The Corner Newsletter: May 20, 2022
Welcome to The Corner. In this issue, we discuss the legislative solutions to fix the semiconductor chip shortage, our Executive Director Barry Lynn’s testimony in the House on monopolists’ role in driving up inflation, and a newly launched European Grassroots Antimonopoly Group.
Congress Considers Corporate Giveaway to Chip Companies with No Strings Attached
Garphil Julien
Earlier this week, House Speaker Nancy Pelosi all but promised that Congress would pass the Competes Act by July 4. A key component of the legislation would provide $52 billion to subsidize the building and modernizing of new and existing semiconductor foundries in the U.S. Unfortunately, both versions of the bill passed by the House and Senate do not adequately address any concerns raised about the lack of controls over how manufacturers might spend the grants awarded to them.
There is wide bipartisan agreement that the U.S. needs to increase capacity to manufacture more advanced semiconductor chips. These chips are at the heart of all major electronics and appliances consumers and professionals use daily and the technology our military uses to ensure national security. The U.S. was the birthplace of semiconductor manufacturing, and was long the global leader in the industry. But the U.S. has seen a dramatic decline in the share of global chip production over the past three decades, from 37% to 12%. Much of this capacity has been transferred to East Asia, where production is highly concentrated geographically.
This extreme concentration of control over production of chips has resulted in shortages in recent years, as the dominant manufacturers have failed to invest sufficient funds to keep up with demand. The shortages have severely affected production in many critical sectors, including medical devices and automobiles, with major auto companies drastically reducing production and medical manufacturers unable to update life-saving medical equipment. It has also exacerbated inflation, which is hammering U.S. consumers at a record 8.5%.
Production wasn’t always concentrated in East Asia. U.S. companies, such as Intel, once led the world in global production. But loose antitrust enforcement and shareholder control over the industry has resulted in a one-two punch that has led financiers to favor stock buybacks, acquisitions, and more stock-boosting measures as well as high executive salaries over investment in building more capacity. The industry over the past two decades has been characterized by weak capital investment and capacity utilization trends.
Sens. Elizabeth Warren and Bernie Sanders, among others, have urged colleagues to strengthen controls on how the subsidies are spent. Sanders, for instance, has proposed that the government receive equity stakes in companies receiving funds while also restricting the use of buybacks.
Industrial experts William Lazonick and Matt Hopkins have urged Congress to remedy this problem by exacting commitments “from the Semiconductor Industry Association and the Semiconductors in America Coalition that its member corporations … refrain from doing stock buybacks as open-market repurchases for the next 10 years.”
The need for swift action was made clear just last week, as the world’s three largest semiconductor manufacturers announced plans to raise prices as much as 20%: TSMC, Samsung, and UMC together control 77% of the global market for chips.
Barry Lynn Testifies in House on How Monopolists Drive Shortages and Inflation
Open Markets Executive Director Barry Lynn testified Monday before the Antitrust Subcommittee of the House Judiciary Committee, for the hearing “Rebuilding America’s Economic Leadership and Combatting Corporate Profiteering.” Rakeen Mabud, Robert Reich, and Patrice Onwuka also testified. Lynn titled his remarks as “America’s Break and Take Economic System: How Monopolists Drive Inflation Even as They Destroy National Security.” Lynn said it is “the choke pointing of capacity that embodies inflation deep into the framework of the economy” and is the main source of the severe shortages of basic goods that America has suffered over the last two years.” The hearing included a five-minute exchange between Lynn and Rep. Jim Jordan (R-OH) on the threat that Big Tech corporations pose to freedom of expression. Lynn’s written testimony is available here, and the recording of the hearing is available here.
Open Markets Helps Launch Europe-Wide Grassroots Antimonopoly Group
The Open Markets Institute last week helped launch a European grassroots antimonopoly movement at a conference in Berlin titled “Rebalancing Power: From Monopolies to Democratic Economies.” The grassroots democracy group LobbyControl organized the conference, along with the Balanced Economy Project, a new U.K.-based antimonopoly group. Open Markets Executive Director Barry Lynn delivered the main keynote. Stacy Mitchell, co-director of the Institute for Local Self-Reliance, along with Zephyr Teachout, a special adviser to N.Y. Attorney General Tish James, and the economist Christian Reiner also delivered keynotes. Mitchell and Lynn were among the original organizers of the Athena Action Network, which has played a major role in building a wide antimonopoly movement against Amazon in the United States. The conference included a wide range of anti-corporate activists, union organizers, and antitrust experts from across Europe.
🔊 ANTI-MONOPOLY RISING:
Jonathan Kanter, the assistant attorney general for the Department of Justice’s antitrust division this week warned of a coming crackdown on private equity deals in the U.S. economy. In an interview with the Financial Times, Kanter said that “many of the mergers we’re confronting are as a result of [private equity] roll ups.” Kanter noted that interlocking directorates, which involve private equity firms sitting on the boards of multiple companies in the same line of business, could violate the Clayton Antitrust Act. Kanter also stated that private equity firms that buy the divestments of other firms, which are required for those firms to complete a merger, will be scrutinized. (Financial Times)
Last week, the Federal Trade Commission announced that it would require medical technology company Medtronic to sell the subsidiary of its acquisition target, medical tech company Intersect ENT. The FTC said the acquisition of the Fiagon unit would give Medtronic a monopoly in both the balloon sinus dilation market and the ear, nose, and throat navigation systems market, and lead to higher prices and reduced innovation. (Fierce BioTech)
Last week, Match Group, which owns dating apps Hinge and Tinder, sued Google for violating federal and state antitrust laws. In a lawsuit filed in a federal court in California, Match alleges that Google’s attempts to force android app developers to use its play store system for all payments involving goods and services are illegal. This lawsuit comes at a time when Congress is debating laws, such as the Open App Markets Act, that would force Google and Apple to radically alter how they run their app stores. (Engadget)
Last week, the FTC announced plans to open an investigation into Sony’s acquisition of gaming company Bungie. The deal is expected to close in six months but could be pushed back as a result of the inquiry. The FTC believes that the nature of the vertical merger may allow Sony to prevent competitors such as Microsoft’s Xbox from offering Bungie games. The commission has reported that it is investigating Microsoft’s acquisition of gaming company Activision Blizzard. (IGN)
Earlier this month, Rogers Communications and Shaw Communications announced that Canada’s Competition Bureau planned to block their $16 billion merger. Although Canada’s telecommunications regulator approved the deal in late March, Canada’s Industry minister François-Philippe Champagne in early May said he would not allow the deal to proceed. The merger would reduce the number of major telecom carriers from four to three, and opponents believe this will lead to higher wireless prices. (WSJ)
On Thursday, a bipartisan group of senators on the Judiciary Subcommittee on Antitrust introduced the Competition and Transparency in Digital Advertising Act. The bill would ban companies, such as Google, that facilitate more than $20 billion in digital ad transactions from being involved in more than one part of the digital ad market. Google owns digital ad exchanges and also owns the tools other companies need to sell and buy ads on its platform. The bill would mean that Google needs to divest from portions of its digital ad business acquired from its 2008 purchase of advertising company DoubleClick. (CNBC, WSJ)
📝 WHAT WE'VE BEEN UP TO:
Claire Kelloway was featured in an NPR Podcast regarding the extreme shortage in baby formula across the nation. Kelloway said, “The WIC program is such a large purchaser, it buys about half of the formula on the market. Once a company has an exclusive deal to service a state, competitors don't have a financial incentive to compete in that state.”
Barry Lynn this week briefed top senators in a closed-door meeting at the Capitol Building on the dangers that Google, Amazon and other big tech corporations pose to U.S. democracy and capitalism. Other participants in the briefing included former AAG for Antitrust Bill Baer and Marta Tallado, the president of Consumer Reports. Sens. Schumer, Klobuchar, Warren, Booker, Durbin, Reed, Whitehouse, Smith and Padilla were among those who participated.
Open Markets fellow Johnny Ryan was the focus of an article in The Irish Times about his claims on the Data Protection Commission investigation. Ryan’s legal proceedings against the DPC are highlighted throughout the article. He was also quoted in the Victoria Advocate and by the BBC saying, "Every day the RTB [real time bidding] industry tracks what you are looking at, no matter how private or sensitive, and it records where you go. This is the biggest data breach ever recorded. And it is repeated every day.”
The Open Markets Institute recently called for Elon Musk's acquisition of Twitter to be blocked, claiming that it would give the world's wealthiest man "direct control over one of the world's most important forums for public communication and discussion.” OMI’s stance on this matter was mentioned in Zee News, Politico and The Paradise. The FTC is investigating.
Open Markets was listed as an endorser for The Price Gouging Prevention Act sponsored by Sens. Baldwin, Warren and Rep. Schakowsky. This legislation aims to “prohibit the practice of price gouging during all abnormal market disruptions – including the current pandemic – by authorizing the Federal Trade Commission and state attorneys general to enforce a federal ban against unconscionably excessive price increases, regardless of a seller’s position in a supply chain.”
📈 VITAL STAT:
90%
Four companies — Mead Johnson, Gerber and Perrigo, in addition to Abbott — account for about 90% of the market for baby formula, dominated by Abbott’s 40%. With that level of concentration, formula supply is more vulnerable to disruption.
📚 WHAT WE'RE READING:
“We can’t govern the internet without governing online advertising. Here’s how to do it.” (Ranking Digital Rights, Nathalie Maréchal): The author diagnoses the problems in the online ads market and proposes specific solutions to tame the Wild West this industry has become.
“The Smash-and-Grab Economy.” (Mother Jones, Hannah Levintova): The author tells a comprehensive story of the forces that paved the growth of modern private equity, which has cornered businesses and is making American workers and consumers pay for the mess it leaves behind.
Nikki Usher’s Book:
News for the Rich, White, and Blue: How Place and Power Distort American Journalism
Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.
Open Markets Employment Opportunities
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