Will Hipster Antitrust cure America's ills?
A Biden Executive Order opens a portentous debate about American capitalism.
Adam Garfinkle, Washington D.C.
Corporations, Competition, and Capitalism
On July 9, US President Joe Biden issued a sweeping Executive Order: Promoting Competition in the American Economy. In doing so, he touched off the most portentous debate about American capitalism we’ve seen in a century. Although it is the young Biden Administration’s most significant domestic initiative so far, the order received little media attention. Distracted by the pandemic, hurricanes, our withdrawal from Afghanistan, and abortion, the press corps failed to grasp its significance.
Washington had been awash throughout June with rumors of a forthcoming Executive Order of major significance. But its breadth—72 separate initiatives, to be undertaken by 12 federal agencies, in a directive of more than 6,300 words—startled even seasoned observers of US domestic affairs.
The order expresses the Administration’s governing philosophy and law-enforcement priorities. It calls for a “whole-of-government” effort to counter what the Administration believes to be anti-competitive practices across the entire US economy. It takes aim at Big Tech, healthcare, health insurance, agriculture, telecoms, and transport, as well as the ballooning semi-professional licensing requirements that function, like medieval guilds, to limit entry into the workforce. It instructs the Food and Drug Administration to develop rules for the import of cheap drugs from Canada. It calls for scrutinizing tech mergers more assiduously, and for countering industry consolidation through mergers and acquisition.
Biden signed the initiative at the White House on a Friday morning. The director of the Federal Trade Commission and the acting assistant head of the Justice Department’s antitrust division stood silently by his side. “The heart of American capitalism is a simple idea,” he said:
open and fair competition—that means that if your companies want to win your business, they have to go out and they have to up their game; better prices and services; new ideas and products.
That competition keeps the economy moving and keeps it growing. Fair competition is why capitalism has been the world’s greatest force for prosperity and growth.
Without competition, he continued, capitalism “isn’t capitalism. It’s exploitation.”
The point of a public rollout is to score political points, so the timing of the announcement—Friday, midsummer?—was curious. The Washington press corps’ go-to sources were caught unawares; their reactions were even less incisive than usual. Neil Bradley, for example, the chief policy officer for the US Chamber of Commerce, denounced the “government knows best” approach. He presumably meant that big business should be left unperturbed, because only the government, never the private sector, is capable of distorting markets and eroding social trust. He offered a banal red herring about creeping “central planning.” Bradley was probably at his summer residence, possibly beyond his first martini of the afternoon. No matter. By Monday morning, the story had vanished from the media.
But this will not do. The directive is far too important.
Biden’s political juggling act
To understand the significance of this order, we have to connect the dots between America’s fraught domestic politics and the emergence of a new school of legal thought on antitrust regulation.
The left wing of Biden’s party is growing. It is anti-corporate, anti-Big Tech to the point of Luddism, and—at its extremes—openly anti-capitalist. As Alexandria Ocasio-Cortez recently and rightly observed, someone with her views would be in a socialist party in Europe. Bernie Sanders, who recently managed to push a US$3.5 trillion domestic-spending blueprint through the Senate as chair of the Senate Budget Committee, isn’t even a member of the Democratic Party because it doesn’t identify itself as socialist.
Biden needs to keep this wing of the party happy enough that it will support his major legislative initiatives without giving the appearance that they’re running the show. So far, he’s eked out a deal on infrastructure with the rump of sane Senate Republicans, but his overtures to the GOP have otherwise been spurned. With the Senate evenly divided and the Democrats holding a slim, four-seat majority in the House, he’s reliant on the left’s support. He won’t be able to enact his signature initiatives without it, and failure would be toxic before the midterms.
Anti-corporate rhetoric plays well to the populist left, particularly among the younger voters who have inherited the instincts of the Occupy Wall Street movement. Large cohorts of these voters tell pollsters they prefer “socialism” to “capitalism,” even if it’s unclear what they believe these words mean.
Right-wing populists have also grown hostile to and suspicious of big corporations. This gives the Democratic Party a chance to stake out a credible claim to the political center—and thus win back the support of the corporate world—at the GOP’s expense. But this is a tricky juggling act, because the main targets of Democratic outreach these days are the disaffected blue-collar workers who once formed the core of FDR’s winning Democratic coalition.
Democrats could hit both targets at once—the corporate world and blue-collar workers—by focussing on policy and facts without indulging in class-war rhetoric. To do this, they need to stress the impact of corporate consolidation on wages and jobs in a post-industrial economy even as they eschew sanctimonious, eat-the-rich threats to punish corporations and wealthy people for their supposedly ill-gotten and exploitative success.
The Party’s overtures to the corporate world haven’t been helped by the Administration’s plans to spend US$3.5 trillion beyond the stimulus and infrastructure bills. (The bipartisan Committee for a Responsible Budget puts the real price tag nearer to US$5.5 trillion.) Biden will pay for this, the media usually suggests, by sharply raising taxes on corporations and the rich. The framework agreement on a Minimum Corporate Tax, signed by 130 countries, is widely understood to be a part of this broader effort. Most US corporations don’t like it one bit. Senator Elizabeth Warren is working on a domestic version of the same concept, and corporations like that even less.
If Biden fails significantly to raise taxes to pay for his “go big” spending plans (and this would require much more than merely reversing the December 2017 Trump tax cut), the costs will come in other forms: politically untimely inflation or recession. Business constituencies won’t like either one, and neither will voters.
Biden has fumbled trying to keep these juggling pins aloft. The pro-capitalism language of the July 9 order was perfect—kudos to the speechwriter—but it didn’t spin the way it was supposed to. The headlines the next day made it sound as if something socialist was afoot. “Biden targets corporate power,” read the headline in the Washington Post.
The President can’t allow a major Executive Order to be characterized as “targeting corporate power” and be seen to favor raising corporate taxes as a moral imperative and succeed in wooing corporate support for the Democrats. He needs to refine this juggling act and find his balance, or too many balls will hit the floor.
Antitrust law and the American political economy
Domestic politics apart, the core of President Biden’s July 9 order reflects the rise of a new, activist school of legal thought—one that locates the sources of American discontent in the biases of its antitrust jurisprudence.
Since the passage of the first Federal act to outlaw monopolistic business practices, the Sherman Antitrust Act of 1890, Congress and the courts have struggled to adjust the US antitrust regulatory framework to changes in the American political economy. The political salience of plutocratic abuses has given rise to activism: It did so, for example, famously, at the turn of the last century, when Teddy Roosevelt inveighed against “the malefactors of great wealth.” The Progressive Era produced the Department of Labor in 1913, and more relevantly, the Clayton Antitrust Act of 1914—a major exposition and corrective to the Sherman Antitrust Act. Political activism erupted, too, in parlous economic times such as the Great Depression, when a heightened sense of urgency drove enforcement and legal innovation under FDR.
Such a moment has again arrived, but it is a special one, because it combines heightened perceptions of corporate abuse—mostly associated, in the public mind, with Big Tech—and a sense, among average-income families, of languishing in the doldrums.
Discontent over sub-meritocracy wage stagnation, cost disease, stunted social mobility, and inequality now dominates serious policy debate over the American political economy, as it should. The suspicion that these afflictions are linked to anti-competitive corporate behaviors—and to feeble or counterproductive administrative efforts to combat them—is widespread.
While unease about these behaviors may be found on both the left and the right, it is chiefly the Democratic Party that has given it political voice and an agenda in the young Biden Administration. Antitrust law is the vehicle by which they propose to address the problem.
The pro-consumer bias
American antitrust law, and the regulatory framework upon which the courts have relied for guidance, has historically been biased in favor of consumer welfare. But this bias—in essence, the pragmatic judgment that low prices are good—has long been more prejudice than coherent legal principle.
The bias has manifested itself as policy that has allowed Google and Amazon to deploy their Big Data clout and platform dominance to squelch competition. Google provides many services for free, thanks to the offsetting power of its advertising revenue flow; Amazon sells stuff for cost, or less, to gain market share at the expense of aspirant competitors. Are the tech giants good for consumers or bad? They’re good in the short term, arguably; but what about the long term? Tough call.
This pro-consumer bias in antitrust made sense when scarcity was real and our culture disposed to place a higher premium on affordable material possessions. Note, however, what a pro-consumer bias entails: If you’re biased toward consumers, you will see high wages as problematic because they make goods and services more expensive. That is why, strange as it now sounds, the courts’ first targets following the passage of the Sherman Antitrust Act were not corporate cartels, nor even mergers (the Act inadvertently incentivized these), but attempts at union organizing. Back in the day, few would have asked whether low wages should, for moral and humanitarian reasons, be made artificially higher via intervention in the labor market. But this very idea is now advertised with slogans such as “a living wage” and “public investment.”
Historically, remedies for the protection of labor—notably, the critical right to collective bargaining—developed outside the antitrust framework. The preeminent symbol of that remedy is the Labor Department and its Bureau of Labor Statistics; the operational arm is the National Labor Relations Board, or NLRB, established in 1935 as a key part of the New Deal.
American culture is now far from the late 19th century. But American courts have remained reluctant to slap down Big Tech (or Big Pharma, or Big Ag) for their anti-competitive practices. In the absence of union counterbalance, the NLRB is all but powerless: In late June, for example, a Federal court threw out a suit brought by the Federal Trade Commission (FTC) and some state attorneys general against Facebook. Note that it was not the antitrust division of the Labor Department that brought this suit. In the court’s view, the FTC failed to show that Facebook acted as a monopoly.
The courts seem to lag ever further behind technology-driven shifts in market structures that exacerbate threats to fair competition by deferring to concentrated capital and its consequent advantages. The technology of the cyber-tsunami inherently rewards scale in investment even as it relies on distributed systems for production and marketing. This is not an unfamiliar pattern: Historically, the advent of major new technologies has disproportionately rewarded capital accumulators and investors, certainly toward the beginning of a technological business cycle, and in doing so exacerbated inequality by skewing the data sharply upward at the top five percent of the scale. The rich grow very rich. In that sense, Big Tech today resembles the railroads and steel companies of the late 19th century.
But there has been, since then, a vast shift in norms. Our culture is now vastly more egalitarian, which makes these circumstances politically intolerable.
The rise of the neo-Brandeisians
In response to these discontents, a new school of legal thought explicitly questions the pro-consumer bias of US antitrust law. It is most often called the neo-Brandeisian school, after Justice Louis Brandeis, known for his antipathy to monopolistic impulses. While not entirely monolithic, the work of this school is worth exploring because its sympathists occupy key positions in the Biden Administration. They include, for example, Cecilia Rouse, head of the Council of Economic Advisors.1 Brian Deese, head of the National Economic Council, is less clearly on board.2 Above all, Federal Trade Commission Chair Lina Khan has been profoundly influenced by the neo-Brandeisians. Other enthusiasts occupy directly relevant second-tier positions; they include CEA members Heather Boushey, an avid Thomas Piketty fan, and self-styled progressive Jared Bernstein.
What these newly-ensconced movers and shakers have in common is this: They are products of a significantly expanded egalitarian principle in American culture. All recognize the existence of what we might call a human infrastructural undercarriage of low-wage but essential workers, without whom the US economy could not function. The very definition of an “essential worker,” during the Covid crisis, sharply heightened the perception—and spread the argument—that wages and the value of a person’s labor to society are not necessarily synonymous. Adherents of this school don’t find the pro-consumer bias in antitrust regulation self-evident, particularly given its main implication, to wit, that wages paid for essential but low-status work may justifiably be low—low enough to crush hopes of social mobility for many, including many minorities.
Deeper down, on a more philosophical level, they doubt our ideal should be to have a society where lots of people are always able continuously to acquire more low-cost stuff. They wonder if this could truly be the only legally valid measure of a healthfully competitive capitalist economy. They reject this developmentalist ethos as bad for the human spirit and, of late more pointedly, very bad for the environment.
They believe antitrust is the right place to overturn what are, in their view, decrepit and obsolete traditional assumptions. This is partly because they are impressed by studies from Harvard, the University of Chicago, and other prominent venues arguing that industry consolidation depresses working-class wages and raises costs in key sectors—the two effects, together, giving rise to an onerous middle-class squeeze and growing inequality.
So far, so good. But there’s a slippery slope problem inherent to this new dispensation. Changing the default focus of antitrust law from the protection of objective and measurable consumer interests to the rectification of income inequality, or toward wage and unemployment targets, could clearly politicize the courts, inclining them toward ideological animus in the place of stable legal logic. One need not be a principled conservative to grasp that no measure of social justice or equality based on “fair” wage levels could be anything but open-ended and subjective. To adopt this view as matter of policy and law might unleash Tocqueville’s Paradox:
When inequality is the general rule in society, the greatest inequalities attract no attention. When everything is more or less level, the slightest variation is noticed. Hence the more equal men are, the more insatiable will be their longing for equality. 3
If established as the core principle of antitrust law, the bias to ever-more-equal wage levels could be approached reasonably, within pragmatic limits, or it could be weaponized politically and wielded by ideologues with axes to grind. Anyone who claims to be certain how this will go a decade or two from now is not to be trusted with other people’s equities.
Moreover, there are ways to address concerns about fairness to labor without appealing to antitrust law. It is not really self-evident that antitrust law is the best or the right place to do it. Our antitrust policies, as they’ve more or less existed since 1890, pit one part of the Federal government against another part clustered around the National Labor Relations Board, established in 1935 as a key part of the New Deal. That might sound irrational, but we don’t call the separation of power more broadly irrational, and rightly so.
For Neo-Brandeisians, the ethical implications of market structures override any broad-brush, statistical, or objective measure of economic efficiency. Their detractors already see ideology over science at work; they explicitly raise the specter of the stealth politicization of antitrust law. The burgeoning debate is equal parts political and philosophical; as such it is dead serious, and it’s here to stay, for a while at least.
The enfant terrible of the Neo-Brandeisian surge—called “hipster antitrust” by Republican Senator Orrin Hatch—is none other than the FTC chair who stood by the President’s side on July 9, Lina Khan. Khan, a 32-year-old, Pakistani-born, Yale-trained lawyer, electrified the anti-trust legal fraternity four years ago with an essay in the Yale Law Review titled Amazon’s Antitrust Paradox.
Several of Khan’s senior colleagues in the Biden Administration’s economic policy offices share her views. Her views are, to simplify only a little, generically anti-merger and anti-low-cost, regardless of economic sector. She and her colleagues aim is to replace the consumer welfare standard, which was undergirded by price theory analysis, with a system that seeks to engineer a particular kind of market structure.
The tempest caused by Khan’s 2017 arguments became a howling storm when suddenly the neo-Brandeisians were elevated to power. A fusillade of criticism against them has emerged from nearly every American conservative organization one can name. Most of it smells like stale cordite, but not all of the criticism can be brushed off as reflexive partisanship.
The long-reigning dean of American antitrust law is Professor Herbert Hovenkamp of the University of Pennsylvania’s Wharton School and Law School. Hovenkamp, who served in the Clinton and Obama Administrations, is hardly a knee-jerk advocate of big corporations. For example, he recently argued that the FTC’s dismissed case against Facebook demonstrated the inadequacy of current law to the task of taming of the tech giants. He suggested the FTC file an amended brief.
But Hovenkamp was no fan of Khan’s essay. He wrote in 2018 that her arguments are “technically undisciplined, untestable, and even incoherent.” Nor is he enamored of the Neo-Brandeisian school. “The attack on low prices as a central antitrust goal,” he wrote in 2019,
will harm consumers, and vulnerable consumers are most at risk. To the extent that the United States Democratic Party becomes the institution to embrace its concerns, it will be harming its own constituencies the most, and that could spell political suicide.
An antitrust focus that aims to protect small businesses—in effect, a covert effort to redistribute income via higher wage levels, rather than through tax and welfare policy—will result, Hovenkamp suspects, in lower production and higher prices. Good intentions will once again pave another mile or two of the road to hell.
Here he is reiterating a oft-made but critical point. The Democratic Party elite, especially the highly woke, are out of step with the party’s core constituency. By presuming to know the best interests of marginalized communities, they have failed to reckon that these communities may well have their own ideas about where their best interests lie. (Needless to say, this goes for crime and “defunding the police” as much as it does more esoteric domains of antitrust law.)
For now, what matters isn’t who’s right about antitrust law on the scholarly or policy merits. It’s not neatly partisan, and it’s obviously not an easy call. The answer, for now, is less interesting than the question: What does it mean that President Biden’s July 9 Executive Order launched this debate? How significant are its implications for the political economy at the heart of American governance?
And why was it so little noticed by the press?
These are critical questions. The debate isn’t about whether American airline giants should be able to nick passengers with hidden baggage fees or whether we should be able to buy hearing aids over the counter. It’s about whether the American model of capitalism is viable—with all of its massive global significance.
Adam Garfinkle, an editorial board member of The Cosmopolitan Globalist and American Purpose magazines, was an RSIS Distinguished Fellow from August 2019 to June 2021. This essay is a combination and extension of two short columns published in RSIS’s Commentary series: “Biden’s Corporate Dilemma: The Political Dimension,” RSIS Commentary 116/2021, 31 July 2021; and “Biden’s Corporate Dilemma: The Antitrust Dimension,” RSIS Commentary 1??/2021, 11 August 2021.
The CEA, established in 1946, functions as a kind of private economics think tank for the President and his White House staff. It is to the President roughly what Policy Planning in the State Department is to the Secretary of State’s office. Quartered in the White House office complex, it has about 35 employees. The NEC was established in 1993 to coordinate a whole-of-government approach to economic policy; its relation to the President is parallel to that of the National Security Council for foreign and national security policy—so Brian Deese is to economic policy what Jake Sullivan is to foreign policy. Also located in the White House office complex, it has about 25 employees. The NEC is also a twin, so to speak, of the Domestic Policy Council (DPC); NEC and DPC principals generally attend one another’s key meetings.
Rouse, the first African-American to head the CEA, is a Harvard economics Ph.D. and former dean of the Princeton School of Public and International Affairs. Deese, a Yale law school graduate, served as a general fixer in the Obama Administration and afterward worked for BlackRock, the world’s largest asset management corporation, where he earned nearly US$5 million a year in salary and stock options. He lacks anything like Rouse’s scholarly, intellectual credentials, or Kahn’s aspirations to them. Self-styled progressives applauded the appointment of Rouse and Khan, but were critical of Deese, who has the temerity not to detest oil and gas companies on principle.
Democracy in America, Vol. II, Part II, Ch. 13, p. 538 (J.P. Mayer edition). Not by accident does this statement occur on the last page of a chapter entitled, “Restlessness in the Midst of Prosperity.”