Wednesday’s “must watch” House Judiciary hearing with the CEOs of Amazon, Apple, Facebook, and Google raised a host of questions, including what the goal of antitrust should be (maximizing economic welfare or other goals, like protecting small business), and how should we think about platform industries.
There are two key central things to understand about the hearing.
First, the Democrats’ new focus on antitrust is grounded in neo-Brandeisian thinking, a reference to former Supreme Court Justice Louis Brandeis who fought against the emergence of the industrial economy, seeing bigness as the “mark of Cain”. As Michael Lind and I wrote in Big is Beautiful: Debunking the Myth of Small Business:
A small but intelligent and articulate school of neo-Brandeisians seeks to turn back the clock, if not to the era of anti–chain store laws and unit banking laws, at least to the heyday of the populist structure-conduct-performance era of the 1950s and 1960s, which treated even minor levels of concentration in markets as per se illegitimate and dangerous. Today’s new Brandeisianism has found a home in the twenty-first century Democratic Party, which seeks to demonstrate its solidarity with the working class and consumers through its desire to break up big companies.
Rather than hold hearings on highly concentrated industries like sanitary paper, light bulbs, and food service contractors, which would barely get coverage from even inside-the-beltway trade press, Chairman Cicillini (D-RI) knows that Big Tech COEs are a Big Draw.
But the goal is still the same: it is to make the case for shifting antitrust from its focus on overall economic welfare to a set of progressive goals, particularly shifting the economy toward small and mid-sized companies, which they see as part of the oppressed proletariat. Matt Stoller, author of Goliath, The 100-Year War between Monopoly Power and Democracy, channels this sentiment when he writes that over the last half century, “the rights of producers, of small business, or small banks and credit unions, did not matter next to the need to hold down prices for consumers.” Progressive icon Zephyr Teachout agrees when she argues for breaking up Big Tech, Big Ag and Big Money, as well as Big Broadband, Big Pharma, Big Retail and presumably Big Anything.
I won’t go into detail as to why following the neo-Brandeisian agenda this would be a disaster, not only for American workers and consumers, but national power: Mike and I explained why in Big is Beautiful. Suffice to say it would lead to lower wages, higher prices and lower productivity growth. To be clear, size does not excuse anticompetitive conduct, but existing antitrust laws are fully capable of dealing with abuses in the industries from food service contracting to social networks.
There is a second and even more serious problem with the progressives’ approach to antitrust, and that is that rejects the concept of the platform economics.
In the internet economy, size and market dominance of big platforms is not a bug; it’s a feature, a feature that is pro-consumer. Internet platforms naturally tend toward concentration, with one or two companies controlling most of the market share. As an Obama administration Council of Economic Advisers’ report noted, “Some newer technology markets are also characterized by network effects, with large positive spillovers from having many consumers use the same product. Markets in which network effects are important, such as social media sites, may come to be dominated by one firm.” In other words, there is a reason why there is one major social networking firm (Facebook), one microblogging site (Twitter), one major professional networking site (LinkedIn), and so on: Consumers get much more value by being able to communicate efficiently with a lot of people. So rather than being a problem, this concentration is a benefit.
This is important because Internet platforms may very well represent the prevailing business model of the future in many industries, such as higher education, financial services, insurance, business services, and others, delivering vast productivity gains to the economy. But if the new antitrust doctrine does not allow large platforms in information, communications and retail, there’s no way they will emerge in other sectors.
Such a major business model transformation occurred in the late 1800s and early 1900s, with the rise of the industrial corporation, as chronicled by Alfred Chandler. And counter to popular perception, neither Congress nor “trust-buster” Teddy Roosevelt were against large corporations. They were against trusts; formal agreement between competitors. The Sherman Act outlawed trusts, but not mergers. In contrast, Europe continued to allow trusts which meant that while U.S. firms merged to gain critically needed scale, in Europe they did not and remained much smaller. That, more than any other factor, is why the United Sates dominated the 20th century global economy.
Today, redoing antitrust laws to limit platforms, would be the equivalent of the Sherman Act banning not just trusts, but large, integrated corporations.
There are plenty of challenges facing the economy and workers today. Few if any come from companies being big. In fact, “big is beautiful.”