articles

The One Issue the Left and Right Can Agree On

Even Tucker Carlson and Goldman Sachs are talking about the pernicious impact of monopolies in the U.S.

December 31, 2018  |  by Matt Stoller
Read on The New Republic

In November, not long after Amazon announced that it would build its second headquarters in New York City and northern Virginia, Alexandria Ocasio-Cortez, the newly elected representative from Queens and the Bronx, tweeted that she’d been getting calls from residents all day. “The community’s response?” she wrote. “Outrage.” Amazon, as legal scholars were quick to point out, had become a monopoly so powerful it was using its economic heft to exploit not only competitors and suppliers, but entire states. New York and Virginia had agreed to subsidize helipads for Amazon CEO Jeff Bezos; Virginia even promised to help the company fight Freedom of Information Act requests.

It would be easy to assume that most of the objections to Amazon’s HQ2 deal would come from the left. Senator Elizabeth Warren was, after all, one of the first politicians to criticize Amazon for monopolistic practices, arguing that the e-commerce giant and companies like it had eroded what was once a “strong, robust middle class.” But disdain for corporate concentration is one of the rare things in contemporary American politics that transcends ideological divisions.

Take Montana Senator Jon Tester, one of only two Democrats in the Senate to be reelected in a blood red state. Last year, he attacked the secretary of agriculture, complaining that meatpackers continue to “exploit farmers and ranchers” by manipulating the price they pay for livestock. Even corporate-friendly Democrats can sound downright populist on the subject. Senator Mark Warner of Virginia, a former venture capitalist who made his $200 million fortune off early cell phone technology, has emerged as a leading critic of the tech giants, noting how they kill competition and threaten national security.

Opposition to monopoly also brings the left and the center together with unlikely allies. Perhaps the most power­ful critique of corporate concentration in recent months has come from The Economist, which has attacked the American antitrust establishment for laxness. And when Ocasio-Cortez spoke out against the Amazon deal, The Wall Street Journal’s editorial board and the National Review both praised her. “I hate to admit it, but Alexandria Ocasio-Cortez has a very good point,” said Fox News’s Tucker Carlson. “It’s hard to argue with the internal logic…. The richest man in the world just got $2 billion in taxpayer subsidies. How does that work?”

Monopolies penetrate al­­most every sector of the U.S. economy, airlines to pharmaceuticals, candy to coffins, often leading to unfair prices, lower wages, or both. Facebook and Google have so much power in the advertising market—they control 66 percent of online ad revenue—that they are undermining newspapers. Two companies make 64 percent of American diapers, one company builds 52 percent of America’s mobile homes, two companies produce 78 percent of its corn seeds, and one company assembles 61 percent of syringes.

In the 1980s and 1990s, policymakers came to believe that big businesses were big not because they had market power, but because they’d been efficiently managed. That view only began to change after the financial crisis: In 2010, journalist and scholar Barry Lynn published Cornered, the first serious attempt in decades to reassess the prevailing wisdom on antitrust, as laid out in the 1970s by the conservative scholar Robert Bork. Lynn and two of his colleagues at the New America Foundation, Phillip Longman and Lina Khan, began publishing articles in the Washington Monthly highlighting how monopolies had stifled innovation, hurt small businesses, lowered wage and job growth, and widened the yawning gap between rural and urban areas. (Lynn, Longman, and Khan are colleagues of mine at the Open Markets Institute.) Their ideas broke into national politics in 2016. Warren gave her landmark speech against monopoly power at a New America event that June; Hillary Clinton quietly inserted an antitrust plank into the Democratic platform in July; and Donald Trump attacked the AT&T-Time Warner merger just before the election, saying it was “too much concentration of power in the hands of too few.”

Republicans have turned against monopolies, as well. They have their own tradition of trust busting, though it’s often overlooked: Friedrich Hayek of the Chicago School attacked monopoly as an insidious form of collectivism in his 1944 classic The Road to Serfdom. So when Tester attacked consolidation in big ag, Iowa Republican Chuck Grassley joined him. When Mark Zuckerberg testified before Congress, South Carolina Republican Senator Lindsey Graham asked a simple yet devastating question: “Who’s your biggest competitor?” Cory Booker has attacked concentrated power among meatpackers with Utah’s conservative Senator Mike Lee. And Georgia Republican Doug Collins has stood up for independent pharmacists against big chains like CVS.

The corporate world is also rethinking its ideas about concentration. Google and Facebook have appropriated advertising revenue from Rupert Murdoch of News Corp. (As News Corp’s CEO, Robert Thomson, put it in June, “If journalism were a film, the last decade is certainly the equivalent of a slasher movie—the Silicon Valley Chainsaw Massacre.”) Amazon poses an existential threat to Walmart, FedEx, UPS, Target, and cloud computing competitors. Several of these companies are beginning to organize against Amazon, working, for example, to prevent it from getting a $10 billion cloud computing contract from the Pentagon. It goes beyond tech; the Securities and Exchange Commission recently blocked monopolistic stock exchanges from charging higher fees to traders for market data, with support from none other than Goldman Sachs.

These shifts—among lawmakers and private companies—mean that when the new Congress convenes, Democrats will have an opportunity to act.

It’s often said that monopoly is a technical issue best addressed by the courts and economists. But laws exist to prevent concentration: the Sherman Act, for one. The trouble is that courts and the antitrust agencies have sub­verted these laws by making enforcement complicated, and the main enforcers—the Federal Trade Commission and the Department of Justice’s Antitrust Division—­frequently refuse to bring cases.

To begin, Congress could make mergers much harder to complete. Right now, to stop a merger, the government has to prove that it would “substantially” reduce competition. The burden of proof, especially in a concentrated market, should instead fall to the corporation seeking to buy a competitor. Similarly, any merger that offers an executive a golden parachute (like the $70 million Aetna’s CEO Mark Bertolini got for selling his company to CVS, or the $33 million Monsanto’s CEO Hugh Grant received when he sold his company to Bayer) could be made harder.

Congress has another key tool: oversight. Legislators could explore Amazon’s model of eliminating competition by pricing goods at below cost, and its practice of manipulating its marketplace to prioritize its own private-label products. Congress could look into the economy of rural America, focusing on meatpackers, seed giants, and transportation giants. Legis­lators could investigate collusion and wage suppression in labor markets through noncompete clauses and unfair contractual arrangements such as arbitration clauses.

Congress also has a say in how the law is enforced. It could give federal funds not to the two deeply compromised institutions that are supposed to enforce antitrust law, but to state attorneys general, who have already proved they can bring cases. (It was, for instance, Iowa Attorney General Tom Miller and a coalition of state enforcers who first brought antitrust charges against Microsoft in the 1990s.)

The boldest solution would be for Congress to begin restructuring industries directly. Historically, the federal government has often intervened when an industry became too concentrated, its leaders wielding undue power in the market. In the 1930s, Congress broke up banks, electric utilities, and aerospace companies. Within the last five years, financial regulators essentially forced General Electric to sell off its financial services arm, and the Federal Reserve, encouraged by Senator Sherrod Brown, pressured banks to divest their commodities-trading operations.

Former enforcers, like Bush FTC Chairman Timothy Muris, like to warn about the “disastrous consequences” of assertive antitrust enforcement. But it’s actually not all that hard to break up companies. Often, it just means reversing a merger the government shouldn’t have allowed in the first place, like Facebook’s purchase of Instagram or WhatsApp, or Google’s purchase of DoubleClick, YouTube, or AdMob. Wall Street does it all the time. Spinning off divisions can be good business; earlier this year, Citibank research analyst Mark May encouraged Amazon to split its cloud computing division from its retail arm.

The benefits of a more assertive Congress would be profound. To take just one industry, Congress could save the average American family $10,000 each year by implementing straightforward health care pricing rules that would have all medical providers paid at Medicare prices. Now imagine if it fought corporate concentration across the economy.

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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