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The Secret Plot To Unleash Corporate Power
In 1980, conspirators launched a secret plot to get rid of antitrust law. It worked. Now enforcers are asking for help from you and me to restore the law. Let's give it to them.
Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…
In today’s issue, I have something for you to do that will have a real impact on antitrust and monopoly power. I’ll tell you about a secret plan in 1980 that unleashed corporate power, and how that plan has worked over the last forty plus years. Then I’ll describe what’s happening today, and how key antitrust enforcers Lina Khan and Jonathan Kanter are trying, for the first time, to reverse course. And they are asking for your help, which will take nothing more than a few minutes on your computer.
Time to Have an Impact
I’ve been writing about antitrust for a few years now, exposing various problems with mergers or unfair conduct in the marketplace. One of my first pieces that went viral was The Coming Boeing Bailout, which was on how the merger between Boeing and McDonnell-Douglas led to the 737 Max fiasco. Bad mergers that lead to market power are behind so many social problems, in areas like big tech, but also in niche industries like missiles, cheerleading, portable toilets, road salt, and mixed martial arts.
But I often hear a comment or question that goes something like this. “I agree with you that consolidation is a problem. What can I do to help?”
Well, today I’m going to answer that question. A few months ago, the Federal Trade Commission Chair Lina Khan and the Antitrust Division chief Jonathan Kanter launched a project to revamp how the government enforces antitrust law. Usually, this process would be the province of economists and insiders, who would ignore the public’s views on big business. But Khan and Kanter, for reasons I’ll go into, aren’t pursuing this path. Instead, they are actually asking the public, aka you and me, for feedback. This process, and their request to the public, is a big deal.
So if you want to help stop monopoly power, you can submit a comment to the government telling them what you think about mergers. My organization has set up a webpage to help you do that, which you can access at this link. Go there, and tell the government what you think about how they conduct merger policy. The deadline is April 21, so that’s in a week and a half. You can submit anonymously as well (though you’ll have to do that at the FTC/DOJ site directly, which is a bit harder to use). So if you’re worried about retaliation, just do it without your name attached.
If you have thoughts on mergers, if you've been through one, or bought products from a company that merged or if you just want to say ‘no more power to big business,’ go ahead and use this link to send them your thoughts. Are you mad about ski resort consolidation? Rental cars? Have you been laid off after going through a merger? Been forced to sell your company? Seen obvious inefficiencies after a merger? Been mistreated by a tech platform? They want to hear it. (If you want to read comments that people have already submitted, you can find them here.)
Here’s why doing this matters. Forty years ago, the antitrust insiders launched a secret plan to get rid of anti-monopoly law. Their plan worked. And this is the first real attempt to fight back.
The Secret Plot to Unleash Monopoly Power
There aren’t that many actual conspiracies in politics, but this is a real one. In 1980, influential thinkers advising the incoming Reagan administration were trying to figure out how to repeal antitrust laws and unleash unfettered monopoly power. They realized that repealing the law outright would be unpopular, and that Congress wouldn’t like it. So they decided to repeal the antitrust laws, de facto, by doing it quietly through administrative action.
Here’s a memo that a researcher at my organization found in the Reagan library. It’s titled “Throttling Back on Antitrust: A Practical Proposal for Deregulation.” In it, two important Chicago Schoolers, George Stigler and Richard Posner, made the case that Reagan could get rid of antitrust law if his Antitrust chief just stopped bringing cases. But to do that, they would need a policy change in an obscure document known as ‘merger guidelines’ that organize antitrust enforcement.
Here’s the key text in the memo.
President Reagan can throttle back on antitrust enforcement without asking for new legislation or higher appropriations without antagonizing politically influential constituencies.
He has only to appoint as Assistant Attorney General in charge of the Antitrust Division of the Department of Justice a lawyer committed to enforcing the antitrust laws in accordance with the economic consensus position, i.e., confining enforcement to price fixing and large horizontal mergers. The head of the Antitrust Division could promptly (a) issue modified Merger Guidelines (the Guidelines issued in 1968, during the Johnson Administration, have never been revised), raising the threshold market share percentages at which the Department will challenge horizontal mergers and abolishing the vertical and conglomerate prohibitions in the Guidelines; (b) announce his willingness to intervene in FTC and private cases where the position of the plaintiff is contrary to sound antitrust principles; and (c) stop the automatic annual increases in the Antitrust Division's bloated appropriations.
In other words, they simply needed to rewrite how antitrust was enforced, instead of getting the statute repealed. This would include abolishing prohibitions against most mergers, and then making challenges against all but the extremely obviously bad ones impossible. The DOJ would also cut its own funding over time, and try to intervene in courts to stop private antitrust suits.
But wouldn’t the courts be upset, and demand that the DOJ follow precedent? In fact, no. Stigler and Posner believed that the DOJ could change the law, as “many courts would probably defer to the announced positions of the Justice Department, viewed as a responsible enforcer of the antitrust laws.” All they needed was the right Antitrust chief.
Enter Bill Baxter, an honest man, but a true believer in the new Chicago School of law and economics.
Baxter was a Stanford professor, but also a total zealot in favor of getting rid of traditional constraints on monopolists. Though he was charged with enforcing the laws as written, he simply refused to do that. He called Supreme Court decisions mandating strong antitrust rules “rubbish” and “wacko,” and circulated a memo in the department calling one such precedent “idiocy.” He empowered economists at DOJ to veto cases, and these economists quickly became known as “case killers.” All of this caused blowback in Congress, but as predicted by Stigler and Posner, conservative Senator Strom Thurmond among others prevented Congress from checking Baxter.
In 1982, Baxter came out with new merger guidelines that completely changed how the Antitrust Division worked. The agencies stopped enforcing against most mergers, and eventually revised the guidelines several more times weakening them further. The effect of Baxter’s choices were catalytic in the economy. Here’s a chart of what happened in the mergers and acquisitions world as a result.
Mergers and acquisitions became so important that they came into culture in a big way, becoming the the basis of the popular 1987 movie Wall Street, which coined the memorable phrase ‘Greed is good' that characterized the 1980s.
But this wasn’t just a 1980s problem. Bill Clinton, George W. Bush, Barack Obama, and Donald Trump all continued the framework Baxter laid out, and over the next forty years there were successive merger waves to consolidate nearly every nook and cranny of American commerce.
Hence, there are now problems caused by corporate concentration everywhere, from Live Nation to Dollar Thrifty to Google and through our food system. America became a nation controlled by billionaires. And every subsequent bailout or financial boom was used for, among other things, mergers, up to and including the present day. Here, for instance, a chart of mergers that occurred because of the CARES Act, which was the bailout during Covid.
The Happy Ending
The good news is that both sides of the aisle have had it with this ‘greed is good’ mentality. Here, for instance, is Laura Ingraham on Fox News last week demanding Disney and Apple be broken up because of their social power.
Newly appointed antitrust enforcers Khan and Kanter have decided to take a playbook from Reagan, and are rewriting the merger guidelines, but in reverse. They are trying to enforce the law, not get rid of it. The reason your comments matter is because the new guidelines will be attacked in the courts, and judges are going to want to make sure that they are based on real input. Lots of lobbyists and economists have already submitted comments, but Khan and Kanter want to hear from ordinary people, consumers, workers, farmers, businesspeople, engineers, and so forth. There are just 300 comments in the docket, so your voice will carry weight.
So go ahead and submit your thoughts on the right way to address mergers through this form. (If you are a lawyer or are very interested in the technical areas, you can actually look at the much more complex agency request for information. It includes a host of questions on points of history, market definition, economics, and law. And you can go through and answer any and all of them.)
In the meantime, I picked a few comments at random, so you can see what people are saying. Here’s BIG reader Jacob Lentz:
I am a practicing Emergency Physician who works in rural Minnesota. I take care of working class folks who have a huge amount of common sense and do important jobs like fixing things I don't understanding and growing food that feeds America. Repeatedly I have seen how "private equity" and corporate ownership of practice groups, ambulance companies, and even hospitals hurts these decent people. They inflate costs for the sake of profit (because the only value that is taught in business schools, it seems, is "shareholder value") to the point where patients refuse critical admission and transport because they know they are going to get stuck with a bill that might bankrupt them.
This one is from an anonymous retailer.
Please look into the ag-fertilizer monopolies. I am an ag retailer in the midwest and have only 2 suppliers of UAN for our area. They price their products the same and control the market. It is hurting our farmers and ag retailers. They control when we can buy it and how much we as retailers can buy. There are no price protections when the price has gone from buying 32% at $180 last year to $620/ton this year. Since I have to prepay for the product before receiving it, the amount of money I need to pay for it takes a toll on my credit line, interest costs, and then also have to pass this onto my growers. Then the price goes down and now I am stuck with high price product and the manufacturer has no risk.
And here’s Robert Fischer, offering a pretty clear suggestion.
The simplest way to maintain competition is having rules based on the acquirer's Market Capitalization. Investors are not dumb - if the market capitalization is very high, investors understand the entity already has significant competitive advantages. If the competition of a proposed merger is to compete against *larger* companies, then a merger may have merit. An example is Salesforce buying Slack to compete against Microsoft Teams and Google Workspace, versus Amazon buying Kiva systems and then shuttering its offering to outsiders.
And an anonymous event planner.
The hotel and resort industry has experienced significant merger and acquisition activity over the last decade. The result has been reduced competition, and increased prices, especially for business related to conferences and events. I work for an organization that negotiates for hotel/resort events, and the lawyer from the parent brand (Marriott) forces all hotel sub-brands to enforce the same language on things that are detrimental to those trying to book events. As an example, the hotel operators will not accept language which allows an event to be cancelled without penalty to the booking party. It's one-sided language and event planners have no choice if they want to use the facilities.
So that’s how you can help. Tell your government what you want from your government.
Oh, and if you do file something, put it in the comments of this post, or send it my way so I can read it. I might share some of the more interesting ones with BIG readers in a follow-up issue.
“Economics is losing authority in the political arena”
Last week, one of the key architects behind deregulation, Phil Gramm, attacked me in the Wall Street Journal, in a piece titled “The New Progressives Fight Against Consumer Welfare.” Gramm, who co-authored the article with FTC Commissioner Christine Wilson, argued that our movement is trying to undo forty years of bipartisan status quo, and that we don’t believe that economics is “a value-neutral discipline that guides sound decision-making.” Uh, yeah. To make this point, he cited this article in BIG, “What is the point of economics?” Thanks for the shout-out, Phil!
The anger from the old guard is just astonishing. Here’s Wilson, yesterday, discussing our movement.
“Despise the rule of law” is a bit, well, unhinged.
Meanwhile, Baron, a small but savvy lobbying shop came out with a methodology for how antitrust works today, and who matters in policy debates. Four of the top ten “Antitrust Super Influencers” are explicitly seeking to break up big firms, which is astonishing. More importantly, the power of economists is waning. The BIG piece on corporate profits and inflation was also cited in a House hearing on how to address the price hikes coursing throughout the economy.
We haven’t won, but the old ‘big is good’ consensus is dead.
Thanks for reading!
And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.