A Simple Thing Biden Can Do to Reset America
Break up and regulate big tech by appointing Rohit Chopra to run the Federal Trade Commission.
|Matt Stoller||Jan 11||52||56|
Welcome to BIG, a newsletter about the politics of monopoly and finance. If you’d like to sign up, you can do so here. Or just read on…
Today I’m going to write about what Joe Biden needs to do to reset the American republic in the wake of the Capitol hill riots. The most important step is to fix the rules of our commerce. That starts by appointing a strong regulator to head the Federal Trade Commission, the agency with authority over social media. After that essay, I have a few paragraphs on the removal of conservatives and Trump from Silicon Valley platforms.
“An Extremely Online Riot”
The riot inside Congress last week is going to be with us for a long time, in terms of reaction and policy response. While we can lay responsibility on Donald Trump’s doorstep for inciting the violent behavior, he himself did not participate in the riot itself, nor did he pay for people to come to D.C. to be a part of it. Trump can channel the anger of large numbers of alienated people, but the anger and paranoia exists independently of him, even though he uses this rage for his own purposes. And even when Trump is gone, these angry people will remain in our society.
So who are they? Some are opportunists who flew private jets to D.C. to break windows, others are far-right racists flying Confederate flags, and a few are just normal Republican activists and officeholders choosing to indulge an anti-democratic violent fantasy. But many in what CNN’s Brian Stelter called an Extremely Online riot are middle or lower middle class people who found their way to radicalism through social media. The one who has been profiled in depth is Ashli Babbitt, a woman who died from a gunshot wound as she tried to climb into the Speaker’s lobby. In tracing her life, I think there are some lessons about what we can do to stop the polarization and radicalization of our society.
According to the New York Times, Babbitt was a 35 year-old woman from California who spent 14 years serving in the U.S. Air Force, deploying to both Iraq and Afghanistan. The U.S. government sent Babbitt abroad eight times, and though not every time was in a combat zone, such repeated deployments into violent areas tend to cause brain damage.
After her time at war, Babbitt had a modest propensity for violence, threatening a rival love interest by rear ending her with a car in 2016. She married, and bought a small business with her husband, a pool supply company called Fowlers Pool Service and Supply. There she ran into commercial problems common to small businesses these days. The pool business isn’t a good one, dominated as it is by monopoly pool supply distributor Pool Corp. (The FTC settled with Pool Corp in 2011 over a predatory practice called ‘exclusive dealing.’ This settlement clearly failed, as Pool Corp was bragging to investors earlier this year that one of its competitive advantages was “exclusive products.”)
Fowlers Pool Service and Supply predictably ran into trouble. So Babbitt took out what was known as a “merchant cash advance” from a company called EBF Partners, which she calculated charged her an interest rate of 169%. She quickly defaulted, and was embroiled in a lawsuit. Her lawyers argued that her lender had cheated her with too high of an interest rate. She lost, as “courts have held that such arrangements don’t amount to loans and are not bound by usury laws.” According to her brother, her politics weren’t particularly unusual, she was frustrated with homelessness in San Diego, and how hard it was to run a business. And then she got more into politics through social media, and then into QAnon.
So here’s the profile of a rioter, a working class person who went overseas eight times in military service, including two combat zones, who then tried her hand at a small business where financial predators and monopolists lurked. She then fell in with conspiratorial social media, and turned into a violent rioter who, like most of the rioters, thought she was defending America by overturning an election.
It’s easy to mock this kind of thinking, to see rioters as losers or racists. And no doubt there’s a strain of deep-seated racial animus that is with us and always will be, but I think ascribing all of it to such an explanation is too simple. Racist or no, Babbitt really was at one point a patriotic American, serving in the military for over half her adult life. More broadly, she’s far from alone in expressing rage at the status quo. There have protests against the existing social order for almost a decade, starting with the Tea Party, Occupy Wall Street, and then Black Lives Matter in 2014 and accelerating into protests and riots earlier this year. I’ve written about the relationship between unrest and corporate power in the context of those protests, a sense of alienation that normal political channels, that politics itself is not a realistic path for addressing social problems.
There’s no moral or practical equivalence between these pro-Trump rioters and those who protested against police brutality; anger against racism in America is grounded and legitimate, while QAnon paranoia is not. And the pro-Trump protesters are not a group of sad sack victims taking out legitimate grievances by attempting to attack the counting of electoral votes. What Babbitt did was obviously wrong, and she did not have to do it. Most in her situation do not.
But still, environments nudge us in different directions. And Babbitt was both an adult making dangerous political choices, and a product of our policy regime, having been a soldier in a violent unnecessary war and trying to make her way a society that enables predators to make money through financial chicanery and addictive products. She chose poorly, but she also had few choices to make, one of which was getting on social media and being lured into joining a violent and paranoid cult of personality.
I don’t know that a different set of life experiences would have led Babbitt to a different place, but it’s not hard to see why someone like this would start to imagine a giant secret conspiracy was controlling her life. It’s more likely that people will distrust political institutions if those political institutions have repeatedly failed them. After all, Babbitt didn’t send herself to war, George W. Bush, as much as he might condemn her actions at the Capitol, did that.
Again, I’m not justifying, but I am trying to understand, because anti-democratic rage, which we tend to center around specific political leaders, is deep-rooted. Three out of five Americans are lonely, which has created a suicide epidemic, a trend likely to increase dramatically with Covid. The opioid crisis is no secret either. Social media and QAnon should be understood as part of this broad-based social crisis. The way we do social media is addictive, and overuse can result in depression, memory loss, alcoholism, and reduced empathy and social development. The reality is that there are a large number of people like Babbitt in America and around the world, people who are lost souls, bereft of community ties, prone to be led towards extreme rootless religious-political movements.
There are two paths in a representative democracy if we have a large group who lives in a cult-like artificial world of misinformation, and many more who rightly or wrongly don’t trust any political institution. We can try to strip these people of representation and political power; that is the guiding idea behind removing Trump, as well as a whole host of conservatives, off of Silicon Valley platforms that have become essential to modern society. Removing these people is a choice to not have a society, to pretend that we can put these people into a closet somewhere and ignore them.
The alternative is less dramatic. We can take on the legal framework behind social media so these products aren’t addictive and radicalizing. As I’ve written, there are legal immunities and policy choices that allow Facebook to profit in especially toxic ways through compiling detailed user profiles and targeting them with ads. If we change how social media companies make money, we can change how these services operate to make them socially beneficial instead of engines of radicalization.
More broadly, we can try to rebuild our institutions so everyone has a stake in society again, and end the systemic cheating in our commerce that strips people of community. Just saying ‘trust our institutions’ won’t work, at least not until we make those institutions trustworthy.
The Problem Lies in Policy
If we recognize that a major short-term cause in creating this paranoid cult is social media models based on addiction, monopolization and surveillance, and a long-term cause is systemic cheating in our economy and culture, we can break down our problems in manageable chunks. These problems originate from laws and regulations guiding commerce.
And that’s why I think the solution lies in part at the agency set up to regulate commerce - the Federal Trade Commission. The FTC is a potentially economy-reshaping institution. It has broad jurisdiction over privacy, consumer protection, and antitrust laws, meaning it can reorient how virtually every corporation in the country functions. It can write rules against ‘unfair methods of competition,’ which can include prohibiting anything from discriminatory pricing in industrial gas markets to addictive or deceptive user interfaces to certain kinds of targeted ads. As a small example, the commission took action earlier this year against corporations engaging in ‘merchant cash advances,’ precisely the predatory lending that trapped Babbitt.
So why doesn’t anyone pay attention to the FTC as a way to solve any social problems? Well, the FTC has been effectively dormant for forty years, a playpen of elite well-paid lawyers who come up with elaborate reasons to whitewash lawbreaking by the powerful. The latest example is when the $100B+ video conference call giant Zoom was caught lying about its security practices. The FTC didn’t fine the corporation, merely requiring the company to implement an internal compliance program. Such “no money no consequence” settlements encapsulate how enforcers condone serial lawlessness. Still, strong legal authority remains at the FTC, waiting to be used precisely to stop the systemic cheating that inflames protesters across the spectrum.
If we can restore the FTC and get it to do its original job, one it did reasonably well for decades, we can begin to rebuild our trust in our institutions.
“FTC orders are not suggestions”
In fact, the FTC has begun to get a bit more aggressive under Trump. The most obvious sign is the massive antitrust suit filed by the FTC to break up Facebook. This suit is not the result of Trump or the Republicans, who have been in charge of the commission, but a result of one of the most energetic, hard-charging, and creative regulators in government, who has for years been prodding the commission to do more. His name is Rohit Chopra, and he’s a Democrat who may become the Chair of the FTC, if Joe Biden so chooses.
The FTC is a commission, which means it has five members making decisions, three of the majority party and two of the minority party. Chopra was confirmed as a minority member of the commission in 2018, and has spent his time sketching out how a more vigorous FTC can restructure the American economy and end the elite lawlessness that is creating so much desperation and anger.
To understand what that might look like, it helps to go over Chopra’s vision of how to govern, because it is something we see nowhere else in American government. The very first thing that Chopra did after he was confirmed into office was to send a commission-wide memo titled Repeat Offenders, in which he argued, very simply, that big corporations who repeatedly violate the law should face serious penalties, like break-ups, firing of senior managers and board members, and clawbacks of executive pay. Or as he put it, “FTC orders are not suggestions.”
This memo immediately upset the FTC staff and fellow commissioners, because it disrupted the agency’s genteel and bipartisan culture of deference to large corporations. What is important to recognize about large scale popular anger at inchoate social forces is that there really is a conspiracy of elites against them, but it comes not in the form of weird paranoid fantasies, but in the form of genteel wealthy lawyers who make intimidating frowny faces at antitrust conferences when someone brings up using public authority to enforce the rule of law against the powerful. These people tut-tut at riots and protests, not recognizing their own role in creating an environment of lawlessness. The painful work of institutional reform to deal with the chaotic social forces in play requires officials like Chopra, who are not afraid to upset social niceties, but are able to do so with analytical and legal rigor.
In retrospective, Chopra’s memo was exactly the kick in ass the slothful commission needed, because it showed that the FTC had authority and power to secure justice, and was simply not using it. At the time Chopra issued it, the FTC was working on just such a repeat offender: Facebook. The FTC had an order against Facebook in 2011 over deceptive practices, which the corporation as part of the order had pledged to stop. In 2018, the Guardian revealed that Facebook was in violation by allowing Cambridge Analytica to violate user privacy.
The Cambridge Analytica scandal was a tragic moment for America, a pivot point where the FTC had leverage to restructure a dysfunctional market. The FTC could have attacked the addictiveness of Facebook’s products, which were organized to sell more targeted advertising based on data gathered via the privacy violations it settled over. But the FTC, over Chopra’s objection, let the opportunity pass.
In fact, the responsibility for the market structure of big tech lies with the FTC. The FTC shut down a Google antitrust investigation in 2013 with a 5-0 vote, and it approved an endless number of mergers, including Facebook’s purchase of Instagram and WhatsApp. It did not take any meaningful action in the 2010s to address data gathering or targeted advertising, and did not even bother to study the massive industrial shift under way, meaning Congress until late last year had to rely on foreign investigations of social media to make policy. The social media environment that fostered these riots, in other words, occurred because of the policy framework for Google, Facebook, Twitter, and so forth that the FTC organized. Chopra’s assertive approach, from the get-go upset the consensus enabling this toxic framework.
Aside from problems with social media, Chopra has also attacked systemic corruption in the economy. There are too many Chopra dissents and statements to go through, so I’ll pick three. In 2018, two of the largest industrial gas companies in the world, Linde and Praxair, merged in a complex international transaction. For a procedural reason involving German financial rules, the FTC could have blocked this merger easily, without even having to go to court. But the FTC, with four commissioners (including Chopra’s fellow Democrat, Rebecca Kelly Slaughter), voted to let it go through, arguing that the $80 billion resulting corporation would be efficient and wouldn’t increase prices. Chopra dissented. Sure enough, with its new market power, the company soon announced a massive price hike, proving Chopra right, and the other four - Christine Wilson, Joe Simons, Noah Phillips, and Slaughter - wrong.
Two other transactions Chopra opposed were the merger of AbbVie Inc. and Allergan, and the merger of Bristol-Myers Squibb Company and Celgene Corporation. These mergers involved giant pharmaceutical corporations who use their monopoly patents to gain more bargaining leverage against everyone in the medical supply chain, raising prices on consumers and reducing medical innovation. The FTC has a long history of letting pharma companies merge, which has led to higher prices. Sure enough, the House Oversight Committee soon showed that Celgene had been plotting to keep prices high and continue to raise them. Meanwhile, a few days ago, AbbVie jacked up the price of top-selling drug Humira by 7.4%. Once again, Chopra was right, and the FTC bureaucracy and the majority of the commission was wrong.
But that’s not all. Chopra has a long track record of restructuring industries. Before he went to the FTC, he served as the ‘student debt ombudsman’ at the Consumer Financial Protection Bureau, where he parlayed a role without much legal authority into a vehicle to restructure private student lending. Here’s the Wall Street Journal in 2014, noting that Chopra’s style of “applying pressure through public means—a big departure from the more measured style of other financial regulators—is causing friction.” As one lobbyist for student lenders put it, “There’s more tension between banks and those in the CFPB’s student-lending division than in all other areas of the CFPB combined.”
The goal for Chopra wasn’t to upset financial villains, but to change policy. And he did. Large student lenders began lowering interest rates on borrowers and extending repayment plans. What Chopra did wasn’t enough to take on the whole crisis - student debt was a driver of the Occupy Wall Street protests - but he was a minor regulatory official without much leverage, and what leverage he did have he used with creativity and aggressiveness. That’s the kind of public official you want to promote.
Chopra has used this same strategy of combining analytical rigor with public pressure at the FTC. Early on, he pressured his fellow commissioners on behalf of worker rights, in a case called Your Therapy Source. A businessman had been cheating workers by fixing wages with competitors, and was caught red-handed in text messages doing so. Chopra dissented from the settlement, which imposed no meaningful penalties. Once again, this was a 4-1 vote, meaning that he stood against three Republicans and a Democrat. And once again, he was proved right, as the Department of Justice later returned a criminal indictment against the owner of Your Therapy Source.
Chopra has spearheaded successful efforts to block scams around Made in USA corporations (once again with initial opposition from both the Rs and his fellow Democrat). He led the FTC in taking on the problem of merchant cash advances, as well as an endless array of consumer rights problems (like debt collection and credit reporting). He has been a leader in working with regulators globally to address privacy problems. And he and his staff have uncovered significant dormant regulatory tools that would allow the FTC to expand its ability to regulate unfair commerce. This is exactly the kind of creative and aggressive public official Democrats need to put in a position to address the problem of social media, and then to take on the culture of elite lawlessness in American corporations.
And we don’t need to guess whether Chopra will succeed. He already has. Last month, his pressure campaign culminated in the FTC’s historic antitrust case against Facebook. The FTC rejected its own legacy of approving bad mergers, and set a goal of unwinding the Instagram and WhatsApp purchases by Facebook that it had enabled years earlier. Chopra had finally brought his fellow Democratic member, and the Republican Chairman, Joe Simons, to his side (though two libertarian Republicans, Noah Phillips and Christine Wilson, voted not to take action against Facebook). Now just imagine what Chopra can do if he’s actually in charge of the commission.
Redressing Institutional Failure
Chopra is the kind of leader one needs to deal with the current crisis of social media. He’ll use every lever possible, he has international credibility to work with enforcers all over the world, and he isn’t afraid of confrontation or of antitrust elite lawyer frowny faces at conferences. He also will enable Joe Biden to accomplish his agenda, to restructure these social media giants, and to ensure that the massive pandemic and infrastructure spending happens with minimal cheating and monopolization, and a maximum of domestic production.
The day before the riots, the Democrats won two Senate seats in Georgia, which means that Joe Biden doesn’t need to beg and wheedle his opposition to appoint people to agencies. Now he can just put Chopra as Chair of the FTC. He should. It won’t solve everything. But Chopra knows how to restructure social media, and he understands how to use regulatory levers to restore the political legitimacy we desperately need. Hopefully he’ll become our new FTC Chair.
Should conservative social network Parler Be Removed from AWS, Google, and Apple app stores? This is an interesting question, because Parler is where some of the organizing for the Capitol hill riot took place. Amazon just removed Parler from its cloud infrastructure, and Google and Apple removed Parler from their app stores. Removing the product may seem necessary to save lives, but having these tech oligarchs do it seems like a dangerous overreach of private authority. So what to do?
My view is that what Parler is doing should be illegal, because it should be responsible on product liability terms for the known outcomes of its product, aka violence. This is exactly what I wrote when I discussed the problem of platforms like Grindr and Facebook fostering harm to users. But what Parler is doing is *not* illegal, because Section 230 means it has no obligation for what its product does. So we’re dealing with a legal product and there’s no legitimate grounds to remove it from key public infrastructure. Similarly, what these platforms did in removing Parler should be illegal, because they should have a public obligation to carry all customers engaging in legal activity on equal terms. But it’s not illegal, because there is no such obligation. These are private entities operating public rights of way, but they are not regulated as such.
In other words, we have what should be an illegal product barred in a way that should also be illegal, a sort of ‘two wrongs make a right’ situation. I say ‘sort of’ because letting this situation fester without righting our public policy will lead to authoritarianism and censorship. What we should have is the legal obligation for these platforms to carry all legal content, and a legal framework that makes business models fostering violence illegal. That way, we can make public choices about public problems, and political violence organized on public rights-of-way certain is a public problem.
Antitrust Job Opening: If you are an antitrust lawyer and looking for something interesting in public service, the Maryland Attorney General is hiring.
Intel: Linus Torvald blames Intel and its market power for serious chip design problems.
Bubble Watch: Private equity barons are now selling portfolio companies to themselves. Meanwhile bitcoin is now worth a half a trillion dollars and Elon Musk is the world’s richest man. Nope no bubble here.
Another Transdigm Transaction: A little over a year ago, defense contracting conglomerate Transdigm agreed to refund $16 million to the Pentagon after high profile Congressional hearings showed that its business model is to buy sole source contractors to the government and radically raise prices. Despite the controversy and refund, Congress didn’t end up changing contracting rules to make Transdigm’s price gouging illegal. Last week Transdigm bought Cobham Aero Connectivity, another small player with market power that it can use to raise prices on the Pentagon. Cobham makes “highly engineered antennas and radios for the aerospace end market,” with a focus on defense. The FTC cleared the deal. Pathetic. And yet another reason we need FTC Chairman Chopra.
Health and IT: UnitedHealth’s Optum just bought Change Healthcare for $13B. Optum and Change have over the last decade bought up smaller players in the health care payment systems. I’m going to be looking more into this one, a combination of bad software and concentrated health care.
Monopolies and Chip Shortages: A shortage of semiconductor production in China and Taiwan is shutting down automobile production in the U.S. “One of our clients is calling it ‘chipageddon,’” said a lawyer for carmakers. Shortages are one particularly dangerous consequence of concentrated supply chains, and chips go into everything these days. Ruh-roh.
Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.
P.S. I got a lot of great feedback on last weeks’s piece on Orlando Bravo, the private equity billionaire responsible for the massive SolarWinds hack of our nuclear facilities. A number of people noted how the software industry as a whole is dangerously dysfunctional; I’ll be delving into that industry in future issues. Here’s one reader observing that what SolarWinds did is not new:
Your story about SolarWinds reminded me a lot of Computer Associates in the late 80s/ early 90s.
CA is now the software division of Broadcom, but in 1990 it was the second biggest software company in the world, behind only Microsoft. It was nicknamed “Competitor Acquisitions” because that was their business model – buy its way into a sector, stop updating the software and just put it in the most basic possible maintenance mode (i.e. the only releases were bugfixes of bugs bad enough that the complaints might get heard by C-level executives at their customers, resulting in an actual loss of a customer), lay off all the developers, and let the ongoing maintenance contracts flow in until all the customers notice that the product has crashed in quality and switch to a competitor. Ideally, you want to then buy that competitor and do the same again.
At the time that the suit to try to break up Microsoft was ongoing, CA backed off its aggressive acquisitions strategy. It started back up in about 2000 when that lawsuit collapsed, but after that it went into sectors that I’m not familiar with. From a quick glace and the Wikipedia page, it doesn’t seem to have changed strategy, it just didn’t have pockets as deep as the PE competitors and eventually got bought up itself.