By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute
Senator Elizabeth Warren made national headlines with her recently released plans to break up tech giants Amazon, Google, Facebook, and Apple, making it one of her signature proposals as she campaigns for the presidency. The notion should resonate and echo in our political memory—Teddy Roosevelt made his name as the trust-buster, for going after the great monopolies of the early 20th century in the name of the public interest. Twenty-first-century populist economics in America continues to be adorned the century-old piece of political syntax, “break ’em up.”
Warren’s essential rationale is that these tech companies act as monopolies and need to be cut down in size in order to promote more competitive markets, via traditional antitrust instruments such as the Sherman Act. Furthermore, as legal scholar Kelsey Mullane highlights, Warren is also advocating “new legislation that would regulate large tech platforms and the appointment of federal regulators who will enforce our antitrust laws and retroactively terminate anti-competitive mergers.” The premise is that increased competition via vigorous antitrust activity and more regulatory activism will act as a spur to additional innovation, as it levels the playing field between large and small businesses.
Here is an even bigger goal implicit in Warren’s call for an ambitious exercise of antitrust law. She wants to use it to address other social friction points, notably improving the quality of employment, mitigating wealth inequality, better protecting data privacy and enhancing national security. In short, her policies reflect an expansion of antitrust policy away from the narrow focus of the so-called “Chicago School” (which largely uses the metrics of economic efficiency and consumer welfare to determine whether to deploy antitrust remedies), toward broader philosophical concerns over monopoly’s effects on democracy itself. The notion being that the atomization process of a highly concentrated industry sector is a moment where the market can be refashioned with more equitable rules of play to consumers, employees and stockholders. How do these proposals stack up?
Elizabeth Warren is by no means the only presidential candidate to call for a breakup of big tech, but her proposals provide the most specificity in terms of what she aims to do. Her two most notable planks boil down to this:
Companies with an annual global revenue of $25 billion or more and that offer to the public an online marketplace, an exchange, or a platform for connecting third parties would be designated as “platform utilities.”
These companies would be prohibited from owning both the platform utility and any participants on that platform. Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.
In other words, the rationale for the breakup of tech companies in part turns on “structural separation,” as journalist David Dayen explains, which means that companies like Amazon or Google “would not be allowed to both own the platform and also participate as a seller on that platform.” The idea behind this separation is that it prevents the companies from controlling content via control of distribution, which can create long-term competitive distortions, even though in the short term, consumers might benefit from the lower prices offered by a large-scale retailer like Amazon. This logic moves beyond book retailing: It is what gave America separation of ownership of movie studios and movie theaters before online streaming provided by Amazon and Netflix started taking over.
Regulators,argues the legal scholar Lina Khan, “cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output. Specifically, current doctrine [which largely is governed by consumer welfare considerations] underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive.”
Fair enough. But it may still be useful to make a distinction between platforms for advertising and selling commercial goods (e.g., Amazon) and platforms for publication/speech/information (e.g., Facebook and Twitter). In the case of the former, the business models of these platforms depend on as many clicks or purchases as possible—on size. The larger the better. Consequently, if a company like Amazon becomes too restrictive via predatory practices, it will begin to reduce the number of clicks and undermine the basis for its pricing model. This need for size means that there are some constraints on these platforms being able to favor their goods or listings over those of others but, as Khan and Warren would argue, probably not enough, which is why competition should be encouraged via antitrust.
The problem with social media platforms that are publication or speech vehicles is somewhat different, as we are seeing with increasing censorship of some voices or viewpoints. It is unclear whether breaking up Facebook, and having multiple competing platforms, actually solves the problem of, say, dissemination of “fake news.” FCC oversight and regulation would seem to be a better way of dealing with this issue.
As far as the size metric itself goes, it’s hard to understand the rationale for a cut-off point of $25 billion in global revenues as a prima facie reason to break up the tech giants. According to Dayen:
Warren’s campaign sees the $25 billion figure as a clean way to assist regulators with pinpointing market dominance. ‘It has the benefit of a clear rule,’ said one senior campaign adviser, who was not authorized to speak on the record. “We should presume if a company with over $25 billion in revenue is operating a marketplace, it has power and leverage.”
But why should regulators make that sort of presumption in a globalized economy full of companies whose revenues vastly exceed that figure? Ford, GM, Toyota and countless other automobile manufacturers have global revenues well in excess of $25 billion. Seldom have we heard calls to break up Detroit’s “Big Three” despite global revenues in the hundreds of billions. Why? Because there is a widespread recognition that these companies are facing significant challenges in a global market dominated by similarly large competitors.
Likewise with some of the global food companies, such as Unilever or Nestle. Or consider the pet food industry, which is largely dominated by three suppliers. Should we be breaking up “Big Cat Food,” or is there something about a $25 billion global revenues metric that is intrinsic to Big Tech? By the same token, is it fair to make a presumption that businesses with much smaller revenues lack potentially abusive power and leverage?
No question, it is fair game for Dayen to highlight the “incestuous” linkages between some of the institutes and think tanks that are broadly supportive of Big Tech and oppose the Warren proposals (such as the American Enterprise Institute). After all, they serve as intellectual advocates for the business models of companies such as Google. But beyond pointing out the potential conflicts of interest, it would be helpful to gain a better understanding of the global revenue metric beyond it simply having the virtue of clarity.
There’s nothing in the economic literature on antitrust that would provide any kind of empirical gauge to assess whether there is something sacrosanct about a $25 billion figure. In that sense, the figure adopted by Warren evokes the arbitrary limitson debts and deficits established for fiscal sustainability rules in the European Monetary Union’s so-called “Stability and Growth Pact” (which also have the “virtue” of clarity, even though the rules themselves are devoid of economic common sense).
In the same piece, Dayen writes:
Andy Kessler at the Wall Street Journal denied that antitrust law has anything to do with bigness.
The idea that John Sherman, author of the Sherman Antitrust Act, was not concerned with bigness would come as news to Sherman, who once said, “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.”
In truth, however, the Sherman Act was conceived by its eponymous author in large part to avert more radical measures, as was noted by William Letwin in his seminal analysis of the Sherman Act, Law and Economic Policy in America. Much as FDR conceived of the New Deal as rescue for capitalism rather than an embrace of socialism, Sherman introduced antitrust lest Congress pave the way “for the socialist, the communist, and the nihilist.” In the words of antitrust law Professor Daniel Crane: “From the Sherman Act forward… it is certain that antitrust has often been deployed as a foil to more interventionist forms of regulation. The ideological and political implications of that move are complex and not neatly housed in right/left categories.” Sherman and his fellow trust-busters (such as the Roosevelts) may have been unwilling to “endure a king” over production, transportation, etc., but they were certainly willing to tolerate a number of archdukes.
And here we come to the tension inherent in Warren’s antitrust proposals. Is the ultimate goal to break up these companies in order to foster greater market competition? If so, to what end, or is it simply enough to let markets be markets, even if market forces lend themselves precisely to the kinds of pathologies that Warren is seeking to eliminate?
As far as outcomes go, there is a benign assumption in the Warren proposals that increased competition levels the playing field between large and small businesses, which in turn helps to spur greater innovation. However, there is a significant body of research since the days of Joseph Schumpeter (the intellectual godfather of the economics of innovation) indicating that R&D spending and R&D productivity increase with scale. True, smaller firms have less bureaucracy and in theory can adapt their technology quicker to the needs of the marketplace. But a comprehensive examination of the empirical databy Professors Anne Marie Knott and Carl Vieregger at the University of Illinois leads to the following conclusion:
Not only do large firms (using the US Small Business Association definition of greater than 500 employees) conduct 5.75 more R&D in aggregate than small firms, they have 13% higher productivity with that R&D. However this merely captures the private returns to their R&D. A further benefit of large firm R&D is that it generates the spillovers upon which small firm innovation free-rides. (Emphasis added.)
The point of “small firm innovation free-rides” seems particularly salient, since smaller businesses are generally perceived in more benign terms politically than big multinational corporations. True, they do not suffer from “the curse of bigness,” but the myth of the plucky entrepreneur obscures the fact that in many instances smaller businesses are in reality the bad guys when it comes offering decent wages and a generous array of social benefits, such as health care provision or tolerance of unionization (the decimation of which has played a huge role behind the increase of wage inequality in our society).
Many businesses that are relatively small, and have minimal levels of concentration, are also marked by “low productivity levels, productivity growth rates hovering around zero, and low real wages,” according to an INET-supported studyby Professors Lance Taylor and Özlem Ömer. As a result, small businesses are often the first to protest increased regulation or “burdensome” mandates, such as those for additional health care provision or increased unionization. And that hardly makes them ideal candidates for the kinds of things Warren is aiming to achieve with her proposals.
By contrast, one of Warren’s chief targets, Google, has just mandated “that all its temporary and contractor workers based in the United States receive a $15 minimum wage by 2020 and comprehensive healthcare, including eight sick days and 12 weeks of paid parental leave, by 2022,” according to a recent piece by Jillian D’Onfro for Forbes.com. This echoes a recent move by Amazonto raise minimum wages to $15 per hour.
To be clear, there are many disturbing practices worthy of elimination in both Google and Amazon (hereand here). But it is also salient that both companies introduced the increased wages largely in response to mounting political pressure (Amazon explicitly acknowledged this), as opposed to waiting on legislation that would force the change. That provides some implicit support for the view that larger corporations generally have a greater economic capacity to enhance working conditions for their employees than smaller businesses (even if their motivations are to pre-empt even greater change that they strongly oppose).
The point is that greed, as opposed to affordability, has driven the big tech companies’ business decisions.
But what is the right legislative response? Is it to tackle the greed via vigorous antitrust enforcement or to introduce labor legislation that facilitates unionization and shifts the power balance back somewhat toward labor? Historically, unionization has proven to be a much more effective route toward greater income equality, as unions proved more successful in mitigating the gap between labor productivity and wages.
Frustratingly, Warren and her fellow Democrats in general evince little interest in tripartite labor-business-government models of the kind that worked so well during much of the post–World War II period (before market fundamentalism assumed intellectual primacy), or structural interventions in the labor market—via unionization or immigration policies, such as those embodied in Barbara Jordan’s Commission. In contrast to Trump’s unthinking (and often racist) restrictionism, Jordan’s immigration proposals sought to balance the 21st-century employment requirements of U.S. businesses with protections for “U.S. workers against unfair competition from foreign workers, with an appropriately higher level of protection for the most vulnerable in our society.” Warren and her fellow Democratic presidential candidates admirably pay heed to the less fortunate via cash transfers from winners to losers with increased public provision. But they fail to consider whether the deregulated labor and goods markets that are hallmarks of today’s antitrust propositions actually exacerbate the problems that create those vulnerabilities in the first place.
Likewise, in regard to the issue of data security, and data privacy, antitrust might not offer the best solution. The EU framework for data protection, or the California Consumer Privacy Act, have the makings of early-stage templates for consumer protections on these issues (although in the case of Facebook, this may be a case of closing the barn door after the horse has bolted, given that American Facebook users are abandoning it by the millions, the company’s “original sharing” is rapidly declining, and its WhatsApp subsidiary, the takeover of which Warren seeks to unwind, is rapidly being superseded in quality by China’s WeChat).
But what about the idea that we should all be thankful “now [that] we have the option of using Google instead of being stuck with Bing,” as Warren herself queriesin support of increasing competition among search engines? Network theory, as I’ve written before, leads to a different kind of assessment, because the value of a search engine expands as an increasing number of other users use it, thereby enhancing its value to the user. The corollary also applies insofar as the benefits of a search engine diminish as the number of users decreases, as more search engines are created (and recall the earlier point about innovation and size, which suggests that more competitive choice does not necessarily mean that a better mousetrap is created). Given that these businesses have reached levels of sophistication and capacity, as well as unique periods of benign growth and talent agglomeration, they can’t be easily replicated, so breaking them up via early 20th-century instruments, such as the Sherman Act, might not solve the problem.
If there is something inherent about network effects whereby online social networks like Facebook or search engines such as Google lend themselves to becoming natural monopolies, then the answer might be to regulate them as utilities, rather than breaking them up, as no less a figure than right-wing populist Steve Bannon has suggested.The advantage of the utility model of regulation is that it removes the determination of wages and prices of necessities from either markets or direct state control and put them in the more neutral realm of state-brokered bargaining (an approach earlier championed by both trust-buster Theodore Roosevelt and New Dealer Franklin D. Roosevelt).
Finally, it has to be asked whether it is wise to formulate antitrust policy on the basis of specific domestic requirements, while ignoring the challenges posed by global state-subsidized Chinese national champions: companies such as WeChat, Huawei, Alibaba or Baidu.
Well-crafted industrial policy is the kind of thing the American economy used to do rather well in fact before the deregulatory zeal of the Chicago School maligned any kind of national development strategies as something akin to rent-seeking crony capitalism. As a general rule, the more one uses antitrust to produce increasing domestic competition and less large companies, the more we may have to close the domestic market to international competition and provide export subsidies in order to compete globally. That won’t fly under the World Trade Organization, but without national protectionism and an assertive geo-economic strategy, the more costly becomes the application of antitrust rules based on national considerations alone.
It is true, as Lina Khan acknowledges, “If markets are leading us in directions that we, as a democratic society, decide are not compatible with our vision of liberty or democracy, it is incumbent upon government to do something.” The question is what that “something” should be. The broader philosophical issue is whether antitrust works as an explicitly democracy- and pluralism-reinforcing institution, or whether these objectives are better achieved via other legislative measures (increased unionization, more progressive forms of taxation, utility-style regulation, campaign finance reform, institutional political reforms that encourage greater participatory democracy and minimize barriers to voting, to list a few examples).
Beyond that, it is worth pondering whether the Big Tech behemoths are a product or a cause of our current democratic dysfunction. The earlier existence of progressive tripartite-type deals amid an industrial backdrop of big companies, big unions and big government suggest that today’s problems with Big Tech are symptomatic of the decay of some of the functioning stools on which America’s liberal democracy rested (declining unionization, increased political corruption), rather than the cause itself.
Unfortunately, in her efforts to act as a cheerleader for capitalismand market competition via aggressive antitrust remedies, Warren ignores other remedies of the kind embodied in the Treaty of Detroit. And her antitrust proposals acknowledge no role for possible utility-style regulation (ironically, that is coming from the populist right).
The problems she defines are real, but Warren’s call to break up Big Tech is by no means the best route to the solutions she seeks to find.
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If Warren, or another attempt at ‘leadership’, would attempt to regulate FB, Google, et al, I hope it goes better than the so- called Progressive Era, where as -as Kolko details- the regulations supposedly forced on the monopolies were actually called for and guided by those same monopolies due to fears of being overcome by too much burgeoning competition (see Rockerfeller’s wealth post-break up of Standard Oil).
*Sigh* I am not familiar with Kolko’s work, but it’s simply not correct to say that the monopolies won. One of the big cases was the railroads, where was not trivial to figure out what the right solution was, rate-wise. due to the extremely high fixed costs of railroads, which had led them to go bust almost en masse because they were able to raise capital cheaply (tons of stock market speculation and abuses) and then lost boatloads of money due to “ruinous competition”. Think of the dot-com era.
See Michael Perelman’s excellent analysis of railroad development and the very active economics debate it precipitated:
https://www.amazon.com/Railroading-Economics-Creation-Market-Mythology/dp/1583671358
More generally, this article shows that there was an ongoing regulatory struggle between shippers and railroads and each side won some. It is simply false to depict the outcome as one sided.
https://faculty.atu.edu/cbrucker/Engl5383/Texts/Regulation.pdf
Finally, the Progressive Era was the first go the US had at Federal regulation of businesses. The effort had considerable limitations due to a much stronger state’s rights and therefore a very restricted interpretation of the applicability of the interstate commerce clause (and on top of that, interstate commerce actually was far more limited then, giving the Feds a smaller nexus). Plus separate from that, this was the alpha version of regulation, so you can anticipate it had a lot of bugs.
In other words, reasoning from the Progressive era. even if your black and white claim were correct, which it isn’t, is pretty spurious.
Another book that speaks to your point is Railroaded where the author really digs in to the financial records of the 19th century railroad industry to describe a race to get rich by a bunch of grifters who started an industry filled with corruption and incompetence. Competing companies would run their own rails side to side creating unnecessary redundancy in an attempt to put the other out of business, and the result was often chaos. The author is making deliberate comparison to today’s tech industry.
I think chef may be alluding to the fact that Fleecebook has recently asked to be regulated, but on terms that would benefit itself. There was an article here mentioning that a few days ago, it may have been this one: https://www.theguardian.com/technology/commentisfree/2019/apr/07/facebook-begs-to-be-regulated-but-wants-to-choose-how
As I recall it was Kolko’s analysis that the turn of the century monopolists, eventually came to a general understanding that market regulation would be a good thing. Now that industrial and finance capitalists had consolidated their markets all they had to do was run them efficiently. Really, who needed that free competition nonsense. And what better method for efficient business operation than regulatory control through the political structure. “It’s all good. We’ll go to lunch then play golf with the Railroad Commissioner.” Kolko called this The Triumph of Conservatism.
I think Warren gets this.
AFAIR, Kolko — whose work is still pretty well regarded by historians — emphasized that at least in some industries, e.g. meatpacking, there was concern that competition was leading to disastrous product deterioration of the sort Upton Sinclair wrote about in “The Jungle.” Enforcing standards may have resulted in making market entry more difficult, but stopping a race to the bottom in product safety seems to be a valid priority.
It seems to me the answer is both, and. MSFT should have been broken up decades ago. Oracle was the poster child for anti-trust behavior but no one would/could take them on. The inherent conflict of interests in FANG have to be dealt with, and can be via existing anti-trust laws. We need to eliminate lobbyists from running the Executive branch admin agencies, and we need new regulations on technology that is probably 20 years behind the curve.
I’m not anti-markets and anti-capitalism, although on the latter I find myself increasingly shifting my views. I am most definitely anti-unregulated markets and anti-unfettered capitalism (particularly of the neoliberal flavor).
I’ve been skeptical of Warren, and maybe unfairly so, but I think where she has it right over Sanders is that these policies are something a President can actually affect. Sanders platform is DOA without a Congress to legislate it into existence. Warren could make life really difficult for these major corps just by putting in the right administration and using existing laws on the books. An aggressive DOJ, FCC, SEC, FDA and EPA could produce very meaningful change. Sanders could as well, but that is not necessarily what he is selling.
Not to take away from Warren, but as far as Sanders goes, the bully pulpit is a very powerful thing. So are Presidential Directives. Over the years, congress has given the President a lot of power which Sanders could use regardless of the damaged and corrupted legislative branch.
If Sanders remained consistent to his campaigning, he could do a huge amount to change the national discourse, just as AOC is doing but on a much broader and more visible scale and via Presidential Directives, he might be able to steer us toward more people oriented government to the point that such specious paranoid arguments as, gasp, socialism, would begin to loos their rock solid hold on the public.
As with the article on Nuclear power plants and how people will favor them if they don’t realize the power source they are judging is nuclear, the author of this article uses questionable criteria for arguing that scale brings benefits that would be harmed by Warren’s anti-trust proposals.
What do I care if Google’s search engine is “better” at a query returning what Google wants the results to be due to Google’s scale and innovativeness if it is not the results I am looking for. If Google uses some sort of “smart” algorithm to decide what is acceptable for me to see, and I am trying to do objective research, then the results may be better to Google and the government stooges it puts in office, but they are not better for me. I would be happier with smaller scale less efficient, even less innovative companies, and even lessor paying companies if their efficiency and their innovativeness and their resources of giant scale didn’t pollute the price range of habitation in an entire city so no one else but their high paid tech zombies could live there, and didn’t work to invade my privacy so as to exploit my data for profit, and didn’t work to provide me with information tailord by a self interested profit driven dystopian ideology suited up to imitate thier twisted idea of a meritocracy.
I have no interest in all sorts of “smart” gadgets in my house. They don’t make things that much easier and they only appear to work in my interest. But this is the sort of criteria that the author seems to use to suggest that large scale brings innovation.
Smallness of scale may have limitations, but it tends to work better at producing an environment where things play better together, particularly unanticipated things – such as insect habitat and well being. Less innovative powerful chemical companies… more insects. In this light, Warren’s approach strikes me as far more reasonable .
My hunch is that Google has morphed into a ‘pay to be found or else you disappear down the memory hole’ search engine.
Good point, but not the only one. My understanding is that Google no longer returns NC, for example, above the “query horizon,” on queries about economic issues, particularly ones with possible, gasp, lefty connotations. So if I’m trying to do research on MMT, I can loose an invaluable resource because Google, in all its innovative glory, doesn’t think I “should” bother my pretty little head with radical leftist ideas.
I just tried it, incidentally, and the results were deplorable, but then they were almost as bad at DuckDuckGo.
Agreed.
> R&D spending and R&D productivity increase with scale
Like many topics, the full story is complex.
One aspect: IBM in particular had a reputation for creating, but also buying, so-called “Shield Patents” (an “Inactive patent that is preventing competition from gaining ground” per http://thecombine.co) to protect market positions by stifling innovation.
Yes! And pharmaceutical giants are innovative in finding ways to charge astronomical sums for life and death drugs and are innovative in finding ways to avoid any price restraints by an innovatively captured government. All thanks to scale. It depends a lot on just what sort of innovation one is talking about.
Big Pharma increasingly uses its cash pile not to innovate, but for stock buybacks. Bill Lazonick has documented this very clearly. Again not a problem that will be solved via antitrust. Point to stress is that I share many of the goals that Senator Warren advocates. I disagree on means, not ends. And I’m disturbed at the premise that simply opening up markets to more competition is an actual solution. Neoliberalism on steroids, if you ask me.
Thank you for your response! And yes, you make clear you have the same ends as Warren. And also, for what little it’s worth, I agree with your points about legislation rather than markets being effective (and certainly more dangerous) as a solution. @RenoRich hits upon it when he says, “the full story is complicated.” and I was picking at a subset of the issue with my own rather limited economic understanding. To me, size = money = power. Power to influence political legislation, power to reshape markets unfairly in one’s interest, power to evade and ignore (deep pockets) the few legal restraints that remain and power to cut off effective enforcement of what ever straggling protections might still show signs of life after that.
And if Warren sees the market as the solution to be achieved by lopping off “big,” at some arbitrary number and that the rest -thanks to markets- will take care of itself (neoliberalism at it’s core as you mention), then (again for what little my opinion is worth) I find your critique of that to be spot on.
But I still take issue with legislation without corresponding weakening of these behemoths as being questionable on several levels and I also question the types of “innovation” that their size, and ensuing self image, and the power of their self interest seems to encourage even if there is “more of it” along with “just enough and perhaps more for show” better compensation than with smaller entities.
Sorry, warped sentences; I meant markets being more dangerous than legislation.
Reading this I was thinking of Google Books, which was marketed as “Google digitizes these books for free!” when in reality it was academic (often public university!) libraries having paid staff pick, package and track the books they were sending to be digitized, for which Google paid nothing of course.
Catalogers and other library technical services people asked Google if they wanted the electronic catalog records along with the books and Google, in their infinite wisdom, declined because they were so convinced that their rapid scanning equipment and optical character recognition software could do just as good a job as professional catalogers who had to follow rigorous-bordering-on-byzantine cataloging standards. Surprising nobody who has worked with optical character recognition software, this was not a very good long-term move and Google Books suffered for it (though there were other legal issues as well).
What had started as a synergy between libraries with lots of books but shrinking budgets to digitize and a data-hungry rich tech company suffered because Google didn’t think they had anything to learn from the library world. Since I am a librarian I am biased, but I’d like to see the answer to problems of fake news and access to information involve libraries. Libraries are not without their problems, but they do have lots of smart people working in them who are mostly motivated by a desire to help people find the information they need rather than monetizing information. They’re certainly not in it for the money.
In response to what appears to be a sarcastic aside, YES, we should be breaking up Big Cat Food. The consolidation of agricultural and “food” companies has resulted in severe environmental degradation, bad public policy, bad food, unsafe food, the decimation of the agricultural sector, etc, etc. And yes, the unsafe food extends to pet food. Remember the melanine scandal when pets died because Chinese companies intentionally adulterated ingredients?
Auerbach argues that the current configuration, products and market abuses of contemporary monopolies might lend them to the more traditional economic prescription…utility style regulation.
Warren, if nothing else, is an extremely bright woman. She, after all led the charge on consumer abuse that led to (with the help of the GFC) the creation of the Consumer Protection Bureau. The last time I looked the CPB had been taken over by the very people it is supposed to protect us from. I was shocked…shocked! And of course we have seen how the FCC has protected us from the communications monopolies.
While there is much to agree with in Auerbach’s post, he may not get that Warren is not dopey enough to fall for another CPB whereby the swine simply capture the island and regulate it in their own favor.
I agree. A regulated Utility model probably makes better sense for “you are the product” companies that meet the thresholds identified in Warrens proposal.
This will all become a bigger deal as these same companies are using their R&D power to lead in AI.
I’m not sure that regulation vs breakup is the right way to frame this argument. I think monopolies, rising inequality, and lack of innovation, are all symptoms of a more fundamental problem which is a pervasive rent-seeking, that allows too many businesses to profit without taking risk, and without improving their products or services. In the past, robber barons created monopolies by innovating, or bullying, or buying their competition out of business, and then used this status to engage in rent-seeking. We now have a different situation where companies of every size use rents to achieve monopoly status. Because opportunities for rent extraction are now systemic, and its rewards are risk free, this idea is crowding out all other innovative, productive profit strategies and leading to many negative societal outcomes.
Many large firms use these rents in the form of legal protections not available to their competitors to both attain and maintain their competitive advantage. These protections include ignoring existing laws, profiting from illegal businesses where profits exceed fines, and profiting from exclusive U.S. government subsidies not available to competitors. The banking and drug industry are notorious for routinely engaging in illegal practices that generate profits which far exceed the fines that regulators impose when these firms are caught. Preferential government subsidies that benefit a single company in an industry are now also acceptable business strategy as companies like Amazon can obtain confidential agreements with the U.S. Post office to ship packages for at least half of what UPS and FedEx would charge for the same deliveries. A subsidy like this contributes to the many reasons that its competitors are driven into bankruptcy, and probably explains why Amazon’s retail business loses money everywhere except in the U.S.
Many small firms, especially tech unicorns in their early days, use these rents in the same way. Amazon started as a small company that would sell mail-order books in a way that allowed it to avoid sales tax. Early Uber investors were probably attracted by a belief that government will look the other way while it made cab rides cheaper by ignoring local taxi regulation, then transferring all its business costs to its drivers, and then collecting a substantial fee for each of taxi fare. AirBnB started as a small company whose rent would also ignore local hotel regulations, zoning laws, health laws to prevent public health hazards, and fire safety codes. Small drug companies like Turing Pharmaceuticals could acquire widely used drug patents then raise prices by 5,456%.
So nowadays the big strategy for profits is rent-seeking, and this is crowding out innovation. And since these rents are used to create monopolies, this means that without the rent, there is no monopoly. The greater discussion I think we should therefore be having is do we want to create an economy filled with large monopolies, and smaller companies that monopolize specialized markets, many of which require rent-seeking to survive. Also worth considering is at what concentration does an excess of available rents become truly destructive to a healthy economy.
It would be interesting to point “Anti Trust” legislation at the Federal Government’s executive branch.
It appears then have the might to pursue many Ill advised schemes, whilst keeping them secret for our own good.
Yes. Break them up and regulate better.
As important as regulation or trust breaking or both, is the reversal of gifting corporations with the rights that humans have inherently and which are protected under the Constitution. By treating corporations as persons rather than as the property which that they clearly and logically are, we give their owners another layer of power and influence over our government and policy making. That leads to difficulty in creating and and enforcing regulation and trust breaking policies and any other policies that are beneficial to the people of the nation but that may create any cost at all to the corporations and their owners.
Thanks for this. It is really-good-auerback. I’ve had my aloof take on Liz for a while now. Self proclaimed champion of our system, she is always a twisty professional spinner of the establishment – my instinct, as her emphatic speeches are so very vacuous – I’ve got no proof of how effective she might miraculously prove herself to be… but I deeply doubt her. The reason for break-ups and anti-trust enforcement (might as well be RICO these days) is ostensibly to create a level playing field for capitalist opportunity. I’d submit, from watching the failure of this approach to adjust the benefits of “health-care”, that the era of good old-fashioned capitalism is over. If we break up big tech we’ll just watch it double and quadruple down, and it will be both very expensive for the environment and produce very little value for society. We need a better focus. Let’s give big tech some marching orders that enable them to serve society and government, not exploit archaic capitalist “opportunities”.
Monopolies need to be broken up. Corporate criminals jailed. Government regulation restored.
The current railroad system is sort of a regulated duopoly between major cities/ports and a monopoly most everywhere else. Shippers do not like it. But, with the decline in manufacturing, most loads can also be shipped by truck except for bulk chemicals and grains. But, so far, the current system has prevented the rebirth of the Granger Movement. Climate Change and Resource Depletion will have a huge impact on railroads. The tragedy is that the interests of the public are ignored and future planning was killed by intentionally making the government incompetent. Plus the drive for short term profits over everything else.
A nit, but Shirley, “consumer welfare,” is used by the Chicago School as a dodge to avoid the use of anti-monopoly laws, not as a metric for when their use is appropriate.
For one thing, its narrow definition of “price” would seem to leave out many of the costs that monopoly power and unregulated capitalism impose on consumers. Food might not stick to coated cooking pans, but how cheap are they when no one can drink the water downstream from the plant that makes the coating?
At a given point in time, the monopolist’s price to the consumer might be low, but that ignores predatory loss leaders. What happens to the monopolist’s price after it removes remaining competitors?
For another, it seems to avoid how the monopolist restricts what’s on offer to what it most wants to sell, but offers it in a dozen different colors. In Henry Ford’s day, that was, “black”.
Is there any profit without externalities?
I think the problem is not so much big tech, but big anything. If existing laws and regulations had been enforced at all within the spirit of the law, withing the last 50 years, this wouldn’t even be an issue, IMHO.
Plato was correct: “Good men do not need laws to tell them how to behave responsibly, while bad men will always find ways around the laws.”
Carter “deregulated” the airlines and let them merge and what do we have? About 6 oligapolies that fix prices. First, AT&T and broken up and then the Baby Bells were allowed to merge and guess what we have? 4 (or is it 3) companies that supply cell service and maybe 4 that provide landlines? Prices are higher and pretty close to one another. Let’s not even talk about the cable companies who are
providersgatekeepers of internet access and we have had the dismantling of net neutrality. My point is that regulators are in the pockets of the regulated. How are we going to change that? With more reguations? There needs to be strict enforcement regardless of the administration (junta?) that takes power.