Historical Stock Chart
6 Months : From Apr 2019 to Oct 2019
By Jacob M. Schlesinger, Brent Kendall and John D. McKinnon
Across the ideological spectrum, the calls are growing louder: Washington must do more to rein in big business.
A mounting backlash against technology giants -- especially Facebook Inc. and Alphabet Inc.'s Google -- has provided the spark to a movement that threatens to raze the four-decade-long Washington consensus to defer to markets in setting boundaries for corporate competition. Lawmakers, academics and activists are engaged in a raucous debate over how best to address concerns that corporate giants, whether in tech or other industries, have grown too powerful, too fast.
On the campaign trail, Democratic presidential candidates rail against the power of giants from Amazon.com Inc. to agribusiness conglomerates, invoking the spirit of Teddy Roosevelt, who helped define "antitrust" a century ago with his attacks on the great railroad and oil trusts that monopolized their industries. On Capitol Hill, Democrats and Republicans have united to plan an extensive congressional examination of concentrated economic clout harking back to blockbuster hearings in the 1950s.
The Trump administration, generally seen as business-friendly, is gearing up to probe possible competition-squelching practices by Google and Facebook, firms that have mushroomed from geeky startups to titans swaying everything from markets to elections.
A backlash against tech power comes amid the broader movement to rethink antitrust in general. And it marks the scrambling of the old left-right divide over government intervention in the market.
The legal and legislative tracks could take years before they reach conclusion. While the old beliefs face new challenges, there is little agreement on what comes next. The options bandied about include increased scrutiny for corporations and corporate breakups.
"Antitrust law now stands at its most fluid and negotiable moment in a generation," wrote Daniel Crane, a University of Michigan law professor, in a recent essay.
The Wall Street Journal reported that the Justice Department is gearing up for a probe of Google and has authority to look into Apple Inc., while the Federal Trade Commission has taken jurisdiction for possible antitrust probes of Facebook and Amazon.com. The House Judiciary Committee said it would open an investigation into competition in digital markets. State attorneys general are also preparing investigations into big tech platforms.
The return of antitrust to the spotlight reflects disruptive political and economic forces. Many Democrats are moving to the left and looking more to government to address economic and social concerns. The Republican establishment is struggling to balance a coalition that includes both longtime business allies and President Trump's populist base, which has at times declared open warfare on the U.S. Chamber of Commerce over outsourcing and immigration.
The shifts are roiling other aspects of the decades-old "Washington consensus," such as the primacy of free markets and the embrace of free trade and globalization.
Though unemployment remains at historic lows, many economists tie stagnant wages, rising economic inequality and sluggish productivity to heightened concentration across American industry, and lax antitrust enforcement.
Since the early 1980s, antitrust enforcement by many measures has fallen, with Justice Department complaints in 2017 61% below 1981 levels. At the same time, M&A has soared, with the number of reported deals per year now more than seven times the pace of 40 years ago, according data compiled by the Institute for Mergers, Acquisitions and Alliances.
The 1990s saw a wave of big telecommunications combinations as long-distance and regional competitors created by Ma Bell's breakup acquired one another. Banking and the financial-services industry, too, embarked on waves of consolidation, creating such giants as Citigroup Inc. and Bank of America Corp. -- and regulators hastened the process amid the 2008 financial crisis in a bid to head off failures among weaker institutions.
Local and regional drugstore chains bought rivals, and today most sales are rung up by just four firms. The top four airlines controlled 75% of the U.S. market in 2018, according to IBISWorld, up from less than 60% a decade earlier. Nearly 90% of the railroad market is controlled by four firms -- the same number found on the Monopoly board game, Democratic presidential candidate Sen. Amy Klobuchar likes to joke. Just two makers of coffins and caskets control 80% of that market.
Big Tech has been the catalyst for the antitrust debate. These companies are central to the American economy and society in a way unimaginable 20 years ago, and there is growing public alarm over what the firms are doing to an array of markets, to national discourse and to privacy.
The most intense invectives have been directed at Google, Amazon, Facebook, and, to a lesser extent, Apple, lumped together as GAFA by their critics.
Monopolists are usually charged with using their clout to extract higher prices. Some of these behemoths give away many of their services free. Instead of direct financial harm to consumers, critics argue the companies use their market power to steer business to their own operations, weakening competition and sucking up profits in retailing, music, advertising and other industries, while squashing innovation. Consumers might also find stronger privacy protections if companies competed over that issue.
Tech companies generally have said that they believe they operate in dynamic and highly competitive markets and don't believe they are illegal monopolies. Amazon founder and CEO Jeff Bezos devoted much of his 2019 shareholder letter to underscoring the highly competitive nature of many aspects of Amazon's business.
In response to a question at a congressional hearing last year about whether Facebook is a monopoly, founder Mark Zuckerberg said, "It certainly doesn't feel like that to me." Google has contended during its battles over alleged anticompetitive behavior in the European Union that its products and services promote choice and competition. Apple, in response to charges that its App Store is anticompetitive, has cited the security benefits its restrictions and rules on app developers provide to consumers.
Politicians are targeting intensifying dominance by firms across industries including banking, health and cable television. They affix to these industries sins such as high prices, poor customer service and limited choices for consumers.
Both President Trump and Congress are stepping up pressure on Big Pharma, exploring both regulatory and legislative approaches to try to force drug prices down. The Senate in March held a hearing titled "Does America Have a Monopoly Problem?" Presidential candidate Sen. Elizabeth Warren this spring called on the government to undo the merger of Bayer AG and Monsanto Co., while rival candidate Sen. Cory Booker has introduced legislation calling for a freeze on big agribusiness mergers.
Analysts are watching closely the administration's handling of the proposed merger of T-Mobile US Inc. and Sprint Corp., the third and fourth largest wireless providers in the U.S. Justice Department officials have signaled concern about a reduction in competition but haven't taken a public position.
The new focus on antitrust is a striking turn for a policy that had been seen as largely settled and stable since President Reagan ushered in a new era of government reluctance to interfere with the private sector.
Democrats have tended to favor more curbs on big business, and Republicans less. But since the Reagan era their antitrust fights were mainly waged over a relatively narrow range of options, within boundaries set by conservative scholars and mainly in technical terms among a small club of experts, far from the broader political arena.
Congress last passed a major piece of antitrust legislation in 1976. The government last came to an agreement to break up a big company, AT&T Co., in 1982. During the 1992 presidential contest, the Democratic Party dropped its longstanding call for tougher antitrust from its platform and ignored the matter as a campaign issue for the next quarter-century.
The battle to shape antitrust for the 21st century falls into three main camps. A group of agitators is calling for a revival of the old trustbusting days, with a government more emboldened to impose new limits on the size and practices of big business.
At the other end of the spectrum are conservative disciples of the free market who believe all the talk of a monopolization crisis is overhyped, and that the current system works just fine.
In the middle are a group of center-left scholars and policy makers who see a role for more-aggressive enforcement, but recoil at the break-'em-up rhetoric of the far left.
The most-provocative voices in the debate belong to a group of agitators led by liberal politicians -- Sen. Warren and fellow presidential candidate Sen. Bernie Sanders, among others -- and activists and academics looking to pull the Democratic Party left on a range of economic issues.
They believe that American economic policy took a dangerously wrong turn in the Reagan era to weaken government and over-empower businesses, and that the creation of a light-touch antitrust regime was at the heart of that mistake. They advocate a return to the more expansive philosophy that animated competition policy in the first part of the 20th century, including potentially dismantling companies seen as too big and powerful.
Antitrust, in the early years from the late 19th century through the 1970s, was a blunt weapon, wielded at targets including U.S. Steel, Standard Oil and Eastman Kodak. Protecting competitive, efficient markets was one goal. Another was protecting small businesses from the competitive pressures of the new giants that arose with the industrial revolution.
A third was protecting democracy from the perceived distortions arising from big companies gaining an outsize ability to shape policy for their own profits.
Those goals fell by the wayside after the Reagan administration and the courts moved to narrow the focus, tightly tethering antitrust to economic concerns. They embraced a "consumer welfare standard," which said government should only restrain business if there were a clear danger of rising prices or other economic harms.
That shift, by many accounts, contributed to improved economic growth, at least for a time. It also helped usher in a new wave of mergers and acquisitions, and of corporate giants that, in the eyes of the group now advocating for stronger intervention, upended the healthy balance of power between government and business.
The changing political winds have been particularly dramatic for Silicon Valley. The tech titans started the 21st century embraced by liberals and conservatives alike as upstarts that transformed the economy and empowered average Americans.
Lately, they have faced criticism for allowing the spread of violent videos and viral fake news accounts that have distorted elections; for trampling on user privacy; and for quashing small businesses unable to compete with online marketplaces. The companies have acknowledged mistakes and pledged to do better on many of the key issues, most notably misinformation and privacy.
At a recent antitrust conference at the University of Chicago, a panel moderator asked participants to demonstrate the "harm" from the big tech companies, the standard of proof required to bring government charges. "I don't know, genocide in Myanmar seems like a harm," said Matt Stoller, a fellow of the Open Markets Institute, an activist think tank leading the charge on antitrust, referring to Facebook's admission that its platform had been used to stoke ethnic violence in the country in 2017.
The activist camp advocates returning to the days where enforcers based decisions on market structure and company size and didn't rely so heavily on deal-specific economic analysis.
A defining treatise for the agitators is a 2017 Yale Law Journal essay by Lina Khan laying out a detailed argument for how Amazon's multifaceted corporate structure has been woven to avoid antitrust enforcement the way it is currently applied, while still amassing extensive clout to bend markets to its advantage.
She cites, among other things, Amazon's dual role as the dominant online shopping platform, while selling its own products on that platform, giving it leverage to favor its products and squeeze competitors. She recommends either forcing Amazon to shed one of those business lines, or to have Amazon regulated as a "natural monopoly," along the lines of how the government has controlled electric utilities.
Though led by the left, some conservatives have joined this activist group. "By almost any measure the giant tech companies today are larger and more powerful than Standard Oil was when it was broken up," said Texas GOP Sen. Ted Cruz, at an April Senate hearing.
One specific appeal to conservatives is the prospect of broadening antitrust for the purpose of protecting free speech -- especially for those suspecting Facebook, Google and Twitter Inc. of suppressing conservative views.
Republican Sens. Marsha Blackburn and Josh Hawley have called for greater scrutiny of the big tech platforms, whose "market dominance," as Ms. Blackburn put it, "has amplified concerns about...possible anticompetitive conduct." Mr. Hawley blasted the FTC as "toothless."
Louisiana's Republican attorney general, Jeff Landry, is helping organize a bipartisan coalition of counterparts around the country to explore state antitrust actions against the tech giants, arguing that "structural relief or breakup is probably better than regulation." Meanwhile, American Conservative magazine last fall launched a special project for "building a conservative anti-monopoly movement," according to executive director John A. Burtka IV.
For all the ferment in antitrust, a second group of policy makers and scholars oppose any major changes to antitrust policy, and most Republican lawmakers are in that camp. They believe the Reagan-era changes were justified and remain so -- crediting them with the efficiencies and advances the American economy has enjoyed through three long expansions and a burst of innovation since then.
They count in their ranks judges with lifetime appointments across the federal judiciary who have batted away attempts to expand the scope of antitrust.
This group worries about over-enforcement clipping the wings of businesses and restraining legitimate pursuit of profits. The markets where concentration has risen "do not warrant alarm or imply a failure of antitrust," wrote two Justice Department antitrust officials in a 2018 essay.
As for Big Tech, this group treats the "this-time-is-different" claims skeptically, noting that hand-wringing over market distortions have repeatedly proven misguided over the course of economic history. They cite the lengthy case -- stretching 13 years before being dropped in 1982 -- against International Business Machines Corp. for dominating the mainframe business. Within a few years, IBM's market power suffered a huge blow, not from the government, but from the rapid rise of personal computers that no bureaucrat could have predicted.
A third camp hopes the policy debate will settle on a middle ground, in which the nation would keep core principles of the Reagan-era antitrust framework, notably its primary focus on economic analysis, but overhaul how they are used. Dominating this group are veterans of the Clinton and Obama administrations.
"We don't have the wrong standard," says Yale economist Fiona Scott Morton, who worked in the Obama Justice Department. "The problem is we haven't been enforcing it."
Ms. Scott Morton has led a group of scholars that has tried to define an agenda for more rigorous enforcement within existing policy parameters.
Enforcement decisions generally revolve around predicting whether consumers would be better or worse off if a certain merger took place. Under the current standards, officials and judges have been conditioned to worry more about the risks of over-enforcement -- to not take action unless they were certain consumers would be harmed.
The third camp, however, says the evidence from recent years shows markets won't correct problems on their own, and that antitrust inaction allows competition to weaken. They say if mergers or business practices have the potential to harm consumers, better to err on the side of challenging them, even in the absence of perfect evidence.
Some would flip the burden of proof in merger analysis -- currently resting with the government to demonstrate a deal is harmful -- to merging companies, who would have to prove their combination wouldn't harm consumers. Sen. Klobuchar introduced legislation requiring such a change for megamergers and has highlighted the position in her presidential campaign.
This group would also do more to block attempts by large firms to take over small firms that may not pose serious competition at the time of the deal, but could, if left alone, emerge as future competitors. That standard might have prevented Facebook's 2012 purchase of Instagram and 2014 acquisition of WhatsApp.
They would also expand merger scrutiny beyond deals between direct competitors, and revive the practice, common in the pre-Reagan era, of challenging "vertical" combinations between big suppliers and their customers that could be used to squeeze rivals dependent on the same supplier.
The Trump administration pursued the first such litigated "vertical merger" challenge since the 1970s in opposing AT&T's acquisition of Time Warner, arguing AT&T could threaten rival cable providers by denying or raising prices of Time Warner content. A federal judge rejected the government case.
The group also wants to explore ways of expanding the traditional purview of antitrust enforcement, including a focus on how corporate concentration could harm workers by squelching competition in hiring and thus suppress wages.
Many in the group believe antitrust laws aren't sufficient to deal with the unique aspects of tech and that additional measures are needed to ensure competition. A new template for the group is a March report written for the U.K. government by Harvard's Jason Furman, who served as President Obama's chief economist.
He proposes a new digital regulator, empowered with resetting market rules. As an example, the report says that the ability of big platforms, such as Facebook, to control the data of users makes it hard for new competitors to challenge their dominance. In response, the digital regulator might require Facebook to allow that data to move between platforms, just as regulators fostered cellphone competition in 2003 by requiring companies to let customers transfer numbers among providers.
Write to Jacob M. Schlesinger at email@example.com, Brent Kendall at firstname.lastname@example.org and John D. McKinnon at email@example.com
(END) Dow Jones Newswires
June 12, 2019 18:15 ET (22:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.