As congressional Democrats rolled out their new “Better Deal” agenda for the American people, even some in their own ranks were surprised by the level of interest in the party’s new agenda on antitrust and competition policy.
One reason for that is that even some members of Congress may not be aware of how significant the commitments are that Democrats are making. After all, to a casual observer/member of Congress, invocations of the interests of “workers” and “small businesses” can easily seem like boilerplate rhetoric — the mom and apple pie of economic policy. But they actually seal the deal on a significant transformation of the party’s approach to antitrust issues, one that’s actually been building for some time.
Democrats are saying, with increasing clarity, that they want to overthrow a legal paradigm that’s existed for about 40 years and which held that consumer welfare — typically as measured by consumer prices — is the sole relevant metric for making antitrust policy.
For a generation, antitrust has been all about prices
Acting in part under the intellectual influence of Robert Bork and the broader “law and economics” movement, the main currents of American legal thinking about antitrust matters shifted in the 1970s. The view that took root, entrenched by the Reagan administration’s 1982 merger guidelines, held that economic concentration was generally not a problem unless it led to consumers paying higher prices at stores.
Under this approach, if two big supermarket chains that mostly served different cities wanted to merge, that would almost certainly be okay, no matter how big the combined company was going to be. If there were a couple of neighborhoods where they both operated stores, the merged entity might be forced to divest of some locations in order to preserve price competition in those specific markets. But the idea of assembling a really big supermarket chain was not a problem. And in particular, if the new really big supermarket chain could gain superior bargaining leverage with suppliers and lay off redundant workers, that wasn’t just okay, it was good — evidence that the merger was a pro-consumer move about realizing efficiencies.
This broad approach to antitrust policy remained in force through Bill Clinton’s term in the White House, though the Democratic Party’s fundamentally more regulation-friendly philosophy did manifest itself in a significant antitrust case against Microsoft.
Under George W. Bush, enforcement got laxer. Under Obama, regulatory activism came back in style (proposed takeovers of T-Mobile by AT&T and Sprint were blocked, for example) but the Reagan-era conceptual framework stayed in place. But by Obama’s final year in office, his Council of Economic Advisers issued a report sounding the alarm about an increase in economic concentration whose deleterious impacts extended beyond higher prices to potentially playing a role in declining investment and stifling wage growth. The CEA report further called for “examination” of “market structure changes throughout the supply chain” — opening the door to the broader form of antitrust scrutiny the Better Deal calls for.
The great Walmart debate
The change had been building for a while. More than a decade ago, Barry Lynn, who now directs the Open Markets Project at New America, called for antitrust action against Walmart, which he dubbed “one of the best illustrations of monopsony pricing power in economic history.”
The key problem with Walmart, according to Lynn, was not that it raised prices for consumers (indeed, it lowered them) but that its large share of the retail market (in 2006, its revenue was nearly equal to the next six retailers combined) gave it enormous power over not consumers but producers of the goods that stocked its shelves.
At around that time, Jason Furman, who would later go on to chair Obama’s CEA and author the report calling for increased scrutiny of corporate concentration, disagreed, publishing a paper labeling Walmart a “progressive success story.” Furman’s analysis, emblematic of the approach that’s prevailed since Reagan’s day, returned the basic focus to prices. By increasing efficiency in the retail sector and by squeezing suppliers, Walmart was lowering prices and raising real living standards — especially the real living standards of lower-income Americans whose consumption is heavily tilted toward the kind of basic commodities a mass market retailer like Walmart sells.
The notion of Walmart as an unstoppable corporate behemoth has, of course, taken a hit during the past decade thanks largely to the relentless rise of Amazon. But Lynn, joined over the years by New America colleagues such as Lina Khan and Matt Stoller, has continued to develop the argument that a narrow focus on consumer prices is inadequate to understanding the full range of concerns about economic concentration.
How anti-concentrators won over Democrats
And over the past two or three years, Lynn’s argument has moved from the fringes of politics to the mainstream of the Democratic Party.
One key political step was that Elizabeth Warren took up the cause in a June 2016 keynote address at New America. Warren was, of course, a longtime critic of concentration in the financial services industry. Banking was one of several major industries where concentration was historically constrained by New Deal legislation other than antitrust law. Until the early 1980s, for example, commercial banks could not operate branches in more than one state. And until the late 1990s, commercial banks couldn’t merge with insurance companies or investment banks.
The rationales for these rules always had more to do with political and economic power than with consumer prices, and as an advocate for bringing back that style of regulation, Warren was in many ways a natural to call for turning the same philosophy loose on the whole economy. These same kinds of ideas ended up being influential in the 2016 Democratic Party platform, were picked up by Hillary Clinton’s campaign in October, and would likely have been a substantial focus of her transition team had she won the election.
The Better Deal is essentially a sign that Clinton’s low-key flirtation with antitrust revisionism is now real doctrine.
“The party’s been moving in this direction for a few years now, and Clinton’s concentration agenda was very good,” says Stoller, “but she just didn’t talk about it.”
Suddenly, Democrats want to talk about it.
The right idea for the moment
The fact that the idea is not, in fact, incredibly new is paradoxically part of its appeal at this political moment. A recently defeated political party looking to make a comeback is, in the course of things, expected to grandly announce its embrace of some new ideas. But new ideas generally entail ugly factional infighting that Democrats would prefer to avoid. That Democrats largely came around to this “new” position last year puts it on the express track to party consensus.
An additional virtue of the antitrust issue is that it doesn’t really call for much in the way of new statutes or new legislation, as the existing statutes are already quite broadly worded.
What it would mean to shift American antitrust policy is largely a question of who is appointed to key roles at the Department of Justice and the Federal Trade Commission and — critically — who is appointed to key federal judicial roles where the broadly worded statutes will be interpreted.
This means that as long as legislators can broadly agree about the direction, they can agree to disagree (or not to form an opinion at all) about the fine details or limiting cases. Discussion of health care naturally leads to internecine fights about the broad slogan “Medicare-for-all” and the myriad implementation details that slogan might entail. Discussion of antitrust is well-suited to broad statements of principle, and a spirit of working together to win elections in 2018 and 2020.
Yet not only is the timing for a shift propitious, but a spate of new research in recent years has genuinely changed minds and made the subject less divisive in Democratic ranks.
The research behind a shift
Well before politicians got interested, a broader range of Democratic wonks were coming around to the view that growing corporate concentration was an important factor in explaining the sluggishness of the recovery from the 2008 Great Recession. Much of this has to do with the fact that corporate profits as a share of GDP rose in the 21st century but high profits did not generate an investment boom that helped power the overall economy forward.
Furman, who’d praised Walmart in the Bush years, was observing by the end of the Obama years with the fact that “returns on invested capital for publicly traded US non-financial firms have also become increasingly concentrated within a smaller segment of the market.”
Rather than a general economic boom, in other words, rising profits were hyper-concentrated in a small number of superstar firms, whose super-profitability seemed to suggest the possibility of monopoly rents. That this was happening alongside a statistically visible increase in the concentration of many sectors of the economy suggested that, yes, monopolization was driving superstardom. As a May 2016 Economist special report put it, “profits are too high” and “America needs a giant dose of competition.”
Declining competition could, in theory, explain why high profits were spurring payouts to shareholders rather than investments in business expansion, and recent empirical work from German Gutierrez and Thomas Philippon suggests this is the case.
As the Roosevelt Institute’s Marshall Steinbaum puts it, this adds up to an argument that competition policy “must be a core component of any agenda that would address the slow economic growth, rising inequality, and wage stagnation that are our most pressing economic problems.”
A bonus feature of this approach is that it allows Democrats to advance a populist economic agenda without asking the public to swallow large new tax increases or trust the government to competently administer a big new government program. In an era of high and rising distrust in major institutions, using the power of the state to check the power of big corporations may be an easier sell then counting on the state itself to grow.