Bill Clinton Has Left the Building
In his State of the Union address, Joe Biden turned his back on Bill Clinton's legacy, and got aggressive in focusing on monopolies. And then, the UK dented the Microsoft-Activision merger.
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This has been quite a week. And we’ve had quite a few of these lately.
On Tuesday, Joe Biden delivered a State of the Union speech in which he centered the problem of monopoly, turning the Democrats against the legacy of Bill Clinton. On Wednesday, the UK competition authority declared officially that the Microsoft-Activision merger is in trouble. Today, Apple’s head of product design said the firm is redesigning its iPhone to make it repairable. Meanwhile, mergers and acquisitions activity in the U.S. this year is down by 76%.
It feels a bit like we are entering a time machine back to the pre-1980 model of politics, when it was a normal to disdain monopolies.
I Have A Bridge to the 21st Century To Sell You
When I was writing my book on the rise and fall of the anti-monopoly tradition in the 20th century, I spent roughly five years researching the life and times of Wright Patman, a member of Congress from northeast Texas who served in the House of Representatives from 1929-1976. The most telling document about politics I found in his archives was a campaign flyer Patman used in the 1950s to describe to his rural Southern constituents why they should vote for him, and for Democrats in general.
“Here is What Our Democratic Party Has Given Us,” it said. The idea was, Democrats deliver for you. Roads. Electricity, Telephone service. Unemployment insurance. Old Age Benefits. That’s what politics was about. In 1940, 35% of Americans did not have flush toilets, including 80% of residents of Mississippi. By 1970, nearly all of them did. That’s what politics meant. And this wasn’t just a Democratic Party frame, everyone believed it, Eisenhower and Nixon as much as LBJ. The basic notion was that we can come together and choose how we organize our society through politics, and politicians fight for votes over how best to do that.
But a new vision emerged in the 1960s and 1970s, peddled by economists, intellectuals and corporate consultants, an argument that certain inevitable economic rules dictate what is and isn’t possible. This philosophy came to be known as neoliberalism, and the premise is that “globalization and technology” were giant uncontrollable forces instead of a set of policy choices made by human beings.
Such a philosophy was cover for private financiers and monopolists gaining power over markets, but it seemed plausible at the time, when postwar abundance and public unions seemed to balance out any forms of corporate overreach. When UK Prime Minister Margaret Thatcher restructured Great Britain, she used the phrase, “There is no alternative” to describe why her policy victory was inevitable. And while the energy for this agenda came from the right, the left mostly agreed. Famous socialist John Kenneth Galbraith, for instance, wrote that “man’s area of decision-making is vanishingly small,” because once a society became industrialized, policy is irrelevant and all societies come to have a “broadly similar result” in how they are organized. Corporations just consolidate, and human agency is irrelevant to that inevitable fate.
This philosophy, in its right and left versions, guided the thinking of both parties in the 1980s, and a new generation of politicians emerged to redefine what politics was. No longer was it even conceivable that elected leaders might help address corporate power, that just wasn’t the job. By the 1990s Bill Clinton was centering his Presidency on bullshit themes like “Bridge to the 21st Century,” and millionaire political consultants were baffled as to why voters were apathetic and turning towards bitter cultural questions. Anyone sitting in a messaging meeting during a political campaign knows what I mean, there was just a detachment from real life.
When Joe Biden got elected, I was not expecting him to break from this tradition. Just before he won, I described Biden as a ‘mild populist’ who did not like elitism, but also as a man with no firm philosophy. So far, and to virtually everyone’s surprise, Biden has governed more like Harry Truman than Bill Clinton. Gone is the powerlessness in the face of titanic forces, and back is the core view that delivering for people is the point of politics.
This week, Biden gave a State of the Union making it clear that his populist policy choices are not an accident, but the centerpiece of what he’s trying to do. And his speech used a Patman-style tradition of having politicians discuss what normal people care about. I’ll go over some of the details in the speech, but just to give you a sense of what I mean, here’s Senator Chris Murphy, after the speech, noting that Biden essentially said “Ticketmaster sucks.”
Are crappy fees from Ticketmaster the most pressing problem in America? No. But they are actually a problem that most people know about, and these junk fees symbolize the out-of-control monopolies corrupting our society. Normal people get what Biden was discussing, just like in the 1950s they understood things like roads, electricity, and telephone service.
Now, does a speech by a politician really truly matter? The answer in this case is, yes, it does. The State of the Union isn’t just an hour on prime time where the networks show the President, it’s an entire production, a six-month project by every part of government to brag about what they’ve done, to seek more authority or funding, or to just be noticed. It’s a way for political advisors of the President to set an agenda, and for advocates and lobbyists to see who is up and who is down in the policy pecking order. Most importantly, it’s how the President tells the government and his party not just what his priorities are, but how he understands the point of politics.
And that’s why I was completely stunned at what Biden said, and how he said it. I knew there was going to be some monopoly-related stuff in the speech, there had been leaks that Biden would mention Big Tech and privacy, for instance. But what I didn’t realize is that the entire speech would be framed around the need to restore populist government, to place controls on powerful corporations, and to re-shore production.
To see if I was imagining things, I went back and read a few old State of the Union speeches by Bill Clinton and Barack Obama. I chose the third year of the Presidency for each, to do an apples to apples comparison. And what I found was that Biden’s accomplishments and his rhetoric were wildly different from his predecessors. In 1995, Bill Clinton centered his speech on what he called a “New Covenant,” which largely meant cutting government. He bragged about eliminating $250 billion of spending, removing 100,000 jobs from the public sector, and making the Federal Government “the smallest it has been since John Kennedy was President.” He sought tax cuts, a bailout for American banks in Mexico, and an attack on “our failed welfare system.”
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Obama, in 2011, echoed similar themes, focusing on the deficit and reducing the size of government. Like Clinton, he discussed how Americans were struggling, but gave as an antidote the notion that the government should help fund a bit more higher education, as part of out-competing the rest of the world and making “America the best place on Earth to do business.” There was some rhetoric around infrastructure spending in both speeches, but basically, the villain for both Clinton and Obama was slothful government, or vague bad values Americans expressed towards each other.
To say that Biden changed this framework is to dramatically understate the matter - his speech started with a discussion of the government bringing back semiconductor manufacturing to the U.S., and capping insulin prices charged by “Big Pharma” at $35/month for seniors. Banning non-competes got a shout-out, as did competition in hearing aids, unionization laws, domestic production subsidies, and bans on hidden fees charged by banks, hotels, airlines, and Ticketmaster. There was no apologia for government, and the villain was big business and monopoly, from nearly start to finish. He mentioned the need for stronger antitrust laws against big tech, the first time antitrust has been in a State of the Union speech since 1979.
The way to understand political arguments isn’t about who wins the debate. It’s about who gets to ask the question. If the President proposes something about flag burning, then politics becomes defined around what people think of flag burning. If he discusses big business, then big business becomes the realm of political activity. So what Biden said in his State of the Union mattered, because it told the Democratic Party establishment what to think about.
On CNN and MSNBC, for the first time, the Democratic establishment discussed market power as if it’s a normal part of politics. David Leonhardt at the New York Times wrote up the junk fee problem, and CNN’s Van Jones and journalist Carl Hulse discussed how annoying fees are that are being tacked onto everything. It was sort of remarkable that for the first time in my memory, the political people on TV actually sounded like normal human beings. No one was saying that globalization and technology meant Ticketmaster had to do what it was doing or that it was all inevitable, or trying to define “Bridge to the 21st Century,” as if that’s a thing. They were just annoyed at being nickel and dimed.
Another way to understand the speech is to see who was infuriated. CNBC types were outraged, and the Wall Street Journal editorial page writers predictably had their aneurysms. More specifically, Airlines for America, the airline lobbying group, got angry that the President cited airline fees as ‘junk.’ Similarly, the President & CEO of the Consumer Bankers Association, Lindsey Johnson, made a video attacking the notion of limiting bank overdraft and credit card late fees.
Wall Street Democrats were frustrated as well. Steve Rattner, an Obama administration official and the current manager of Michael Bloomberg’s $75 billion fortune, attacked Biden’s plan to tax stock buybacks as “the dumbest idea of the year,” as “buybacks are actually good — the $ shareholders receive gets recycled into other, potentially more productive investments.”
These are all the people you want to be mad, if the goal is to make the country work reasonably well again. We’ll see how far Biden takes his populism. There are reasons for skepticism, namely the entire government has been run for four decades as if being slightly disrespectful to a Wall Street banker will cause bridges to collapse everywhere. Civil servants, understandably, have been trained to be wary of restructuring markets. But it’s shocking that Biden has taken us where he has. It feels both radical, and strangely quite normal.
Is the Microsoft-Activision Merger Falling Apart?
The morning after the State of the Union, the UK’s Competition and Markets Authority told Microsoft that it has to either abandon or seriously rework its proposed $69 billion acquisition of gaming publisher Activision.
The CMA argued that Microsoft has an incentive to make games exclusive to its own platforms, and Activision - particularly because of its control of the Call of Duty franchise - is an important game publisher. More interestingly, this case seems to be less about consoles and more about cloud gaming services, which is how gaming will happen in the future. People will play games on whatever device they have, and the computing will happen elsewhere. Microsoft has 60-70% of the market in that area, and the CMA believes this acquisition will cement its dominance. Like the Meta-Within acquisition, this case is about preventing monopoly in a market that isn’t a big deal now, but is poised to become important.
The CMA’s move follows on the EU Competition Authority offering its own ‘Statement of Objections’ to the merger. Unlike in the U.S., courts in Europe and the UK play a much smaller role in merger challenges. Over the next few weeks, Microsoft will respond to regulatory concerns with proposed changes to the merger. If they don’t satisfy the CMA and EU, the merger will be blocked. There’s an appeal process, but it’s not easy.
So now, the American, European, and British enforcers have all said that this merger is highly problematic or should not go through. Just a few years ago, the near collapse of the biggest merger of the year would have been a massive story. But there’s an endless amount of populist policy coming from the Biden administration, so this kind of action has become normalized.
For instance, just this week, there was not only the State of the Union, but CFPB Director Rohit Chopra banned pay-to-play arrangements in digital comparison mortgage and finance websites, the Antitrust Division blocked a merger in the seamless tubing and production casing industry for oil pipelines, and enforcers withdrew three policy guides allowing health care middlemen to collude with one another.
Nevertheless, the coming apart of the Microsoft-Activision merger isn’t a small deal. Antitrust is impacting policy in unseen ways; the head of Apple’s product design team just let it slip that the iPhone is being redesigned to be more repairable. I doubt Apple would admit it’s because of American and global scrutiny around the ‘right to repair,’ but that’s clearly what’s happening. Similarly, the mergers and acquisitions game has changed, with dealmakers expecting “deep antitrust scrutiny because that's just how things now work” on transactions that used to go through without a hitch. Maybe that’s one reason mergers in the U.S. are down 76% year to date. It’s not the only reason; financing arrangements have changed.
But the environment for monopolies, both domestically and abroad, is getting more and more inhospitable.
What I’m Reading
Major Tech Vendor Contractors Use Monopolistic Lock-in to Drive Revenue, FedScoop
Coinbase Drops Most Since July as SEC Cracks Down on Crypto Staking, Bloomberg
Intermodal truckers secure win against ocean carriers, FreightWaves
How the Harvard Kennedy School Abandoned America, City Life
Nowadays, the school is less of a pipeline to Washington than it is a feeder for McKinsey & Company and Boston Consulting Group—a major reason why HKS isn’t exactly helping to untangle the partisan knot in DC.
Apple blundered when it killed off Dark Sky, Financial Times
Gov. Shapiro wants Pennsylvania pension funds to ditch Wall Street money managers, Philadelphia Inquirer
How Fake Companies are Stealing Millions from YouTubers
Private Equity’s Loved Assets Turn Problem Children in Downturn, Bloomberg
“They love their assets like their children, they really don’t want to write down those assets,” she said. “They are also fundraising, so it’s not really going to help them to write down those assets.”
Fear and Loathing Among the Union Busters, The Lever
FTC Noncompete Proposal Breathes New Life Into Lawmaker Efforts, Bloomberg
Senator Todd Young: “I think the FTC’s actions helped generate a lot of interest around the topic, and there are a number of members of Congress who question the legality of their actions. So in conjunction with continuing conversations about the FTC’s actions, I think legislative proposals will be entertained.”
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Go full meritocratic & back to the people by restoring patents to pre-1995 standards, before the initial deform under “harmonization”. Antitrust comes after the harm has been done. Strong, first to invent, secret prosecution type patents are inherently anti-monopoly and give inventors and SMEs leverage to challenge incumbent and typically non-innovative companies. Until innovating is cheaper than lobbying, as it was with patents between 1952-1995, our industrial policy will lag and creatives will suffer.
Yup. Biden sounded a lot more like LBJ, HST, JFK or FDR than either Clinton or Obama. As I prepare to turn 65 my baby boomer friends liked it too. One of the more consequential SOTU's. Right now the Democratic nomination process looks settled while the GOP has stolen our usual circular firing squad. Democratic fortunes are as tied to medical science as political science.