Members Only | November 17, 2022 | Reading Time: 4 minutes
Time to start busting trusts again
The Biden administration got the memo.
Although Democrats overperformed in the 2022 midterms, it’s likely that they will still narrowly lose the House of Representatives. At the least, their majority will be much reduced. They may pick up one seat in the Senate still, but even so, they are going to continue to struggle to pass vital measures like the protection of abortion rights and voting rights.
That doesn’t mean that Democrats can’t make needed changes though.
Presidents have a great deal of power. And President Joe Biden has been using that power in some hopeful ways.
For example, his administration appears to be reversing a decades long status quo and embracing vigorous antitrust enforcement.
This is a vital step in reducing inequity and breaking the hammerlock the wealthy currently have on policy and public life.
With the threat of authoritarianism looming, the reinvigoration of antitrust policy could be one of the few positive signs of democratic renewal.
The biggest recent victory for the administration’s tougher trust-busting approach was in the book industry. The Biden Justice Department brought a lawsuit to block the merger of Penguin Random House and Simon & Schuster.
The US District Court Judge Florence Y. Pan agreed with the Justice Department that the merger would “lessen competition” for “top-selling books.”
Joseph Kanter of the Justice Department said the decision was the correct one, because the deal “would have reduced competition, decreased author compensation, diminished the breadth, depth and diversity of our stories and ideas, and ultimately impoverished our democracy.”
The Justice Department argued that Penguin Random House Simon & Schuster would be so large that it would be able to push down advances for books from top authors like Stephen King (who testified against the merger.)
The Justice Department also said that the merger would significantly reduce the number of book releases, limiting what was available to readers and shrinking the breadth of public discourse.
Those sound like good reasons to prevent a deal. However, those arguments for antitrust action have been denigrated and even verboten for decades.
As Stacy Mitchell, co-director at the Institute for Local Self-Reliance, explains on Twitter, “For 40 years, antitrust has largely operated within the narrow confines of the consumer welfare standard — ie, the only harm that matters is to consumer prices.”
What this meant was that the Justice Department would only prevent mergers if the merger was deemed likely to raise consumer prices. Under that rubric, lower advances for authors wouldn’t matter, since authors are providers, not consumers. Neither would a reduced diversity of books.
As Mitchell suggests, it wasn’t always this way.
In the book How to Think Like an Economist, Elizabeth Popp Berman explains that antitrust used to have a broad remit.
In the early 20th century, antitrust was seen as an important means of regulating the economy and society as a whole.
Antitrust lawyers and government regulators saw antitrust legislation as an important means of protecting small businesses, which were seen as essential to the health of civic life. Limiting mergers prevented individuals from accumulating vast wealth and power, which could damage the health of democracy.
These goals led to aggressive enforcement of antitrust legislation in the early 20th century, Berman says. The 1914 Clayton Antitrust Act prevented companies from buying one another’s stock if the effect would “substantially limit competition.”
This provision was largely enforced by lawyers using a prosecutorial frame. When they felt the law was being violated, and that they could win in court, they would sue.
Over time, however, the framework for government action in general, and for antitrust in particular, began to shift.
Republicans had long been very skeptical of antitrust enforcement. As they gained power in the 1980s, Democrats went on defense and began to turn to what Berman calls an “economic style” of thinking.
The economic style emphasized efficiency first and foremost, dismissing other goals. Through this frame, the point of antitrust was simply to make markets as efficient as possible.
That meant that antitrust regulators focused only on whether a merger would raise consumer prices.
Even in cases where officials thought they could win, they started to do assessments of whether the merger would raise prices or not. If it would, they would move forward. If it wouldn’t, they wouldn’t even try to stop the merger, even if it might reduce competition in other respects.
The results of the lax enforcement regime have been stark.
Concentration of businesses has increased markedly since the 1970s. Competition has fallen. In the 1990s, a profitable business had a 50 percent chance of being profitable in 10 years; today it has an 80 percent chance. That’s an indication that entrenched businesses are using market power to squelch rivals.
The failure of antitrust policy is linked to rising inequality. The gap between the rich and everyone else started to widen substantially in the 1980s.
Between 1975 and 2014, households in the bottom 60 percent of income saw income rise 9 percent. Income grew 22 percent for those in the 80th percentile. It grew a stunning 36 percent for those at the 95th percentile.
One calculation suggests that between 1975 and 2020, the economy transferred a staggering $50 trillion from working Americans to the wealthy.
Early trustbusters worried this kind of concentration of wealth and power could damage democracy. And, given our current predicament, they appear to have been right. Billionaires gave a staggering, record-breaking $881 million to candidates in the midterms.
Almost all of that money went to Republicans who are seen as pro-business, and who are also increasingly embracing authoritarian attacks on democratic norms and institutions like the J6 coup attempt.
The Penguin Random House/Simon & Schuster might not have raised prices for consumers. But it would have reduced payments for authors — increasing inequality by allowing (very, very rich) corporations to keep more money from (some rich, some not so rich) authors.
And it would have reduced the number of books published. That would have cut access to ideas in the public sphere.
A shift in antitrust enforcement philosophy won’t reverse wealth inequality or save democracy all at once or all on its own. But after four decades of increased business concentration and growing oligarchy, it’s well past time to start busting trusts again.
Hopefully the Biden Administration’s new focus indicates a long-term shift by Democratic leadership away from a model based solely on efficiency, and back to a recognition that antitrust can be a tool to restrain the wealthy and powerful for the public good.
Noah Berlatsky writes about the political economy for the Editorial Board. He lives in Chicago. Find him @nberlat.