumers and families) and turned a blind eye to unlawful abuses of child labor and other workers, systemic underpayments of family farmers and ranchers, egregious food safety violations, and environmental crimes galore. Public money should not fuel the historic profit margins of corporations while those corporations hurt the public. 

USDA and other large contracting agencies should be champions of the public good. They should reward contractors who do good work, and they should hold contractors accountable—and indeed stop fueling their government-sponsored bottom lines—when contractors violate federal law.

Instituting basic ethics in contracting is well within the executive branch authority and requires no action from Congress. From reevaluating what requires contractors in the first place to refusing to fund union-busting activities to refusing to promote monopolists, the contracting apparatus is fully within the purview of President Biden and his officers. 

To address this crisis of competition and consolidation in contracting, this administration should bolster its existing executive order on competition by requiring executive agencies to provide a public report on the degree of competition (or lack thereof) that exists within their contracting apparatus. Biden could expand the purview of existing “advocates for competition,” to include identifying problems in federal procurement due to concentrated markets and charge. These officials could then be directed to collaborate proactively with the FTC and DOJ to actually and actively protect competition for their agency—a truly whole of government approach to competition. 

Through instituting basic ethics and eligibility standards, federal agencies could foster actual competition in government contracting markets. Diversifying the deliverers of goods and services would yield greater accountability and good stewardship of public monies.

Toni Aguilar Rosenthal is a Researcher with the Revolving Door Project.

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