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There is great power in the hands of a few investors like BlackRock or large technology groups like Amazon, which leads to more and more concentration in the markets. The USA urgently needs stricter competition law. Joe Biden understands that. But does Congress?
By Eric Posner
The technology corporations usually form oligopolies, if not even monopolists. DGB / Piotr Swat / 123rf.com
US President Joe Biden signals that his government wants to take action against monopolies. He has appointed two well-known opponents of technology monopolies as advisors: the lawyer Timothy Wu on the National Economic Council of the White House and his colleague Lina Khan on the Federal Trade Commission (FTC). In addition, these appointments follow a major antitrust reform bill that Minnesota-based Amy Klobuchar introduced to the US Senate last month. Klobuchar's bill aims to encourage antitrust measures in many ways: It seeks to increase funding for the FTC and the Justice Department's antitrust division, and to establish new offices to identify and monitor monopoly positions and market conditions. In addition, lawbreakers are to be punished with new civil penalties and companies are to be held accountable for practices that distort competition that are still possible so far.
Political divisions can be overcome in antitrust law
While fierce Republican opposition to the law is expected, there are good reasons to believe that the fight against monopoly will continue to gain momentum. The Justice Department and the FTC were investigating technology companies during Donald Trump's presidency. This has so far led to charges against Google and Facebook. Sure, it was Trump's dislike of the culturally liberal tech companies that had previously idle bureaucrats become active. But other Republicans have since begun to rethink their traditional opposition to antitrust measures.
Antitrust law has long bridged the ideological divisions in the USA. While such measures require significant market "intervention" by regulators and private lawyers - something Republicans loathe - they are aimed at maintaining the economic competition - which Republicans are supposed to seek.
Decades ago conservative economists and lawyers succeeded in resolving this contradiction by claiming that the markets would correct themselves: Since monopolies made excess profits, they were worthwhile targets of other market players. In addition, it was said that since regulators and courts are so bad at dealing with business and industry, any antitrust attempts on their part would do more harm than good.
The government of US President Joe Biden (small in the background between the flags) and politicians like Senator Amy Klobuchar want to break the power of large corporations by law. DGB / White House / Public domain
Decades ago conservative economists and lawyers succeeded in resolving this contradiction by claiming that the markets would correct themselves: since monopolies made excess profits, they were worthwhile targets of other market players. In addition, it was said that since regulators and courts are so bad at dealing with business and industry, any antitrust attempts on their part would do more harm than good.
The US markets are often dominated by oligopolies
Such thinking provided Republicans with a convenient rationale for claiming they were market and business friendly. So they could continue to enjoy financial contributions from companies that had no interest in a free market. Companies fear competition as it reduces profits.
But times have changed - and not just because of concerns about tech companies. A variety of markets in the United States, from airlines to wireless communications, have become more concentrated over the past few decades. While technological change may play a role in this trend, it reflects an erosion of antitrust measures since the 1970s.
In his 2019 book The Great Reversal: How America Gave Up on Free Markets, the economist Thomas Philippon of the New York University treats the growing concentration of US markets and describes a stark contrast to the markets in Europe during the same period became more competitive, thanks in large part to more aggressive antitrust laws (or stronger "competition law" as it is called outside of America). Philippon shows that weaker anti-trust laws in the US have led to greater market concentration and anti-competitive behavior, which in turn has resulted in weaker growth, higher prices and more inequality.
Furthermore, current economic research shows two additional problems that have been ignored so far: First, large, market-dominant companies harm not only consumers (through higher prices), but also employees (through lower wages). Labor markets in the US are highly concentrated, which means employers can - and probably do - push their wages well below competitive levels. After decades in which economists have asserted that labor markets are highly competitive, these new research results have revolutionary consequences for antitrust law. For example, as the US government recently confirmed, acquisitions should be examined not only in terms of their anti-competitive effects on prices, but also in terms of the consequences for wages, as has traditionally been the case.
President Theodore Roosevelt was the first to take action against the influential monopoly of a corporation. In 1906, his government opened a case against Standard Oil for violating the Sherman Antitrust Act. This process is considered a milestone in American legal history. In 1911, the United States Supreme Court found Standard Oil had violated the Sherman Antitrust Act and ordered the company to be unbundled.
Standard Oil was divided into 34 individual companies. DGB / public domain
Second, market concentration has undermined the efficient functioning of capital markets. Recent research has shown that tremendous economic power rests in the hands of a few institutional investors like BlackRock and Vanguard, and economists have found evidence that this consolidation has resulted in higher prices in other sectors like airlines.
US courts cultivate a culture of distrust of antitrust claims
Other economists disagree. Institutional investors also claim to use their power for a good cause by forcing corporations to act more responsibly. But, are they really committed, or are they just trying, as one would normally expect, to maximize their profits?
Whatever the answer, there is no doubt that the US economy is oligopolistic and increasingly hardened. A few lawsuits against large tech companies will not reinvigorate competition. And Klobuchar's legislative proposal can hardly be more than an admirable first step. In addition, Congress needs to remove various antitrust obstacles that the Supreme Court has put in place over the years. Through a strategy of a thousand pinpricks, the Court of Justice has placed procedural obstacles in the way of competition law processes: limited the scope of class actions, abolished basic assumptions in favor of plaintiffs and created a culture of mistrust of antitrust claims in lower-ranking courts.
To reverse decades of competition law neglect, Congress and the Biden government must work together. Your biggest challenge, however, may be in an unexpected place: public opinion. While many progressives fondly recall the golden age of the American economy, when a grassroots anti-monopoly movement helped pass the first anti-trust laws, there are significant differences between then and now.
Back then, monopolists like Standard Oil were universally abhorred and portrayed by cartoonists as vicious octopuses. Today, technology monopoly is one of America's most admired corporations. During the pandemic in particular, millions of Americans depended on Amazon for their consumer goods, with many using Facebook to keep in touch with friends and family. And almost everyone is addicted to Netflix, YouTube, and their smartphones these days.
Some of these people will serve as judges or jurors in antitrust proceedings - and all of them are voters. Legal and regulatory changes are overdue. The hard work will be to convince the public.
Translated from the English by Harald Eckhoff / © Project Syndicate, 2021
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