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The Corner Newsletter, January 24, 2019: What Tim Cook Gets Wrong About Privacy — Congressman Proposes Bill to Fight Hospital Consolidation

Welcome to The Corner. In this issue we point out the shortcomings of Apple CEO Tim Cook’s big plan to promote privacy and highlight one Republican congressman’s ambitious plan to counter hospitals’ monopoly power. We also share two feature articles by Open Markets in the new Washington Monthly on how fighting monopoly can help Democrats win the Senate, and on the secret anti-monopoly powers of the FTC.

January 25, 2019  |  by Open Markets

Open Markets Publishes Four-Step Plan for New Congress to Confront Monopoly Power

Last week, the Open Markets Institute sent a letter to House Judiciary Committee Chairman Jerrold Nadler, D-N.Y., proposing four steps the committee should take to begin to address America’s monopoly crisis: investigate concentration in specific industries, hold hearings on the link between concentration and political corruption, educate the public about America’s monopoly crisis, and advocate for anti-monopoly policies and principles with other committees and federal agencies.

OMI also suggested passing legislation to overrule pro-monopoly judicial precedents as well as to empower workers, small businesses, and consumers against corporate abuses.

OMI specifically recommended focusing on the pharmaceutical industry, hospital pricing, dominant platforms and advertising markets, labor, inequality, agriculture, the priorities of the FTC and the Justice Department’s Antitrust Division, and Trade and National Security.

You can read the letter herePolitico’s Morning Tech newsletter covered the letter here.

📷 WHAT’S MISSING FROM THE PICTURE? 

Apple CEO Proposals a Good Start, Come Short 

Last week, Apple CEO Tim Cook wrote an op-ed for Time magazine calling for federal privacy legislation. Such legislation, Cook argues, should be informed by four principles. Corporations should collect as little user data as possible, users should know what data has been collected and why, users should be able “to access, correct and delete your personal data,” and data should be secure. In addition, Cook proposes that the Federal Trade Commission set up a “data-broker clearinghouse,” where any entity that handles data would have to register so that people can track how their data has been sold and delete it if they want.

These are valuable principles, and comprehensive federal privacy legislation should include them. But the proposals fail to recognize that transparency and after-the-fact control won’t address some of the worst harms posed by online platform monopolists like Google and Amazon. That’s because the market power of these companies means that consumers do not really have the option to exercise any theoretical right to privacy. Truly comprehensive federal privacy legislation requires restricting these companies so that they no longer have an incentive to collect and exploit user data in the first place.

Talking about platforms like Facebook before the Senate Judiciary Committee in May, Cambridge Analytica whistleblower Christopher Wylie said, “We should take a step back from this narrative of consent and start to look at the fact that people don’t have a choice.”

Consider Google’s search engine. Without a realistic competitor to Google’s search function, people have no choice but to give up personal information about themselves, especially when their schoolwork, research, jobs, or participation in society depends upon their ability to use Google.

How can we fix this? The problem would almost fix itself with a simple change. Facebook and Google collect huge amounts of personal data only because their monopoly position allows them to earn monopoly profits by renting their platforms, along with this information, to third parties. These third parties, ranging from the Russian government to Proctor & Gamble, then wield the Facebook and Google platforms, and their vast caches of personalized data, to manipulate what individual users see, read, think and buy. In 2017, Google earned some $95 billion in this way, while Facebook earned some $40 billion.

What if we used public policy to make this business model no longer profitable? In the past, Americans have used various forms of “common carriage” rules to limit or even eliminate entirely the ability of railroads, telephone companies, and other monopolistic owners of essential infrastructure to discriminate among different users. AT&T, for example, was not allowed to set different rates or terms of service for different people based on what it could learn about their personal lives. Applying such rules today to Google, Facebook, and Amazon would – by taking away much of the ability to profit from the use of such data – eliminate much of the incentive to collect personal information in the first place.

Policymakers should also keep in mind that Apple benefits greatly from the business models of Google and Facebook. Last year Google paid Apple $9 billion to be its default search engine on its products, with Goldman Sachs predicting that number to increase to $12 billion this year.

🔊 ANTI-MONOPOLY RISING:

  • Open Markets Institute Advisory Board member Roger McNamee, a mentor to Facebook CEO Mark Zuckerberg as well as one of his early investors,  published a cover story in Time, proposing ways to tame the media and advertising giant, as well as Google and Amazon, including breaking up the corporations and blocking new acquisitions. “Only fundamental changes to business models,” McNamee writes, “can reduce the risk to democracy.”
    Read McNamee’s earlier version of this argument in the January/February/March 2018 Washington Monthly.
  • Yesterday at the World Economic Forum in Davos, Switzerland, Japanese Prime Minister Shinzo Abe, South African President Cyril Ramaphosa, German Chancellor Angela Merkel, and Chinese Vice President Wang Qishan separately called for international oversight into technology corporations and how they use personal data. Merkel specifically rejected the “American” approach to structuring technology industries, saying, “I still have yet to see any global architecture that deals with these questions.”
  • France’s National Data Protection Commission fined Google $57 million under Europe’s General Data Protection Regulation for inadequately communicating to users how the platform giant uses their data to present them with personalized advertisements.
  • The European Union fined Mastercard $648 million for preventing retailers from shopping around for lower fees outside of the retailers’ country. Competition Commissioner Margrethe Vestager said, “By preventing merchants from shopping around for better conditions offered by banks in other member states, Mastercard’s rules artificially raised the cost of card payments, harming consumers and retailers in the EU.”
  • Sens. Edward Markey, D-Mass., Amy Klobuchar, D-Minn., Tom Udall, D-N.M., Tammy Baldwin, D-Wis., and Richard Blumenthal, D-Conn., sent a letter to the Senate Committee on Commerce, Science, and Transportation asking the committee to hold a hearing on the pending merger between T-Mobile and Sprint. Noting that more national competitors has correlated with lower prices and wider access to wireless service, the senators write, “In 2019, we cannot afford to move backwards.”
  • The California Public Utilities Commission’s Public Advocates Office, an independent office within the commission to champion California consumers, recommended that California block T-Mobile and Sprint’s merger. The office said, “The proposed merger lacks specific, measurable, and verifiable California benefits and would cause irreparable damage to competition in the wireless market and the low-income consumer market.”

OMI’s Claire Kelloway and Sandeep Vaheesan Write Articles On Rural Inequality and “Progressives’ Secret Weapon” in the Washington Monthly

Open Markets Reporter-Researcher Claire Kelloway and Legal Director Sandeep Vaheesan published feature articles in the Washington Monthly magazine’s January/February/March issue:

Kelloway’s article, “How to Close the Democrats’ Rural Gap,” argues that vigorous antitrust enforcement, especially toward big agribusinesses, can help address regional inequality and could be the Democratic Party’s key to winning back the Senate. “The biggest cause of growing regional inequality isn’t technology,” Kelloway writes, “it’s changes in public policy, embraced by both parties, that have enabled predatory monopolies to strip wealth away from farmers and rural communities and transfer it to America’s snazziest zip codes.”

Vaheesan wrote about the power that the Federal Trade Commission has, but declines to use, that could “regulate and structure nearly every kind of market:” Section 5 rulemaking authority. In “The FTC Might Just Be Progressives’ Secret Weapon,” he also gives a concise history of the FTC, including its motivating purpose to fight concentrated corporate power. “But first,” Vaheesan concludes, “the FTC must be convinced to act.”

📝 WHAT WE’VE BEEN UP TO:

  • Sandeep Vaheesan spoke at the European Commission for Competition’s conference hosted by Competition Commissioner Margrethe Vestager, “Shaping Competition Policy in the Era of Digitisation.” Vaheesan suggested that ways to counter platform monopolists such as Amazon include vertical and horizontal structural breakups, public utility rules, and allowing workers and platform users to organize.
  • Matt Stoller wrote an op-ed for The Washington Post arguing that Democrats’ criticisms toward new Congresswoman Alexandria Ocasio-Cortez, D-N.Y., “offer a window into how a failure to take on concentrated power – while pretending to do so – has warped Democratic culture.” Pointing to Ocasio-Cortez’s deep engagement with issues like Puerto Rico’s debt crisis, local real estate zoning, and making markets fairer, Stoller argues that the representative “is channeling public hunger for a genuine restructuring of our society’s power arrangements.”
  • Sarah Miller talked to NPR’s “All Things Considered” about Facebook, which she called “one of the world’s most dangerous monopolies.” Miller said, “The fundamental problem with Facebook is its power – its market power, its power over the discourse, its power over the way we think and consume information … We don’t want to live in a country where Mark Zuckerberg decides who lives or who dies.”
  • David Dayen’s article in The Intercept about the pending Supreme Court case, Tennessee Wine & Spirits Retailers Association v. Blair, concerning whether the Constitution allows states to condition licenses to sell alcohol to people or companies who meet in-state residency requirements, cited the Open Markets Institute’s amicus brief. Open Markets argued that the Twenty-First Amendment to the Constitution supports the Tennessee association, because the Twenty-First Amendment “grants expansive regulatory authority over alcohol to the states, including the authority to prohibit the production and sale of alcohol entirely.”
  • The PBS NewsHour interviewed Open Markets Advisory Board member Tim Wu about the dangers of bigness – especially the bigness of platform monopolists like Facebook, Amazon, and Google – including higher prices, weaker innovation, political corruption, worsened inequality, and potentially enabling fascism. Wu says, “I do think we need to be aware of the dangers of a union of private and public power. Imagine Facebook cooperating with an authoritarian regime. They know everything about us. They know what we do. They know how to influence us. Can you imagine these two units working together? I think it’s a very scary prospect.”
  • Matt Stoller spoke on a panel at the University of Florida about the American history of anti-monopoly policy focusing on the postwar period and how intellectual trends erroneously asserting monopoly and concentration to be somehow “inevitable and efficient” helped to create the ideological conditions for today’s concentration crisis.
  • Barry Lynn and Sarah Miller talked to Bloomberg about the growing public pressure on the FTC and its Chairman, Joe Simons, to punish Facebook for their numerous scandals. Lynn and Miller talked about the need to break Facebook up with Lynn saying, “[The FTC] ha[s] a choice … Are they actually standing up for the American people? Are they standing up for democracy?”
  • Matt Stoller told The Huffington Post that the new Democratic majority in the House will have to decide if they will push for a progressive trade policy, saying, “There has to be a reimagining of what our global order looks like – and it isn’t going to look like America being a sucker all the time anymore.”
  • The Open Markets Institute signed on to a letter to the National Labor Relations Board, alongside law professors and public interest groups, criticizing the board’s proposed rule that would permit fast food franchisees to claim to be “independent” businesses, despite operating under the dictates of franchisors. The NLRB’s proposal would frustrate the ability of workers to organize and collectively bargain with national franchisors.
  • In his review of Tim Wu’s and Jonathan Tepper’s new books on monopoly power, David Dayen said that The Open Markets Institute’s “America’s Concentration Crisis” report “filled in the blanks” left by the Federal Trade Commission’s decision to stop gathering data on industry concentration in 1981.
  • The Wall Street Journal reported that the Open Markets Institute was among the groups that sent a letter to the FTC calling on it to “unwind [Facebook’s] acquisition of both WhatsApp and Instagram” as the agency considers penalties against the social media giant for privacy violations.

Congressman Targets Hospital Monopolies

On January 11, Rep. Jim Banks, R-Ind., introduced the Hospital Competition Act of 2019, which aims to fight hospital consolidation in part by forcing large hospitals in consolidated markets to accept Medicare rates from private insurers.

“Fewer hospitals are controlling a greater share of the market. This has led to higher prices and higher insurance premiums for patients,” Banks said in a Facebook video announcing the bill.

Provisions of the bill include:

  • Requiring hospitals that have more than a 15 percent share of their market to accept Medicare reimbursement rates if
    • The hospital is in an urban area and the market has at least a Herfindahl-Hirschman Index (HHI) of 4000 or
    • The hospital is in a rural area and the market has an HHI of at least 5000
  • Requiring hospitals to post the costs of their 100 most common services
  • Granting $1 billion for the Health and Human Services Secretary to give to states to invest in hospital infrastructure
  • Equalizing the prices that Medicare pays hospital-owned clinics for services with those of independent physician offices for the same services
  • Appropriating $160 million to the Federal Trade Commission to hire more staff to handle consolidation among health care providers

Why it Matters: The Trump administration is implementing a rule change this month that would at least require hospitals to post their prices. But since consumers lack any ability to negotiate for better prices with monopolistic hospitals, that change makes little actual difference.

Banks’ bill goes beyond mere price transparency and actually seeks to cut prices themselves. As OMI’s Phil Longman has written, hospital corporations have been consolidating control over markets across the country, then exploiting their power to charge insurers and patients exorbitant prices.

Key Number: 0

  • Using the standards set by the Department of Justice and Federal Trade Commission, David M. Cutler and Fiona Scott Morton wrote in 2013, “No hospital markets [in the United States] are considered highly competitive.”

What to Watch: 

  • Banks’ thresholds for triggering hospitals’ acceptance of Medicare prices from private insurers, HHIs of 4,000 for an urban market and 5,000 for a rural market, risk overlooking oligopolies that fall beneath that standard.
  • HHI is a common measure of market concentration found by adding the squares of each participant. For example, a market with four corporations each with 25 percent of the market would have an HHI of 2500 (25*25 + 25*25 + 25*25 + 25*25). The Justice Department and FTC consider markets with an HHI over 2,500 to be “highly concentrated.”
  • Rep. David Cicilline, D-R.I., the House antitrust subcommittee chair, has also indicated that health care consolidation will be one of his priorities in 2019.

📈 VITAL STAT:

$5,705

Average annual cost of insulin to a person with Type 1 diabetes in 2016, almost double the cost in 2012, according to a new report by the Health Care Cost Institute. The institute concluded that “increases in insulin spending were primarily driven by increases in insulin prices.” As a recent Washington Post investigation into the insulin market has reported, only three pharmaceutical corporations control insulin production in the entire country and “[a]ll three have raised list prices to similar levels.”

📚 WHAT WE’RE READING:

  • “The Omega Man or The Isolation of U.S. Antitrust Law” (Working paper, Spencer Weber Waller): How the United States’ antitrust approach has become an international outlier, and what it can learn from authorities in countries like Europe, the U.K., China, Israel, and South Korea.
  • “Elwood, Illinois (Pop. 2,200), Has Become a Vital Hub of America’s Consumer Economy. And It’s Hell” (The New Republic, Alexander Sammon): The on-the-ground effects of allowing corporate giants like Amazon, BNSF, and Walmart to dominate an entire town with giveaways similar to the ones the country saw with Amazon’s “HQ2” contest.
  • “Antitrust in the House” (Slate, April Glaser): How some Democrats and Republicans in the new Congress appear eager to confront platform monopolists’ dominance and make the case for stronger antitrust enforcement to the public.

Image by Jakarin2521 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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