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Rules of the Road for the Internet Age? An Anti-Monopoly Movement Rises – Non Profit News

Korckabostians,” Moleman 9000

I have in my files over a thousand letters the writers of which, in great detail, tell me how they have been crushed and destroyed by the large [corporations].

—US Senator William Borah (R-ID), May 26, 1938

As the above quote reminds us, the issue of monopoly is hardly new. For decades, however, one key policy tool to limit corporate concentration—antitrust law—has been vitiated in the US. A Yale School of Management report found the US Department of Justice initiated only one anti-monopoly action between 2000 and 2018. By contrast, from 1970 through 1972, it initiated more than 10 such actions each year.

Nonetheless, in recent years, antitrust activism has risen from the dead. Last October NPQ wrote about a 449-page report by a US House of Representatives committee that called for new laws to regulate tech company concentration. Among its proposals:

  • Prohibit “self-preferencing” (e.g., search engines that prioritize the products of the company that owns the search engine).
  • Require interoperability (i.e., same terms of access to platform for all comers).
  • Lower the bar of what counts as monopoly power and require “structural separation,” including dividing a business into parts, where appropriate.

Now that Joe Biden is president and the Democrats have a slim majority in both houses of Congress, some antitrust measures might become law. Already, the new chair of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Amy Klobuchar (D-MN), has introduced the Competition and Antitrust Law Enforcement Reform Act. Specifically, Klobuchar proposes to increase enforcement agency budgets, make it easier to find a company guilty of monopoly behavior, ban anticompetitive conduct (like the “self-preferencing” described above), increase penalties for misconduct, and create a new division at the Federal Trade Commission to research and monitor merger activity and propose regulatory remedies.

Today’s antitrust movement can trace itself to the anti-corporate activism that first broke through at the national level in the 1999 demonstrations against the World Trade Organization in Seattle. Now, more than two decades later, the movement is reaching the stage where passing new antitrust legislation may again be possible.

The Rise and Fall of the First US Antitrust Regime

If new antitrust laws were passed, it would mark a return to a policy response born in what might be called the first Gilded Age (since we now live in the second one). That movement, like today’s, emerged over decades. As Jeffrey Rosen recalls in The New Republic, “In 1890, there was no national constituency about the dangers of corporate bigness; but twenty years later the Progressive movement had been so successful that presidential candidates in both parties crusaded against the money trusts.”

In 1914, activism and a 1912 presidential campaign where antitrust law became a central election campaign issue led to passage of the Clayton Antitrust Act, which gave teeth to the Sherman Act of 1890, adding provisions to prevent price discrimination, exclusive-dealing contracts, the acquisition of competing companies (through stock purchases), and interlocking directorates among companies within the same industry. And yet, initially, these laws did little to contain corporate concentration. By 1929, it is estimated that 200 companies in the US controlled half of all corporate wealth.

Senator Borah’s remarks, cited above, appeared in a New York Times article, published on August 21, 1938, that was penned by Thurman Arnold. Arnold had recently become the Assistant Attorney General in charge of the Antitrust Division in the US Justice Department, a position he would hold until 1943. During his tenure, Arnold prosecuted nearly as many cases as had been done in the preceding 48 years.

The strict enforcement of antitrust under Arnold had an effect. Stacy Mitchell, co-director of the Institute for Local Self-Reliance (ILSR), notes that, “In the 1950s, 70 percent of all retail spending was with single-location independent retail stores.” In an article written last fall in The Nation, Mitchell and coauthor Susan Holmberg add that, “Of the nearly nine million people working in retail then, nearly two million owned the store in which they worked, either as a sole proprietor or in partnership with others.”

Even at antitrust enforcement’s high point—roughly the period of time between Arnold’s tenure and the 1970s—it would be a gross exaggeration to say that corporate mergers did not happen. For example, the second half of the 1960s were marked by a merger wave; however, hemmed in by antitrust rules, most mergers in that period were of unrelated companies, known as conglomerate mergers.

But in the 1970s, antitrust rules started to be mothballed. A principal tactic was to restrict their use to cases where consumer welfare is demonstrably harmed. This may sound harmless, but it is not.

Take Walmart. Its slogan of “everyday low prices” practically announces its defense to any potential antitrust prosecutor. Right in its business slogan, Walmart is claiming it benefits consumer welfare. If suppliers and competitors are ruined by its strategy, and workers’ earnings are depressed because there is only one grocery store in town to work for, that is none of Walmart’s concern. More to the point, under current federal doctrine, the collateral damage is not a matter of public concern either.

A leading advocate of that doctrine was Judge Robert Bork, author in 1976 of the Antitrust Paradox. Writing about Bork decades later, conservative Yale legal scholar George Priest was unrestrained in his admiration, gushing that, “Virtually all would agree that the Supreme Court, in its change of direction of antitrust law beginning in the late 1970s, drew principally from Judge Bork’s book both for guidance and support of its new consumer welfare basis for antitrust doctrine.”

The Costs of Unrestrained Corporate Power

Much as the US Supreme Court’s Citizens United decision has created an atmosphere of almost “anything goes” in campaign donations, so too, absent antitrust enforcement, a similar atmosphere has dominated the business world.

Indeed, as enforcement ground to a halt, acquisitions aimed at cornering the market became the rule, not the exception—with corporate concentration today greater than ever before. Just two years ago, NPQ noted that in many industries, two firms have a 50 percent market share or more between them, including hardware stores, shipbuilding, private prisons, tobacco, pharmacies, amusement parks, truck and bus manufacturing, smartphones, social media, cellphone service, and sanitary paper.

How does this relate to community welfare? Far more than may be immediately apparent. Mitchell notes that “There were more Black-owned small businesses in the 1970s than there are now…that process of consolidation has had a racial dimension.”

Consolidation has also deepened class inequality. As Mitchell relates, “In the case of Walmart, it is so big, it has effectively been able to reset wages down. There is just not as much competition for labor—or even starting their own business—no upward pressure for wages like there would be in a competitive market.”

How “Anything Goes” Plays Out in the Real World

Prior to the pandemic, Uber, the ride-hailing service, had exponential growth, with ridership in the US increasing from 140 million rides in 2014 to 6.9 billion rides five years later.

Quick: How much revenue did Uber earn due to that growth? Answer: None. Indeed, it lost $8.5 billion in 2019.

Uber’s losses have not prevented its stock from rising in value, with the company now enjoying a market capitalization of over $100 billion. In the media, Uber is celebrated, ranking number 2 on CNBC’s “Disrupter List” in 2018. But is using deep pockets and deep discounts to drive out competitors disruptive—or simply unfair business practice? Mitchell argues the later: “There is nothing breakthrough about this. They are gutting legitimate cab companies and turning people who were once paid a fair wage into people who now earn pennies for Uber. It’s a tactic to just loot a whole sector of the economy.” Once Uber’s tactics might have been considered illegal predatory pricing, but in a “consumer welfare” world, the firm is lionized.

Walmart, Mitchell notes, is now at a more mature business stage, but it followed a similar path: “They grew through predatory pricing. They went into communities. Opened stores. Sold goods at a loss. When smaller companies did not have their Wall Street resources, they were unable to match those prices and folded. Walmart could lose money all day long. Then Walmart owned the market and raised prices.”

“The other big tactic,” says Mitchell, “was they would strong-arm suppliers, particularly in the grocery industry. They would say, ‘we want lower prices, and we want you to charge higher prices for their competitors’—in effect. That’s also technically illegal, but not enforced.”

Today, according to Mitchell, Walmart captures “one out of every four dollars that Americans spend on groceries. More than 50 percent in over 40 metro areas. Some areas with 70 percent. There has never been anybody as dominant.”

With Amazon, too, predatory pricing was part of its early business model. “Amazon lost $3 billion in its first six years in business, selling books at a loss,” Mitchell recalls. “It succeeded. It drove untold numbers of bookstores out of business and hobbled publishers. Amazon utterly dominates the book industry today…and [is] increasingly a major publisher themselves.” A 2019 Wall Street Journal article reported that 49 percent of all new book units and 72 percent of adult new book sales occur on the Amazon platform.

Amazon has used similar tactics when moving into new markets. Over time, it has acquired more than 100 companies. A window into Amazon’s strategy is provided with Diapers.com. As the House committee report details, “Prior to buying it, Amazon identified Diapers.com as its ‘largest and fastest growing competitor in the on-line diaper and baby care space,’ and its ‘#1 short term competitor.’”

As Representative Mary Gay Scanlon (D-PA) summarized at the Subcommittee’s sixth hearing, Amazon’s internal documents “show that Amazon employees began strategizing about ways to weaken this company, and, in 2010, Amazon hatched a plot to go after diapers.com and take it out.” Specifically, Amazon’s documents show that the firm entered into an aggressive price war, in which Amazon was willing to bleed over $200 million in losses on diapers in one month. Addressing Mr. Bezos, Representative Scanlon added, “Your own documents make clear that the price war against Diapers.com worked, and within a few months it was struggling, and so then Amazon bought it.”

Amazon, Michell observes, provides a different level of threat than a Walmart or Uber, because “they want to control the underlying infrastructure for commerce. They want to control the platform of how we buy and sell goods.”

Specifically, these platforms extend in four areas: cloud computing (where Amazon is the clear market leader, with a 32-percent share), logistics and shipping (where Mitchell notes the firm now rivals UPS and “even the Postal Service” in the number of packages they deliver), the voice assistant market (where the firm’s Echo maintains nearly a 70-percent market share), and the Amazon Marketplace (in which companies pay a fee to sell on its platform).

The Amazon Marketplace illustrates how Amazon’s control of the market platform reinforces its power. A 2019 study found that 49 percent of people when they search to buy something online, start at Amazon, with Google a distant second, at 22 percent.

As Mitchell observes, these numbers mean “there is less and less traffic coming through search engines, so you’re not going to be found. Your option is to become a third-party seller on Amazon’s platform. But once you’ve done that, Amazon then spies on you. It learns about what is the hot new product that is selling really well. It brings it into its own inventory in some cases. And, suddenly, you have created a product that Amazon has now copied and put its own version at the top of its search results, and overnight your business is wiped out—that’s happened a lot with companies.”

Effectively, Mitchell observes, Amazon “is assuming a kind of governing function. It sets the rules for how other companies operate. What they can and can’t do. It effectively levies a tax on their trade through the fees it charges…. So, Amazon is a direct threat to democracy in the sense that we are moving from publicly controlled open markets with rules that are set through a public process to business happening in a private arena governed by Amazon.”

Amazon’s role, Mitchell says, is similar to the role railroads played back at the beginning of the 20th century. “We wrote laws around that. And that’s what we need to do with Amazon,” Mitchell adds.

A Movement Emerges to Regain Public Democratic Control

Writing in The Nation, Mitchell and Holmberg outline four steps to rein in corporate monopolies.

  • First, develop a policy agenda that constrains monopoly power and helps small businesses access capital;
  • Second, organize small businesses;
  • Third, build campaigns that unite small businesses with worker and racial justice organizations; and
  • Fourth, cultivate key allies in Congress.

Mitchell elaborates, “We need to do deep organizing where we are doing political education and developing leadership, and where the organizing is driven by the priorities of independent business owners.” In terms of community alliances, Mitchell points to Athena, which brings together over 50 community and labor organizations to “challenge Amazon’s outsized power.” Mitchell adds the movement has begun to pick up allies on Capitol Hill, including US House representatives David Cicilline (D-RI) and Pramila Jayapal (D-WA).

Beyond the policy particulars, Mitchell points to the vision that animates her and coalition partners: “We need to move away from the consumer welfare standard and have a broader view of what are harms from economic concentration.”

With respect to Amazon, she adds, “I have a vision of Amazon that involves four companies. I imagine a platform where there would be public utility oversight. Lot of small-scale producers, writers, producers of goods, and retailers could then participate on that platform with protection [and] regulations to prevent them from being preyed upon by the entity of the platform.”

Amid COVID-19, Mitchell notes, the antimonopoly movement has new urgency. “We are in the midst of a massive restructuring of the economy with lots of local businesses being wiped out and a small number of very large corporations profiting enormously,” she points out. “If there is a silver lining to this, there is much more awareness. This has just made all of these issues of concentration much more front and center. I think the idea that neoliberalism has any semblance of rationality is totally dead.”

Mitchell adds that, “Everyone watched as the government opened up a huge spigot of cash for the largest corporations and consigned local businesses to a very rickety system [where] government is picking winners and losers.” So, if government is making supposed market choices, Mitchell says, “we are now in a position to actually have a real conversation” about how to restructure the economy.

Of course, antitrust is only one tool of many. Experience tells us that backsliding is not only possible but a historical fact. Indeed, in a capitalist economy, the tendency for businesses to circumvent the rules is high—one could hardly expect profit-maximizing companies to act otherwise. It is fair to say, certainly, that the authors of the Clayton Antitrust Law of 1914 did not consider how to regulate internet platforms.

For her part, Mitchell sees anti-monopoly work as “a strategy for redressing racial injustice. It is about democratizing economic power. In order for it to succeed, it has to center racial justice in a way that the New Deal did not.”

Mitchell concludes, “Not only do we need to deconcentrate the economy, but we need to look systematically as to how we structure the banking system, how we organize land use policy, how we manage economic development programs…. We need to rethink all of that and begin to see those policies as tools for both economic and racial justice.”



Originally Published by nonprofitquarterly.org

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