Congress Responds to the Coronavirus Crisis

Hi,

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…

Today I’m going to write about how the Coronavirus crisis is changing politics, with a focus on the $8.5 billion spending bill that Congress just passed. And I’m going to need your help, because the House Small Business Committee is holding a hearing next week and they are trying to understand the impact of the Coronavirus on business. I want to submit a statement with feedback from you.

I have a few questions. First, how has the coronavirus affected your business? Second, why is it so hard to make things in America? If you have thoughts, read the piece below and offer feedback. You can do that by emailing me directly or by clicking on the headline and leaving a comment at the bottom. I’m going to explain in the main essay why policymakers need your help.

Before I get to the main event, some housekeeping. I’ve had a hard time figuring out what to write recently, because the coronavirus changes the politics of monopoly. So apologies for the lack of BIG issues. I did do an interview with law professor and corruption expert Zephyr Teachout on supply chains for Jacobin magazine, which you can read here. I was also in the Financial Times on the politics of affluence.

And now…

The Republicans as the Party of the New Deal?

This week, Congress passed an $8.3 billion supplemental spending bill to address the coronavirus crisis. The bill has a number of parts, including aid for cities and states, pandemic response and vaccine research, and $7 billion in loans for small businesses hit by the disaster. At first blush, it seems like the legislation is not that big a deal, a narrowly written bill directly responding to a crisis. But I’ve spent some time calling around Congressional contacts, and I think this legislation is the start of a couple of important political trends.

First, Congress has just taken the lead over the executive branch on governing. Trump initially asked for just $2.5 billion to address the crisis, and Congress rejected that immediately and put in a larger number. Just for a frame of reference, Singapore has spent $4.5 billion on its response, and Singapore has one seventieth the number of people. Getting something in the right ballpark would be $300-400 billion, so the amount Congress passed isn’t sufficient. Even so, it is still the case that Congress is taking the lead on setting policy and governing during a crisis. That’s a shift in institutional power.

Second, while the Trump administration is floundering, it is not the Democrats, but a younger generation of Republicans, led in this case by Josh Hawley and Marco Rubio, who are actually the most radical in terms of seeking public political action to address the economic fallout from the disease. Hawley just introduced legislation to give authority to the FDA to investigate drug and device shortages, a basic anti-monopoly tool. This is necessary, because pharma is using trade secret laws to hide where their factories are located. And Rubio, as I’ll go into, is trying to expand government lending to businesses working on supply chain problems.

The Supply Chain Crisis

I’ve been going through hearings that the United States Trade Representative held when Trump first put on China tariffs a couple years ago. Any company could come and testify about why imposing a tariff on their particular item coming from China would be disruptive, because of their strong dependence on China and lack of alternative source of supply. We are dependent on China for everything from barite, which is a chemical that goes into fracking drills, to electronics to bowties to pesticide inputs to pharmaceutical precursor inputs, to chemical inputs that go into the ink for the dollar bill to the raw dye that we use for military camouflage uniforms. And that’s just what they complained about.

Rubio’s response to this crisis is to use his position as the Chairman of the Small Business Committee to resurrect an old approach Americans used to build up the military prior to World War II, which was called the Reconstruction Finance Corporation. Imagine the bank bailouts, only put to use financing industry, and that’ll give you a sense of what the RFC was. In negotiations over the Congressional response package to the coronavirus, Rubio put forward the idea of mass direct government lending to American small and medium size businesses to break bottlenecks in our supply chains for manufacturing. He sought to expand what’s called the Economic Injury Disaster Loan program, which allows the Small Business Administration to start lending money directly instead of just encouraging banks to do so.

Direct lending from the government to small businesses is something Democrats have long sought. Larger businesses tend to have lower capital costs, which gives them a competitive advantage, and generally Democrats believed that the government should step in and fix that by providing low cost capital for the little guy. So for a Republican to be taking the lead on small business lending is unusual. What’s even more unusual is that the final package didn’t include what Rubio sought, because House and Senate Democrats opposed granting expansive authority to the SBA. Democrats think of themselves as the party of government, but in this case they are the ones blocking the use of public power to structure economic activity.

Now, the Democrats have their reasons. The SBA is slothful and isn’t set up to do mass direct lending of the kind Rubio wants. Since the beginning of the Obama administration, Democrats have tried to use government for various ends, including spurring lending during the foreclosure crisis, but largely to no avail. So there is tremendous distrust of the institutional competence of the government to operate effectively. And up until very recently, Republicans vehemently opposed this kind of policy. For example, in 2015, the Democratic Chair of the Small Business Committee Nydia Velazquez proposed a policy to expand the mandate of the SBA into more financing of manufacturing enterprises, and Republicans were hostile. Donald Trump also doesn’t make any of this easier, considering that enabling him to have access to more resources tends to make Democrats leery.

There’s also a basic concern that small business lending to promote manufacturing won’t work, because after the pandemic passes we will simply destroy or offshore the supply chains once again. There are good reasons to assume that. To take just a simple example, in the biotech space, as the coronavirus burns through the world, Thermo Fisher is buying Qiagen, which makes testing kits for… the coronavirus. If this merger is approved, it will leave one less major competitor in the biotech supplier market. And while I don’t know much about this market, Qiagen stock is popping, suggesting there is market power at work.

All these reasons aside, the attempt by Rubio to address the supply chain problem isn’t just opportunistic, but part of a shift by the GOP in terms of how they understand governing. Last year, Rubio argued for a government-led industrial policy to take on China, and issued a report attacking the financialization of the economy. The shift is real, and not a result of coronavirus. Even Mitt Romney made steps back in September to turn against the power of financiers. In other words, this crisis is accelerating a change in philosophy on the right already under way.

In other words, we’re in a moment of political chaos, with a huge trust gap between the parties. And this is where you come in. Because while Republicans and Democrats can argue about what to do, they all want to hear from people working in and around business about how the coronavirus is affecting their supply chains, what they make, their ability to serve customers, and whether workers are in a safe environment. They want to know how the coronavirus affecting small and medium sized businesses. More broadly, they want to know why is it so hard to have a supply chain based in America? Is it financing, distribution, market power, etc? How they answer that question will determine what kind of response they will make to the government’s ability to finance business.

So if you have thoughts, send them my way, either by responding to this email or by clicking the title of the post and adding a comment at the bottom. There’s going to be a Congressional hearing next week, and I’ll take some of your comments and put them into a statement I will submit for the record. If you want a more structured questionnaire, my colleague set up this form where you can leave feedback on what you’re seeing as a result of the Coronavirus.

Normally I try to end these essays with a rousing call or some sort of dramatic conclusion. But this case, the story’s not over, and you’re a part of it. So there we go.

What I’m Reading

Thanks, Qualcomm: Mandatory 5G means phones now ship with disabled 5G modems, by Ron Amadeo, Ars Technica

Boeing acknowledges “gaps” in its Starliner software testing, by Eric Berger, Ars Technica

Spotify’s Newest Pitch to Labels and Musicians: Now You Pay Us by Lucas Shaw, Bloomberg

Cellphone companies are threatening job cuts and court action if the Canadian telecom regulator intervenes by David Thurton, CBC

The Verge Tech Survey 2020: “51 percent said Google and YouTube should be split into separate companies”

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller

P.S. Here’s a good series of emails from a reader on skiing and ticketing.

I’ve been a skier my whole life - I’ve been skiing at multiple resorts in the Northeast since I was able to walk and I have been traveling to Colorado to ski every year for decades.  

While there are various noteworthy things to discuss about how the industry has changed (eg about how the real estate development aspect of the business has become much more of a driving force for resort operators and how what used to involve various “seasons” with various rates has become - at least at the high-end resorts - a continuously crowded and expensive endeavor throughout the entire ski season. 

Without getting into too much of the details about the changes that occurred at Vail and other resorts, It is worth pointing out now how the massive concentration of the industry has been playing out the last couple years.  Just within the last few years the amount of concentration and monopolization of the major North American ski resorts has been astounding.  I learned through word-of-mouth that the ski pass sold By Vail resorts (called the “epic Pass”) Became so popular that about 1 million passes were sold last year.  Anyone can see how this has driven all kinds of increased traffic to various resorts that has made it unmanageable to go there. 

 It appears to consumers that it’s a good deal when they can buy a yearly ski pass That allows them (for some amount of money less than $1000) To ski in a whole range of different resorts all season long.  What they don’t seem to understand or consider is that parking, traffic, lodging, concessions, food and all other aspects of traveling to and staying at the resorts are being likewise concentrated and monopolized and are becoming ridiculously expensive and ridiculously crowded.  A family member attempted to ski at Mount Snow in Vermont over Martin Luther King holiday and not only was unable to find any kind of lodging anywhere around the resort but was unable to even drive from Bennington Vermont - the closest major town- To the resort because of all of the traffic.  This was during a January with little snow and marginal ski conditions in the east. My favorite ski area has always been Vail and I won’t even ski there anymore because of how crappy the town has become - how all mid range options for lodging and dining have been removed, how there are multi million dollar condominiums built for foreign billionaires where they literally pay people to turn the lights on so it appears like somebody is living there.

I come from a family of multiple generations of people who led a middle class lifestyle and appreciated going to the country and doing outdoor activities like skiing.  I’ve been a dedicated skier all my life and I’m finding that this current situation has gone from bad to worse in just a few years and is becoming untenable.

Ticket Industry

Hello again - this is an additional comment on another topic.  I had sent an earlier comment about the ski industry - this one is a separate comment on the concert tickets industry.

I recently built a website with the details and memorabilia and photographs about the 400 + concerts i attended since 1975.  I am a huge fan of so much different music and of last 10 years of spent a good amount of time and money pursuing  my interest in seeing bands like Dave Matthews band and phish perform in various venues in the United States.  In the olden golden days of the 1980s and 1990s I went to Grateful Dead concerts and purchased tickets to their shows through their own fan club which famously handled a certain portion of the ticket sales on its own without giving it over to the industry.

In the last few years, typical  prices for (assigned seat) tickets to dmb and phish shows -through their fan clubs even - went from about $60 on average to $115 on average.  I mention these bands because they have both enormous popularity / history and have attempted as much as they can to do right by their fans, To wrest control Of certain aspects of concert tours away from promoters / venues and generally help their fans ..... and they have the same management company who apparently tries as hard as possible to negotiate good terms for the concert tours.

I was pretty shocked about 10 years ago when the entire United States passed various state laws in lockstep fashion to support StubHub and it’s platform, taking away from ordinary individuals various rights Formerly associated with the ownership of a ticket in exchange for giving them an ongoing marketplace in which to buy and sell those tickets online.  Like other online platforms it appeared at the outset (or it might’ve appeared) that this was a fair exchange in that we would now have an opportunity to buy and sell tix easily at all times (according to “market” prices). And there would be a market.  

But anyone who has a lot of experience with these platforms can tell you it is a very manipulated market in which Platforms and insiders get the lions share of the best tickets on the onsale dates, as well as enormous fees on resales - fees charged in order to do things like exchange one ticket for another (counted as two transactions).  

The billionaires / companies who run the platforms extract enormous money from the mere fact that people have a change of plans or want to try to change their seats, And they somehow used their power and influence to get state legislatures to pass all these laws that say that resales need to be done online and it is illegal for someone with an extra ticket to just sell it at no profit right outside the venue.

Turning back to the issue of monopolization and concentration it was certainly a glaring issue when we saw live nation and Ticketmaster merge and we saw the complete takeover by live nation of Almost the entire concert industry, At least when it comes to the major amphitheaters Like ones where bands like phish and DMB regularly play on their summer tours.

I remember finding out about the book on the ticket industry, and I was eager to purchase it -  I read it when it first came out (it was called ticket Masters). However I found it disappointing in several ways - first it was not a coherent story about the merger and its consequences -it seemed to be a lot of Historical segments from perhaps another book project with a pretty good history of where the ticket industry had evolved from. But less coverage went to really explaining antitrust considerations, how live nation and Ticketmaster operate / ramifications of all of the concentration And monopolization over tix and venues.

Now I look at the prices that I am going to be paying this summer for these concerts which are pretty much the same or similar to those I’ve been going to multiple times over the last 5-6 years and we are literally seeing a doubling of the prices for the same tickets.  I really don’t think this comes down to the bands becoming immensely greedy all of a sudden.  It looks similar to the merger situations that have been described by Matt where the companies go in for FTC review and promise that consumers will get a better price for a year or two and then after that there is no oversight no consideration of whether the merger made any sense or had any positive benefits and they simply have a monopoly kind of power and they simply raise prices enormously.