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The Corner Newsletter, August 9, 2018: Sen. Warner and the “U” Word — New York Slams Brakes on Uber — Concentration, Consolidation, and Canada

This week, we highlight Sen. Mark Warner’s surprisingly tough proposal to regulate Google and other platform monopolists. We also look at how New York City turned to simple 20th century policies to fix its Uber problems. Finally, we point out how consolidation in Canada drives inequality.

August 9, 2018  |  by Open Markets

Sen. Warner Breaks Out the “U” Word in Targeting Platform Monopoly

Last week, Axios obtained a list of 20 proposals drafted by Sen. Mark Warner’s, D-Va., office that aims at addressing many of the problems associated with platform monopolists. The list included at least two ideas that would, if adopted, entirely alter the business models, and perhaps the corporate structures, of Google, Amazon, and other online giants.

Other senators have touched on such potential solutions before. But Warner’s apparent support for such a radical restructuring of America’s online economy may indicate a much more aggressive line from the Democratic Party in the days ahead. Warner has long been viewed as one of the most pro-business members of the party, and before entering politics he made millions of dollars investing in technology companies, including playing a major role in the founding of Nextel.

Warner’s proposals range from labeling bots and authenticating online accounts to opening the largest technology platforms’ data up for use by researchers. But it was the last item on the list that has the most potential to disrupt the existing power structures of the tech giants. In that item, Warner’s team characterized services such as Google Maps as “essential facilities,” or put another way, as possessing the powers and characteristics of utilities.

These services, Warner’s team said, are “critical, enabling inputs” of fundamental importance to the whole economy. As such, they must be made available to all other corporations that seek to make use of them – including corporations that compete with Google – on “Fair, Reasonable, and Non-Discriminatory” terms (known as FRAND). These are, in essence, the same principles that American regulators applied to the network monopolists of earlier eras, including railroads, and telegraph and telephone corporations.

Maurice Stucke, who teaches antitrust law at the University of Tennessee, says that another obvious precedent for this is the 1912 Supreme Court decisionUnited States v. Terminal Railroad Association, which forced the railroads that controlled the only bridges over the Mississippi River in St. Louis to open them up to their rivals.

Given that Google’s business model is based on being able to control the gateways into these systems, and to charge different parties different rates for access to the same services, Warner’s proposal would result in a Google fundamentally different than what exists today.

Warner’s team also proposed revising Section 230 of the Communications Decency Act of 1996, which immunizes Internet services like platforms from liability for the content posted by their customers. His proposal would allow anyone who has obtained a court’s judgment that content on a platform is defamatory, or some other type of similar, civil harm, to inform the platform. The platform would then be legally responsible for preventing all re-uploads of that material.

In a phone call with Open Markets, Fordham University law professor Olivier Sylvain called the proposal “a tremendous leap forward in terms of thinking about the responsibilities that governments have in protecting consumers from the vagaries of online intermediaries.” Sylvain is among the scholars who have started to question the blanket protections that Section 230 provides to platforms, even as their power grows over markets and democracy. Sylvain has written that not all platforms are neutral intermediaries who merely host content.

ANTI-MONOPOLY RISING:

  • Sen. Ron Wyden, D-Ore., one of the architects of Section 230 of the Communications Decency Act, which immunizes platforms from liability for user-generated content, at a Senate Intelligence Committee Hearing last week declared, “The days when these pipes are considered neutral are over … [T]he whole point of 230 was to have a shield and a sword, and the sword hasn’t been used and these pipes are not neutral.”
  • The United Kingdom’s Parliament’s Digital, Culture, Media, and Sport Committee called for expansive regulations over large technology platforms and released a critical report on Facebook. The chair of the committee said, “What we have discovered so far is the tip of the iceberg,” and called the report’s release “a watershed moment in terms of people realizing they themselves are the product, not just the user of a free service.”
  • The California Insurance Commissioner urged the Department of Justice to block CVS and Aetna’s pending merger. Commissioner Dave Jones argued that because CVS is a retail pharmacy chain, its acquisition of the health insurer Aetna would hinder other insurers’ ability to compete in the California health insurance market.
  • Sens. Mark Warner, D-Va., Marco Rubio, R-Fla., Tom Cotton, R-Ark., Ron Wyden, D-Ore., Cory Gardner, R-Colo., and Robert Menendez, D-N.J.sent a letter to Google CEO Sundar Pichai, asking him to confirm and elaborate on leaked documents reported on by The Intercept last week that showed Google planned to offer China a version of its search engine that would remove websites and search terms the Chinese government wants blocked.

? WHAT WE’VE BEEN UP TO:

  • Sandeep Vaheesan, along with Heidi Shierholz of the Economic Policy Institute and Marshall Steinbaum of the Roosevelt Institute, submitted a comment to the Federal Trade Commission calling for stronger penalties against two staffing companies that conspired to depress incomes for therapists.
  • Barry Lynn explained to The Economist’s Open Future program why competition matters, how monopsony power drives down workers’ wages, and why the turn to libertarianism in the late 1970s and early 1980s enabled excessive corporation consolidation.
  • Barry Lynn gave an interview in Slate about the big tech platforms’ decisions to ban conspiracy theorist Alex Jones. Lynn argued that Jones achieved such prominence in part because Google and Facebook have “captured such a dominant position in the distribution of news,” and because “their business model is designed to amplify these types of voices.”
  • Lina Khan talked about Amazon’s harms to producers, why predatory pricing occurs in platform monopolies, and why the consumer welfare approach to antitrust fails by its own standards, on the “Capitalisn’t” podcast last Thursday with Kate Waldock and Luigi Zingales.
  • Austin Frerick published two articles for ForbesThe first calls attention to Sen. Tom Carper, D-Del., declining to oppose the merger between Dow and DuPont, a position that bolsters his campaign contributors and personal investments. The second warns that with the rise of electric cars and the pending decline of ethanol, farmers could be left in the dust.
  • Barry Lynn’s Guardian op-ed about Facebook and Google’s destruction of the free press was quoted in an op-ed for The Hill, which argued for a social media users’ bill of rights. Barry also discussed the op-ed with Ian Masters on July 26 on Masters’ podcast.
  • Gilad Edelman’s thoughtful piece on the rise of a youthful socialist movement for the Washington Monthly magazine compared the movement to the Open Markets Institute, which is part of the “budding anti-monopoly movement” that is thinking about “how to tackle the question of concentrated economic power.”
  • Sarah Miller told The Washington Post that Facebook’s inability to stem the tide of scandals shows “that this is not something they are capable of fixing in any meaningful way — on their own.” And she told Digiday that Facebook’s dominance, coupled with its ability to “manipulate … to serve its own bottom line is what’s problematic” in banning conspiracy theorist and Sandy Hook denier Alex Jones from its platform.
  • Business Insider and Common Dreams quoted Matt Stoller’s tweets describing Facebook’s solicitation of banking data as “moving us towards a dystopian social credit scoring system.” And the Southgate Observer quoted another of his tweets; this one criticized Facebook CEO Mark Zuckerberg’s belief in the sincerity of Holocaust deniers.
  • Matt Stoller spoke to Mother Jones about progressive Ned Lamont’s bid to become Connecticut’s next governor, telling the outlet, “Lamont showed a lot of courage” when he ran to unseat Sen. Joe Lieberman in 2006 on the senator’s support for the Iraq War.
  • Sandeep Vaheesan explained to The Atlantic that Amazon’s power over labor, especially in rural areas, gives it the power to “depress wages below what would exist” in a more competitive market for workers.
  • Sandeep Vaheesan was quoted, and his forthcoming law review article, “Accommodating Capital and Policing Labor: Antitrust in the Two Gilded Ages,” was cited, in Current Affairs. He said that, to achieve greater economic fairness, the United States needs traditional antitrust enforcement as well as organizing by workers and other powerless actors. “In many areas, we need cooperation and solidarity, not competition.”

New York City Council Slams the Brakes on Ride-Hailing Apps

After struggling for years with how to manage the soaring number of for-hire vehicles that drive under the banners of Uber and Lyft, the New York City Council yesterday decided that the simple fixes of the 20th century work just fine for the digital dilemmas of today.

The Council voted to temporarily cap the number of for-hire vehicles at current levels, while completing a study of the various problems that have been posed by the huge rise in the number of vehicles. The app-based taxi systems have been luring roughly 2,000 new vehicles each month to New York City’s already jammed streets.

The legislation addresses an outcry from veteran taxi and Uber drivers alike about the flood of new drivers eroding their ability to make a living; it also gives the city the power to set minimum wage standards for the ride-hailing industry. The vote follows a recent study, which found that services like Lyft and Uber added 5.7 billion miles of additional driving in the nation’s nine largest metro areas and contributed to increased congestion.

The Council failed to pass a similar bill in 2015 after facing intense pressure from Uber. In the first half of 2017, Uber spent more money lobbying in the state of New York than any other corporation.

New York City is just one of many governments across America and the world working to ensure access to safe, affordable transportation, while also providing workers the opportunity to earn fair wages. Some, such as London and Austin, Texas, have attempted to ban Uber entirely, though both bans were overturned. Other efforts include imposing special licensing requirements for app-dispatched drivers and taxing Uber and Lyft rides to support public transportation.

New York is the first big city to cap the number of ride-hailing drivers. The action fits with New York’s long history of using such caps to prevent ruinous competition among for-hire urban transport. The city first capped the number of drivers during the Great Depression, when many recently unemployed workers took to taxi driving. That period of “hyper competition … was bad for everybody,” explains Colgate University history professor Graham Hodges, who’s written two books on the subject. Similar to today, the result was clogged streets, a spike in reckless driving, and a drop in driver wages. Hodges says that New York City has been regulating for-hire taxi services “really since the beginning of the city in the 17th century.”

In the 1930s, public officials created the taxi “medallion” system, which capped the total number of legal cab drivers. In order to operate a cab, drivers needed a special license, which could be bought, sold, and transferred between drivers (and eventually, between taxi fleet owners). By limiting supply, this system ensured the streets were not overrun with empty or inexperienced taxis, and it helped to maintain higher wages for drivers.

To be sure, the system was not perfect. Critics note that New York held the number of taxi medallions constant from 1937 to 2004, even as demand increased. Scarcity led to rampant speculation in the price of medallion licenses, particularly in the early 2000s. Contemporary critics of the city’s taxi regulation system also argue that it concentrated services in more profitable areas and exacerbated the effects of racial discrimination by drivers.

Lyft, Uber, and their supporters argue that their services have greatly increased transportation access for New York’s outer boroughs. While this is an important point to consider, it omits several relevant facts.  A 2016 study that found that black passengers using Lyft and Uber faced longer wait times and more cancellations than white passengers. It also overlooks that Uber and Lyft undermined Mayor Michael Bloomberg’s 2013 attempt to introduce a new fleet of “green” cabs to be based in the outer boroughs.

? WHAT WE’RE READING:

  • “New Tech v. New Deal: Fintech As A Systemic Phenomenon” (Cornell Legal Studies Research Paper, Saule T. Omarova): An exploration of not only the significance of the rise of fintech, the burgeoning financial services sector relying on new technologies like artificial intelligence and cryptocurrency, but the policy challenges the emerging sector presents to financial stability.
  • “Potential Legal Issues in Terminating the ASCAP and BMI Decrees” (SSRN, Allen P. Grunes and Maurice Stucke): The DOJ is considering the termination of consent decrees that have governed the music industry since the 1940s. This paper investigates the potential harms that could result, as well as other solutions. 1
  • “Cities’ Offers for Amazon Base Are Secrets Even to Many City Leaders” (The New York Times, Julie Cresswell): An unsettling report on how little cities reveal, or even know, about the extravagant offers they’re making to Amazon to attract the e-commerce corporation’s second headquarters.

Oh No, Canada: The Rich Get Richer Here Too, Only More Slowly

A new study, titled “Born to Win,” shows that the richest Canadian families continue to grow richer. A mere 87 families north of the border control as much wealth as 12 million other Canadian families. As recently as 1999, the 87 richest families held only as much wealth as 10 million Canadians.

Wealth inequality in Canada is not nearly as extreme as that in the United States. But it has dramatically increased over the last generation. Income inequality meanwhile has grown worse in both countries at roughly the same pace, although again the figures in Canada are not as bad as those of the United States.

The sources of the problem in Canada are pretty much the same as in the United States. This includes low taxes on the rich. It also includes competition policy that largely turns a blind eye to corporate consolidation; in 1986 Canada followed the lead of the United States in passing legislation that gutted its antitrust enforcement. The result was wave after wave of mergers and acquisitions. From 1995 to 2000, Canada’s competition regulator, the Competition Bureau, intervened in only 1.7 percent of the mergers it reviewed. In the last five years the same agency hasn’t blocked a single deal.

This has contributed to inequality both by making the rich richer and by weakening the bargaining positions of ordinary workers as the number of employers bidding for labor declines.

Consider the example of Rogers Communications, owned by the Rogers family (net worth: $7 billion), which holds 33 percent of the Canadian wireless market. Since 2000, the corporation has purchased two wireless competitors, Fido and Mobilicity. In 2017 when the Canadian government announced it would set aside spectrum assets, critical to delivering wireless services, for smaller regional players, Rogers strongly dissented.

Saputo Inc., owned by the Saputo family (net worth: $8 billion), has a 35 percent market share of Canadian dairy sales. Its 2001 acquisition of Dairyworld Foods made it the largest milk processor in Canada, and since then Saputo has acquired multiple dairy-related businesses in Canada, the U.S., Australia, and Argentina. Saputo claims to be eyeing five potential targets for acquisition in 2019, three of which are located in Canada.

Loblaws, owned by the Weston family (net worth: $10 billion), controls 36 percent of the Canadian grocery market. Since the 1990s, the grocer has purchased Canada’s largest pharmacy chain, Shoppers Drug Mart, along with three regional competitors: Provigo, Dominion, and T&T Supermarkets.

When asked about the effect of these mergers, the author of the “Born to Win” study, David MacDonald, acknowledged that they contribute to inequality. “The increased concentration of companies means there are fewer employers, and those employers are often standardizing employment agreements in their favor … workers do not feel they are in a position to bargain for higher wages,” he says.

Another example of how concentration contributes to inequality comes from the Atlantic province of New Brunswick, home to the Irving family (net worth: $6 billion). The Irving fortune is split between Irving Oil, focused on oil refining and distribution, and the conglomerate J.D. Irving Limited, involved in forestry, forestry products, food processing, transportation, shipbuilding, and regional newspapers.

“They are and have become dominant enough in some areas of the economy that, while not a literal monopoly, they have an enormous amount of influence,” says reporter Jacques Poitras, author of the 2014 book Irving vs Irving, an investigation into the history of the family and their businesses. “Governments and policymakers respond to them and take them into account in the design of policy.”

Although reforming Canada’s tax system will help to slow the growing divide between the average and richest Canadian families, the problem won’t be solved until Canadians relearn how to battle concentrated market power.

?VITAL STAT:

38

Average number of years of patent protection for the 12 highest-selling drugs in 2017, according to a new report from the Initiative for Medicines, Access, and Knowledge (i-Mak). i-Mak’s report explains that the enormous amount of time – nearly double the life of a typical patent – comes from pharmaceutical corporations filing an average of 125 patent applications per drug. Many of these changes are relatively minor, such as Pfizer’s patent application for a new once-weekly (as opposed to the current twice-weekly) formulation of its highly profitable drug Lyrica.

? WHAT WE’RE WATCHING:

  • That’s It?: When the FTC announced last Tuesday that it had settled a price-fixing conspiracy between two corporations in Texas that provide therapists to home health agencies, it punished the corporations by … telling them to stop. FTC Commissioner Rohit Chopra questioned the choice, pointing out that it “does not include any notice or restitution to those targeted by this unlawful conduct, nor any admission of facts or liability.” We’re watching to see if the FTC puts some teeth into future enforcement decisions.
  • Will More States Step Up?: Last month, the New York Public Service Commission revoked its approval of Charter Communications’ merger with Time Warner Cable. In exchange for approving the 2016 deal, Charter had agreed to expand broadband service across the state. But, according to the commission, Charter failed to actually expand broadband as promised, despite repeated fines and threats from the commission, which is why the commission decided to unwind the deal. We’re watching to see if other states’ will follow New York’s lead and use their regulatory powers to extract better service from monopolistic communications providers like Charter and Verizon.
  • Fox in the Henhouse: If the Federal Communications Commission allows Securus Technologies to acquire a smaller competitor, then two corporations, Securus and GTL, would control 80 percent of the prison telephone market. FCC Chairman Ajit Pai has already lifted Obama-era caps on rates and fees for inmate calls and refuses to recuse himself from matters relating to Securus, despite having represented the corporation in the past. We’re watching to see if the FCC and Chairman Pai allows this dangerous concentration of power.

 

Photo by whitemay via iStock.

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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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