The Corner Newsletter: September 22, 2022
Welcome to The Corner. In this issue, we explore how a monopolized railroad industry damages the economy, abuses workers, and disrupts efforts to cut carbon emissions.
Open Markets Institute Sponsors Midwest Forum on Corporate Consolidation
The Open Markets Institute and the Institute for Local Self-Reliance (ILSR) on Thursday co-hosted a half-day forum in Minneapolis, Minnesota to discuss how Americans can reinvigorate antimonopoly and support small businesses, family farms, working people, and communities. The forum featured keynotes by Minnesota Attorney General Keith Ellison and Federal Trade Commission (FTC) Commissioner Alvaro Bedoya. In his first major speech since confirmation, Bedoya made a powerful case against using efficiency to guide enforcement and in favor of reclaiming the Robinson-Patman Antitrust law. ”We cannot let a principle that Congress never wrote into law trump a principle that Congress made a core feature of that law,” Bedoya said. “I think it is time to return to fairness.” Ellison, meanwhile, focused on how monopolists threaten both our democracy and our economic security. “Democracy cannot exist as long as monopoly thrives,” he said, blaming monopolization for much of the political polarization we see in America today. The event was covered by Bloomberg, Politico, and the Minneapolis Star Tribune, among others.
Extreme Monopolization in Railroad Industry is a Fast Track to Nowhere Good
Last week the nation narrowly avoided a rail strike that could have brought much of the economy to a halt. The sweep of media coverage detailed how disruptive such an action would have been. But let’s not blame workers for this threat. The looting of America’s railroads by private equity has been disrupting the U.S. economy for years. And despite the Biden administration's timely and necessary intervention to prevent the strike, these poorly regulated monopolies continue to threaten our security and prosperity.
Case in point: Early this summer, Foster Poultry Farms, California’s largest chicken grower and processor, filed an emergency order with the Surface Transportation Board because the Union Pacific railroad had continually delayed deliveries of animal feed. Without the deliveries, millions of the farm's chickens and other livestock would die. The Board averted this needless destruction — and the health hazard it would have caused — by issuing an emergency order to Union Pacific to prioritize Foster Farms.
This is just one example of a general breakdown in rail service that’s featured in an increasing number of complaints to Congress and regulators by businesses who say they are being squeezed and in some cases bankrupted by these corporations. The basic equation is simple. On one side monopolies cut essential services — and even entire rail lines — in ways that strand shippers, exacerbate supply chain disruptions, and drive inflation, among other problems described below. On the other side the corporations record the highest profit margins in the entire economy.
The origins of the problem date to 1980 when President Jimmy Carter signed the Staggers Act, which largely deregulated the railroads. Since then, the industry has consolidated from around 40 major railroad companies to just seven today, four of which control some 90 percent of the freight rail market. Most regions of the country are served by just two railroad companies, while most shippers have access to only a single line.
After deregulation, railroads became highly attractive investments for Wall Street firms. Private equity and institutional investors now control all major railroads and use their power to demand cost-cutting measures to boost short-term returns even when it means stripping out capacity and losing market share to trucks. Wall Street calls this practice “precision scheduled railroading,” an Orwellian term designed to hide radical cuts in service and the firing of workers.
Over the past six years, the Big Seven carriers cut their workforces by 29 percent, amounting to a net loss of about 45,000 employees. During this same period, the railroads also diverted much of their cargo onto long-haul trucks that clog roads, burn carbon, and increase the numbers of people killed or hurt in accidents.
To fix the railroads, we'll first need to ensure that rail workers have adequate safety protections and the kind of benefits that used to make it one of the most stable middle class professions. Unionized workers have long served as one of the best checks on the predations of extractive capitalists, in part by using their power to protect the quality and reliability of essential services.
We'll also need to rebuild regulatory guardrails to curb the industry's worst practices and limit financiers' control of railroads. As Policy Director Phil Longman proposed in the Washington Monthly last year, the most effective way to accomplish that would be to make railroads live up to common carriage obligations, forcing them to accept business from everyone on equal terms.
Another potential solution would be to nationalize the rail infrastructure and allow private companies to run just the trains alone, similar to how rail works in Europe. A Europe-like model would force rail companies to compete over services and prices, undermining the apparent benefits of Wall Street's draconian PSR system.
Last week, Longman issued a statement on the nation’s current railroad crisis, calling for solutions that would lead to a more sustainable industry, including opening it up to competition.
Open Markets’ Sandeep Vaheesan testifies in Congress on Right to Repair
On Wednesday, September 22, Open Markets Institute Legal Director Sandeep Vaheesan testified before the House Committee on Rules’ Subcommittee on Legislative and Budget Process in a hearing entitled “Right to Repair: Legislative and Budgetary Solutions to Unfair Restrictions on Repair.”
Vaheesan described how manufacturers such as Apple, Ford, and John Deere deploy an array of unfair competitive methods within parts and services markets, or aftermarkets. Through their takeover of aftermarkets, these large corporations deprive product owners of the right to fix their appliances, electronic devices, and vehicles at home and/or take them to independent repair shops. Instead, customers are compelled to pay inflated prices for parts and services. In rural areas where manufacturers often offer no service, farmers and hospitals may not be able to repair essential equipment in a timely manner. Vaheesan explained that Congress can restore and protect the public’s right to repair. The Fair Repair Act, introduced by Representative Morelle, would ensure the wide availability of parts and tools on fair and reasonable terms.
Open Markets Institute urges USDA to ban chicken tournament systems
Open Markets Institute submitted a comment to the U.S. Department of Agriculture urging the agency to use its legal authority under the Packers and Stockyards Act to ban unfair tournament payment schemes in the poultry industry. The tournament system pays poultry growers based on their relative performance to a group average, docking pay from lower-ranking farmers to fund bonuses for higher performers. But because powerful chicken corporations give farmers the chicks, feed, and medicines that largely determine how well they perform, the system is rife with unequal treatment and unfair remuneration. Open Markets urges the USDA to issue rules ensuring that all poultry contracts guarantee farmers a firm base price and severely restrict the use of performance-based bonuses when chicken corporations influence farmers’ performance outcomes.
📝 WHAT WE'VE BEEN UP TO:
Barry Lynn details how the fight against monopoly can provide a coherent story that explains most of the crises in our society, and how to fix them, in a feature article in Democracy Journal. “Such a narrative will empower Democrats to deliver big wins that truly improve the lives of every American,” Lynn wrote.
Brian Callaci and Sandeep Vaheesan co-authored an article in Slate that put a spotlight on “fissured” workplaces, which are business models that allow large corporations to subject people who work for them to employment-like conditions without giving them the protections and rights employees would be entitled to. Fissured work arrangements are estimated to comprise at least 19 percent of the U.S. private workforce.
Open Market Institute filed an amicus brief to the Supreme Court in support of Genius, a website that transcribes song lyrics, in its court case against Google. “What Genius built, Google took. Rather than try to develop a superior song-lyric service, it simply stole Genius’ content,” the Open Markets Institute argues in a friend-of-the-court brief filed late last week. “Google did not create anything new, has been unfairly cannibalizing Genius’s business, and has expressly violated its terms with Genius.” MediaPost highlighted Open Markets’ involvement in the case.
Open Markets Institute fellow Johnny Ryan was quoted by BBC discussing the cases brought against Google in Europe and the UK. "Google is under pressure on two big issues — one is antitrust and the other is data protection," Ryan said, adding more cases were coming to light as competition enforcers around the world "increasingly put demands on Google."
Open Markets signed onto a letter to stop Amazon from buying vacuum company iRobot, Reuters reported. “By selling the Roomba brand at or near a loss via the Prime subscription, the company can access more personal consumer data to buttress its anti-competitive advantages online," the letter read.
🔊 ANTI-MONOPOLY RISING:
California’s attorney general last week filed an antitrust lawsuit against Amazon, accusing the retailer of hindering competition, which causes higher prices for consumers. The move is likely to have broad implications outside the state. (New York Times)
The DOJ will take a stronger stance against vertical mergers among digital platforms, Assistant Attorney General for Antitrust Jonathan Kanter said. “Rather than simply cracking down on horizontal mergers and letting vertical deals slide by … antitrust enforcers should think more about how a deal or acquisition create ‘a flywheel effect’ that reinforces a monopoly,” Kanter said. (Ad Exchanger)
Antitrust attorneys at the DOJ have asked the Ninth Circuit court of appeals to speak on behalf of Epic Games in its appeal against Apple’s App Store, which Epic Games called out as a monopoly for not allowing it to use its own payment platform instead of in-app purchases. The attorneys said they were concerned that a lower court ruling was based on a misinterpretation of the Sherman Act, the country’s primary antitrust law. (9to5Mac)
The FTC last week announced that Amazon is under investigation for its $3.9 million purchase of One Medical last month. Both parties have received requests to supply more documentation with regard to the merger. (CBS News)
📈 VITAL STAT:
$2 Billion
The economic loss in the United States for every day of a rail strike, according to a railroad trade group. (New York Times)
📚 WHAT WE'RE READING:
“The Propagandists' Playbook.” (Yale University Press, Francesca Tripodi). Is there any good in using Google to “fact check” the news anymore? The author explores how conservative elites and hate groups deploy disinformation methods by exploiting the algorithmic design of tech platforms like Google's search engine and YouTube to amplify biases that alter people’s perception of reality.
"After a Year of Focus on Big Tech's Harms, Why We're Still Waiting on Reform.” (Time, Megan McCluskey). Despite an increasing number of Americans agreeing that tech companies should be regulated through antitrust legislation rather than speech moderation, the tech lobby continues to stall efforts to move the American Innovation and Choice Online Act forward, the article explains.
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