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 jacob.schlesinger@wsj.com,
Brent Kendall at brent.kendall@wsj.com and John D. McKinnon at
john.mckinnon@wsj.com
(END) Dow Jones Newswires
June 08, 2019 00:15 ET (04:15 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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