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Against Bigness? Begin By Breaking Up Big Tech

The Curse of Bigness: Antitrust in the New Gilded Age, Tim Wu, Columbia Global Reports, 154 pages [1]

A new class of monopolists has arisen and a second gilded age is upon us. So argues Tim Wu, a professor at Columbia Law School, in The Curse of Bigness: Antitrust in the New Gilded Age.

In the brief and breezy volume, Wu aims to remind his readers of the United States’s robust anti-monopoly tradition, and attempts to recover and update the nation’s antitrust laws, which he argues are the classic antidote to bigness.    

He does so by invoking the rhetoric and actions of Presidents Theodore Roosevelt, William Howard Taft, and Woodrow Wilson, and the political economic insights of Louis D. Brandeis. A former Supreme Court justice, Brandeis is known primarily as a staunch defender of civil liberties. Yet Wu believes that his most important contributions to American life have tragically been forgotten.

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“What Brandeis really cared about,” Wu writes, “was the economic conditions under which life is lived, and the effects of the economy on one’s character and on the nation’s soul.”

At the core of Brandeis’s political economic thought was a distrust of bigness in all of its forms, and a belief that both public and private actors could become autocratic and ultimately detrimental to individual and communal flourishing. He believed that great economic power results in immense political power, which, when combined with lax campaign finance laws, pollutes democratic governance.

With these guiding principles, Brandeis and the aforementioned politicians devised legislation and institutions intended to structure the American marketplace in such a manner as to prevent a single firm, or a small handful of firms, from obtaining enough market power to crush its smaller competitors with anti-competitive practices. This included the Clayton Antitrust Act of 1914—which bolstered the Sherman Antitrust Law of 1890—the formation of the Federal Trade Commission and Federal Reserve System, and the passage of the Robinson-Patman Act of 1936.

Vigilant enforcement of these anti-monopoly laws and traditions once garnered bipartisan support. But beginning in the 1960s, economists most closely affiliated with the University of Chicago—chief among them Robert Bork [2]—began to articulate an alternative theory of antitrust enforcement. Rather than addressing structural concerns of market power, Bork and others argued that the “only legitimate goal of antitrust is the maximization of consumer welfare” which ought be measured solely on the basis of price. Lower prices meant a better consumer experience, so Bork claimed that mergers should be encouraged (rather than discouraged) since large businesses could exploit economies of scale, increase efficiency, and deliver cheaper goods to market. The Chicago School’s theory of enforcement slowly trickled into the courts and was subsequently codified by the Federal Trade Commission in its 1982 merger guidelines.

Waves of megamergers followed, and we have since seen a return of immense industrial concentration. The Big Tech firms of Amazon (internet retail and cloud computing), Facebook (digital advertising), and Google (search engines, digital advertising, and the flow of information) are obvious offenders. But our age of monopolization is not limited to oversized tech firms. As new data [3] released this week by the Open Markets Institute makes clear, industry after industry has become increasingly concentrated in recent decades.

Indeed, from meat processing [4] to mobile home manufacturing [5] and cell phone providers [6], the story is one of concentration. Four companies control 73 percent of the domestic airline [7] market; two companies control 78 percent of the American corn seed [8] market; three companies make nearly 90 percent of all pacemakers [9]. With four firms controlling almost 90 percent of the baby formula market [10] and two firms manufacturing almost 80 percent of coffins and caskets [11], it is no exaggeration to say that Americans confront economic concentration from the cradle to the grave.

Not only does such concentration sometimes fail on the consumer welfare standard’s own merits (prices can in fact go up absent competition), there are, in Wu’s estimation, a host of other consequences. These include the concentration of wealth into fewer and fewer hands, a growing gap between the rich and poor, the collapse of the middle class, an erosion of the democratic process, the corrosion of republican virtues, and the subsequent backlash against our political system from populist movements on both the Left and the Right.

The Curse of Bigness is not a technical book of economics (there is but a single chart throughout). It is instead a brief diagnosis of our monopolized moment and an eloquent articulation of principles that Wu believes can lead us into an era of shared prosperity, economic and political independence, and, in the words of Brandeis, “the right to live, and not merely to exist.”

My conversation with Wu has been edited for length and clarity.

♦♦♦

Daniel Kishi: One of the themes of your book is an attempt to re-politicize economics or, perhaps to put it another way, to make political economy great again. Particularly, you chafe at the trend of developing public policy (antitrust law, specifically) on exclusively and narrowly defined economic grounds. What do you mean by “political economy” and why do you think that the political content of economics should be reemphasized?

Tim Wu: I think we have to understand a distinction between a small-p politics and a big-p politics. So I’m not talking about an antitrust law where you pick enemies or choose one’s favorite or decide who you’re going to enforce the law against on narrowly political grounds. What I do mean is an antitrust law which has behind it the idea that there is a threat to the constitutional balance of power from too much monopoly, too much unaccountable private power. And that when you bring a case, and the case still has to be brought on economic grounds, one of the understandings of why you’re bringing the case is that you’re concerned about the effects of monopoly in a democracy, and have an appreciation of the importance of declaring that the citizen and the elected representatives are superior or sovereign over their country.

Kishi: This proper understanding of political economy, as you make clear in your book, undergirds the thinking of Supreme Court Justice Louis D. Brandeis. You write that Brandeis “distrusted big government almost as much as big business” and believed that “concentrated power in any form is dangerous, that institutions should be built to human scale, and society should pursue human ends.” These principles strike me as fundamentally small-c conservative insights. Would you agree?

Wu: Yeah, I mean you can call it conservative. I’m interested in the individual and the flourishing of individuals, and I think Brandeis was too. I think a lot of how life is lived is to what degree you have control of your own destiny and I believe that big government and big business can in fact both be threats to human freedom. I just think its an approach that takes the individual seriously, and sees the flourishing of citizens in a republic as important.   

Kishi: In addition to the rhetoric and actions of trustbusters like Presidents Theodore Roosevelt, you invoke a 1978 law review article by Robert Pitofsky titled “The Political Content of Antitrust [12]” in which he argues that “excessive concentration of economic power will breed antidemocratic political pressures.” Can you explain what he means by that?

Wu: Pitosfky had in mind the experiences of Western Europe over the 20th century. It was broadly observed by many that there was a union between the fascist governments and their industrial monopolists. Pitosfky said in that piece that you tend to see a correlation of democracy and competitive economies, and dictatorships with concentrated, monopolized economies. We have to ask whether these things are related.

The Germany example I think carried a lot of weight in the post-World War II era. They witnessed that Germany had no antitrust law, that they had allowed consolidation of their chemical industries, their infrastructure industries, their armament industries into monopolies, and observed that those monopolists had flung their support behind Hitler at crucial periods and had ultimately become unified into a German industrial and military state.

I think that example was very chilling and motivated many people, even President Eisenhower, to warn about the dangers of democracy from excessive monopolization of the economy. And I think the logic makes sense. It’s a concentration of a form of power, and monopolists, not unlike dictators, are not interested in democratic accountability or scrutiny. They prefer unaccountability. There’s a natural alignment of interests between a dictator and a monopolist to support each other and insulate each other from scrutiny.

So I think there’s something to be learned there. Obviously I don’t think we’re exactly where things were in Germany in the 1930s, but I think, as the old saying goes, those that forget history are doomed to repeat it.

Kishi: Besides a reinvigorated enforcement of antitrust law along Brandeisian lines, what other mechanisms might be used to curtail the excesses of concentrated economic power?

Wu: We need a campaign to break the power of the monopolies, and have that become part of the American program. It was for much of the 20th century. I don’t want to overstate this, but many of the other democracies found themselves succumbing to dictatorship, rebellions, and fascist and communist takeovers. The United States and Britain were among the democracies that weathered those storms, and I think our concern over concentrated private power had something to do with it.

And I should say the campaign deserves bipartisan support. The history of this is not a history of the Left and the Right. As I write in the book, it was Theodore Roosevelt who began the trustbusting campaigns. It was widely understood, particularly in the postwar era, as not being a left- or right-wing issue, but as something important to the country to keep a check and oversight on monopoly.

Kishi: Critics of the so-called Neo-Brandeisian school—most notably Robert D. Atkinson and Michael Lind in their recent book titled Big is Beautiful [13]—argue that there are in fact many benefits to scale. Particularly, they believe that the Big Tech firms ought not be opposed, but should instead be embraced as pillars of a 21st-century industrial policy. Do you think this line of argument has merit? Would breaking up Facebook, Google, and Amazon put the United States at a competitive disadvantage in a globalized economy?

Wu: Yeah, so I profoundly disagree with that perspective, as you might expect. I do accept and understand that there are advantages to scale, but there is a point where the advantages of scale run out. There are disadvantages to scale, and I think there’s a difference between scale and monopoly.

When we’re talking about international competitiveness, there’s an argument that suggests we shouldn’t interfere too much with Facebook or Google because they are our champions in facing Chinese competition, and if we hurt our companies at home then how are they going to take on their Chinese rivals? I’m not a believer in national champion-style industrial policy. I don’t think that it has a good track record. In the 1970s and 1980s, people saw Japan as a rising threat. You might have said we should leave AT&T and IBM alone because we need them to fight off our Japanese rivals. But I think it was good to break up AT&T, good to challenge IBM, and that the American tech and computer industries, even though they went through a lot of turmoil during that period, ultimately emerged incredibly stronger from the antitrust actions and breakups. That coupled with the action against Microsoft helped us ensure a generation of American supremacy in tech. Frankly, the fact that Japan never took on their monopolists ended up hurting them.

I think that we’re in the same situation with China today. China is clearly sporting a national champion policy. It seems to have short-term advantages, but I think the better strategy is to force your companies to face the fires of competition at home to make them better companies. It’s almost form of protectionism, a coddling of big companies, when I think we should make it as easy as possible to encourage the big companies to be challenged by newer rivals.

Kishi: In a recent interview [14] with Axios, President Donald Trump said that his administration was looking into potential violations of antitrust law from the Big Tech firms. Are you optimistic that the Trump administration is seriously considering more rigorous enforcement of antitrust law?

Wu: Yes, I am. But I think it needs to happen for the right reasons. I am concerned about the idea of a Trumpian enemies list driving antitrust policy. But I do think this administration should bring a big case.

Kishi: What do you think the big case should be?

Wu: I don’t have any special information, but I think the most straightforward case is probably the breakup of Facebook. I think you could bring a case to undo the acquisitions of Instagram and Whatsapp. It would create three competitors in the immediate space, and I don’t think the sky would fall in if you brought that kind of case. I think Facebook has shown signs of trying to immunize itself from political oversight and to me that suggests that they don’t listen to other forms of oversight and regulation, so I think it would be an appropriate target.

Kishi: Other than the president, do you see any evidence that Republican politicians and lawmakers are willing to more critically examine the current orthodoxy of antitrust enforcement?

Wu: Yes, I do. Senator Orrin Hatch recently gave a speech on the point of antitrust in the American system. There’s a number of Republican politicians who express a sense that antitrust law should be enforced. As I said, I think that there was time when it was understood to be part of the American order, and frankly part of the American constitutional order, that this is a country that wants to be a place where you can get your start, and that no one is above economic or political challenge.

The Republican Party is also facing, and has already in some ways listened to, a lot of anger in the middle class about their economic destiny. Some of this has gone towards trade policy and some of it towards immigration policy, but I think some of it should be directed towards antitrust policy and a reinvigoration of the antitrust traditions. So yes, I think the Republican Party is in an examination of their own values and that things are in flux.

Daniel Kishi is associate editor of The American Conservative. Follow him on Twitter @DanielMKishi [15].

7 Comments (Open | Close)

7 Comments To "Against Bigness? Begin By Breaking Up Big Tech"

#1 Comment By Peter On November 27, 2018 @ 10:03 pm

I think defining companies like amazon and Facebook as monopolies will not work pile they think.

Because first they are not monopolies. Instagram is a different vertical than Facebook. Same with amazon, they have competitors (overstock).

If anything they should be looking at companies like Comcast who push legislators to block incumbents. If that isn’t in the conversation this is just targeting tech companies because they are successful.

#2 Comment By grumpy realist On November 28, 2018 @ 7:20 am

I suspect that Trump and the Republican Party will be happy to push any anti-trust activity which breaks down any company sector which is seen to be “liberal” and “an enemy”. So I suspect attacks against Silicon Valley, anything Jeff Bezos is involved in, and against “mainstream media” (notwithstanding that the last are trying to keep their heads above water.) Anti-trust activity on the part of oil and gas companies, the Koch brothers, and any billionaire who donates sufficiently to the Republican party will be carefully ignored.

#3 Comment By Louism On November 28, 2018 @ 10:38 am

Its not just BigTech that needs to be broken up.

All media is controlled by 8 media conglomerates and that oligarchy needs to be broken up.

The big Banks and Big Finance needs to be broken up too.

One of the great hopes for Trump was not just renegotiating Trade to restore the working class but there are some industries like media and banking to name a few. Our domestic industries need to be broken up and returned from wall street focus to a local focus.

#4 Comment By Ken T On November 28, 2018 @ 11:36 am

grumpy realist –

You beat me to it. I have to laugh at how conservatives are suddenly rediscovering the value of antitrust laws (after 100 years of opposition to them) now that they believe that some large corporations are supporting liberal positions. And the author gives it away right in the title: “Begin by breaking up Big Tech”. How very selective.

#5 Comment By Chris in Appalachia On November 28, 2018 @ 12:20 pm

Agree with Wu. It takes so little brainpower and inductive reasoning to look around and see that monopolies pervert democracy. It’s simple: concentrated wealth turns into concentrated power at the expense of the masses. This has happened since forever, but I thought America was supposed to be different. Silly me.

#6 Comment By thesnark On November 28, 2018 @ 3:06 pm

There are two separate issues here.

One is the classic anti-trust issue that large telecom firms like Comcast and Verizon are effective local monopolies, or at least oligopolies. They overcharge for their mediocre services, and get away with it because they can.

The large tech firms are similar and different. On a classical anti-trust basis they are also quasi-monopolies who, while offering free services to their users, are also using the market position to gouge their real customers, the companies that buy advertising from them.

However, the tech firms have also come to dominate the dissemination of news (google news) and social interactions (facebook, twitter, etc). That gives them an immense amount of political and social power. It is only in the last few years that the tech firms (and we) have become conscious of their immense power, impact, and potential for abuse. So far nobody, even the tech firms themselves, has come up with a way to control that.

#7 Comment By Phil On November 28, 2018 @ 4:15 pm

We’re having second thoughts about turning the clocks back to the 19th Century? Amazing.