Biden Revives Vigorous Antitrust Policy

President Biden has it right. We need not agree with the details of Biden’s Executive Order on Promoting Competition to applaud its broad thrust. Something had to be done to inject old-fashioned vigour into antitrust policy, while retaining the innovative dynamism that has brought us so many products and services we have come to love, or at least upon which we are dependent. Make no mistake: these benefits are no freer than “Googling-it” and visiting “Friends”. We pay handsomely with our data – an uncompensated, involuntary act that makes a nonsense of the argument that these services are “free”. So the idea that the companies can’t price-gouge because their services are free is worth a chuckle, but not serious consideration.

We do not need new regulations, as proposed by Mark Zuckerberg, who is well aware that Facebook can run rings around even the best regulators and, as is so often the case, engage in what students of regulation call “regulatory capture” – enlist the regulator in defending the company from competition. We do not need fines, which dip into the petty cash drawers of these companies. We do not need new legislation. We need the restructuring mandated by traditional antitrust policy.

That policy was always aimed at more than keeping prices low for consumers. It was aimed as well at the political consequences of excessive private economic power, which as economist Joseph Stiglitz has emphasized, morphs easily into political power, which is used to reinforce the economic power. And to warn political opponents that they have and will use their power over access to the political marketplace to censor those with whom they disagree. It is this latter power that has turned traditionally pro-business Republicans against the big Internet companies, forcing them into alliance with anti-business Democrats. One can thoroughly despise Donald Trump, but nevertheless worry about the power of a few companies to deny a former President effective access to his 70 million supporters.

My former colleague and friend Robert Bork was a brilliant advocate for what became the Chicago School of antitrust policy that emphasized consumer welfare over controlling private economic power. But he never would have condoned converting his views into an antirust holiday for these firms.

The problems Facebook, Google, and Amazon create reflect the absence of effective competition in many markets in which they operate. There is no effective alternative available to their customers. All three have the power to decapitate competition when it rears its lovely head, either by deploying tactics long anathema to antitrust policy, or simply using their enormous financial resources to acquire the most threatening of new entrants into their markets, or scare them off before they do enter.

Facebook has made, by one count, 66 acquisitions of firms that might have evolved into competitors, and swallowed tiny entrepreneurs who might become competitors. No new policy needed here. The authorities have long had the power to prevent mergers that substantially lessen competition, and to order divestiture as a remedy if already-completed mergers threaten competition, especially in the case of a company with a history of shutting down companies it has acquired. Prior government approval of a merger does not insulate its subsequent anti-competitive consequences from divestiture. No mergers for Microsoft.

Google presents a different problem. It has created a search engine that is a great contribution to the efficiency with which information can be discovered. But that does not entitle it to extend any power it has acquired in what we can call the search business to other sectors of the economy. Regulating the leveraging of that power into other markets by giving pride of place to its own offerings when consumers search for services is no solution, as regulators would have to dig deep into algorithms and such, a game they will always lose to Google.

Instead, the company can be broken up, with shareholders receiving stock in the new companies, free to compete with rivals on a level playing field. Shareholders would not be losers. Indeed, they would be well compensated for their stakes in Google: investment bankers are salivating at the prospect of spinning off such as YouTube, which Laura Martin, an analyst at the Needham Group, estimates would be worth $300 billion on a stand-alone basis, making it one of the fifteen largest companies in the S&P 500.

Amazon’s contribution to the efficiency with which goods are distributed in the American economy cannot be over-estimated, and the profits it has won as a reward in any way restricted. But its success as a distributor does not entitle Amazon to use its power as a distributor to dominate product markets by insisting that independent retailers hand over options to purchase their shares, or copying their products and marketing them to those firms’ customer lists. Amazon also has the power to deny capital to emerging competitors by pre-announcing plans to offer the same products, thereby scaring off potential funders of newcomers. Mere size is no offence, but using financial muscle as a competitive tool is. Best to restrict Amazon and its essential distribution facilities to what it does best.

The creators of the antitrust laws and judges who have interpreted them in the past have provided all the tools needed to bring the economic power of these companies under control – with no loss of the efficiencies and consumer benefits they have brought to major segments of the economies in which they operate.

An addendum for readers with a taste for a back story

Unfortunately, Biden has shot himself in the foot. He justified his program with a falsehood, then added a deception that eased his path to an error.

Biden’ antipathy to Judge Bork extends from the then-senator’s days in the chair of the Judiciary Committee. Caught plagiarizing the speech of a leader of Britain’s Labour Party to describe his family’s background, his presidential campaign – yes, even then – a shambles, he decided that he was forced to end his campaign, and said that decision was not based on being caught plagiarizing but in order to devote all his energy to keeping Bob Bork off the Supreme Court. In 1987, with the help of Ted Kennedy, a self-professed defender of women’s rights, Biden orchestrated 12 days of hearings (the norm then was about two) resulting in the senate’s refusal to advise and consent to the elevation of Judge Bork to the Supreme Court, using tactics that have become known as Borking. “There will be other opportunities for me to campaign for President,” announced the prescient senator.

The old hate lingers, even after a successful run 33 years later. And so, it seems, does the old habit of being less than fastidious in reviewing the text his team prepares for him to read. “Forty years ago, we chose the wrong path, in my view, following the misguided philosophy of people like Robert Bork …. And what have we gotten from it? Less growth, weakened investment, fewer small businesses…. Too many people who are poorer…”.

Fortunately, Robert Bork Jr., the jurist’s son and president of the Antitrust Education Project, took to the pages of The Wall Street Journal to confront Biden with “a little math”, facts about the 40 years the President characterized as a disaster induced by his father.

· “Less growth”. The economy almost tripled in size; per capita income nearly doubled.

· “Weakened investment”. A 9.9% inflation-adjusted annual rate of return, more than two points above the previous 40 years.

· “Fewer small businesses”. The number of small businesses increased by 54% since 1980.

“Facts are stubborn things” said John Adams in defending some clients, too stubborn for an American President to ignore. Of course, these facts do not establish that Judge Bork’s antitrust policy, with which this writer disagreed, was their cause. But they do demonstrate that the President undermines his own argument for a new competition policy by basing its need on a demonstrably inaccurate statement of the ills it is designed to cure.

To make matters worse, Biden deceived the senate by asking for and obtaining approval of his nomination of academic Lina Kahn to the Federal Trade Commission, and only then appointing her to chair that agency, a fact of which those voting to confirm her appointment could not have been aware – not the usual order of things. That deception turns out to have created a real problem for the implementation of his program. Professor Kahn now heads the agency charged with the responsibility of deciding whether it is in the national interest to break up these companies has published several articles calling for just that. Complaints that she starts her investigations with their conclusions seem not unreasonable. Both Facebook and Amazon have petitioned to have Kahn recuse herself from their cases. Unfortunately, such recusal requests are initially made to the agency over which she presides.