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Disempowering the US cartels
by Eric Posner
Wednesday May 19th, 2021 12:25 PM
Technology corporations mostly form oligopolies, if not monopolies.
U.S. President Joe Biden is signaling that his administration wants to crack down on monopolies... Klobuchar's bill aims to boost antitrust action in many ways: it seeks to increase funding for the FTC and the Justice Department's Antitrust Division.
Disempowering the US cartels
There is great power in the hands of a few investors such as BlackRock or large technology corporations such as Amazon, which is leading to more and more concentration in the markets. The U.S. urgently needs stricter competition laws. Joe Biden understands that. But does Congress?
By Eric Posner
[This article published in April 2021 is translated from the German on the Internet, Die US-Kartelle entmachten | Gegenblende Debattenmagazin (dgb.de).]

A cell phone with the app icons of Facebook, Amazon, Wikipedia, Google, etc.

Technology corporations mostly form oligopolies, if not monopolies.
U.S. President Joe Biden is signaling that his administration wants to crack down on monopolies. For example, he has appointed two well-known opponents of technology monopolies as advisors: lawyer Timothy Wu to the White House National Economic Council and his colleague Lina Khan to the Federal Trade Commission (FTC). Moreover, these appointments follow a major antitrust reform bill introduced in the U.S. Senate last month by Amy Klobuchar of Minnesota. Klobuchar's bill aims to boost antitrust action in many ways: it seeks to increase funding for the FTC and the Justice Department's Antitrust Division, establish new offices to investigate and monitor monopolies and market conditions. It also wants to impose new civil penalties on lawbreakers and hold companies accountable for practices that distort competition, which are still possible.

Political divisions can be overcome on antitrust law
Although fierce Republican opposition to the law is to be expected, there are good reasons to believe that the fight against monopoly will continue to gain momentum. Already during Donald Trump's presidency, the Justice Department and the FTC have been investigating tech companies. So far, this has led to indictments against Google and Facebook. Certainly, it had been Trump's distaste for the culturally liberal tech companies that had previously inactive bureaucrats taking action. But other Republicans have since begun to rethink their traditional opposition to antitrust measures.

Antitrust has long bridged ideological divides in the United States. Although such measures require significant "intervention" in the marketplace by regulators and private lawyers - something Republicans abhor - they aim to ensure economic competition - which Republicans claim to seek.

Decades ago, conservative-leaning economists and lawyers managed to resolve this contradiction by claiming that markets would correct themselves: Since monopolies generated excess profits, they were worthwhile targets of other market actors. Moreover, it was said that since regulators and courts were so bad at dealing with business and industry, any antitrust attempts on their part would do more harm than good.

Joe Biden's cabinet sits at a table in the quadrangle by a wide margin.
The administration of U.S. President Joe Biden (small in background among flags) and politicians like Senator Amy Klobuchar want to break the power of big corporations by law.

Decades ago, conservative-leaning economists and lawyers managed to resolve this contradiction by claiming that markets are self-correcting: Since monopolies generated excess profits, they were worthwhile targets of other market actors. Moreover, it was said, because regulators and courts are so bad at dealing with business and industry, any antitrust attempts on their part would do more harm than good.

Markets in the U.S. are often dominated by oligopolies
Such thinking provided Republicans with a convenient rationale for their claim that they were pro-market and pro-business. Thus, they could continue to enjoy financial handouts from corporations that had no interest in a free market. Businesses are afraid of competition because it reduces profits.

But times have changed - and not just because of concerns about technology corporations. A variety of markets in the U.S., from airlines to wireless communications, have become more concentrated in recent decades. Although technological change may also 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, economist Thomas Philippon of the New York University discusses the growing concentration of U.S. markets and describes a stark contrast with markets in Europe, which became more competitive during the same time - thanks in large part to more aggressive antitrust laws (or stronger "competition law," as it is called outside America). Philippon shows that weaker antitrust laws in the U.S. led to greater market concentration and more anticompetitive behavior, which in turn led to weaker growth, higher prices, and more inequality.

Moreover, recent economic research highlights two additional problems that have been ignored: First, large, market-dominant firms hurt not only consumers (through higher prices) but also workers (through lower wages). Labor markets in the U.S. are highly concentrated, which means that employers can - and likely do - push wages far below what is actually competitive. After decades of economists asserting that labor markets are highly competitive, these new research findings have revolutionary implications for antitrust law. For example, as the U.S. government recently confirmed, takeovers should be examined not only in terms of their distortive effects on prices, but also in terms of their consequences for wages, as has traditionally been the case.

An oil refinery in black and white.
President Theodore Roosevelt was the first to take action against the influential monopoly position of a corporation. In 1906, his administration opened a case against Standard Oil for violating the Sherman Antitrust Act. This proceeding is considered a landmark in American legal history. In 1911, the U.S. Supreme Court found that Standard Oil had violated the Sherman Antitrust Act and ordered the unbundling of the company.

Standard Oil was broken up into 34 individual companies.
Second, market concentration has undermined the efficient functioning of capital markets. Recent research has found enormous economic power in the hands of just a few institutional investors, such as BlackRock and Vanguard, and economists have found evidence that this consolidation has led to higher prices in other sectors, such as airlines.

U.S. courts foster culture of distrust of antitrust claims
Other economists disagree. Institutional investors also claim to be using their power for a good purpose by forcing corporations to behave more responsibly. The only question is: do they really feel obliged to do so, or are they merely trying to maximize their profits, as one would normally expect?

Whatever the answer, there is no doubt that the U.S. economy is oligopolistic and increasingly hardened. A few lawsuits against big tech companies won't revive competition. And Klobuchar's legislative push can be little more than an admirable first step. In addition, Congress must remove various antitrust barriers that the Supreme Court has put in place over the years. Through a strategy of a thousand pinpricks, the Court has placed procedural obstacles in the way of antitrust litigation: limiting the scope of class actions, eliminating basic presumptions in favor of plaintiffs, and creating a culture of distrust of antitrust claims in lower courts.

To reverse decades of antitrust neglect, Congress and the Biden administration must work together. Their greatest challenge, however, may lie in an unexpected place: public opinion. Although many progressives fondly recall the golden age of American business, when an anti-monopoly grassroots movement helped pass the first anti-trust laws, there are significant differences between then and now.

Back then, monopolists like Standard Oil were universally loathed and depicted by cartoonists as vicious octopuses. Today, technology monopolists are among America's most admired companies. During the pandemic in particular, millions of Americans depended on Amazon to buy their consumer goods; many used Facebook to keep in touch with friends and family. And nearly all are addicted to Netflix, YouTube, and their smartphones these days.

Some of these people will serve as judges or jurors in antitrust cases - and all of them are voters. Legislative and regulatory change is overdue. The hard work will be to convince the public
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