The Antitrust Revolution Has Found Its Leader
With Lina Khan as chair, the FTC may have an anti-monopoly majority for the first Time in a generation. And Wall Street is nervous.
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The earth-shattering news in the antitrust world is that yesterday, Lina Khan became the Chair of the Federal Trade Commission, one of the two agencies that enforces antitrust law. In this issue, I’m going to explain who she is, why she got both Republican and Democratic votes for her confirmation in the Senate, and how her selection to this position indicates a potential revolutionary shift in politics.
The TLDR version is that something just happened to make Wall Street analysts on CNBC very nervous.
From Journalist to Lawyer to Leader
On Monday, the Senate voted overwhelmingly to put progressive antitrust scholar Lina Khan on the Federal Trade Commission. A few hours after her final vote yesterday, Senator Amy Klobuchar leaked the news that the White House would designate her as Chair.
Khan is something rare in progressive politics, someone with academic credentials and mastery over a dense technical subject, but also connected with a broad-based populist social movement that crosses partisan lines. I can’t tell you how many people I’ve spoken to in business, Republicans as well as Democrats, who talk in reverential tones about Khan. It’s not just that she is an important thinker, it’s that she *understands* what they are going through, the coercive power they are up against. And that’s because she got her start understanding the economy not in a classroom or at a law firm, but as a business journalist, listening to business people and workers facing monopolists.
As such, Khan covered all sorts of industries. In 2013, for instance, she wrote a Halloween-themed story in Time Magazine titled “Why So Little Candy Variety? Blame the Chocolate Oligopoly.” In that piece, she traced consolidation in the candy market, showing the industry is controlled by just three firms, Hershey’s, Mars, and Nestle. These firms offer kickbacks to retailers known as ‘slotting fees,’ which block the ability of independent candy makers to sell their wares.
To write the story, Khan talked to small candy makers, like Dave Wagers of the Idaho Candy Company, who told her what it is like to try to get a product on shelves. Such a story is common, and Khan examined concentrated power across the economy, writing about airlines, banks and commodity trading, meatpackers, seeds and chemicals, and business formation in general.
Then she went to law school. While a student, Khan used her experience as a journalist to help craft a legal argument on the roots of Amazon’s power, which she traced to the transformation of antitrust enforcement. Her analysis, titled Amazon’s Antitrust Paradox, put her at the center of a worldwide debate over concentration and monopoly power. Khan then went the FTC as an advisor to Commissioner Rohit Chopra, before going to work for the Antitrust Subcommittee last year. She served as the lead researcher of big tech in the subcommittee’s groundbreaking investigation which reoriented tech policy globally.
In other words, Khan has shown herself a capable storyteller, a creative lawyer, and a practical and hard-nosed policymaker, and one who doesn’t orient her thinking around traditional partisan political calculations. That said, Joe Biden took a risk in appointing her to the FTC, because neither monopolists nor the antitrust establishment are happy to see their main intellectual foil placed in a position of authority. And during her nomination hearing, Khan didn’t play any political games. She didn’t try to hide anything or moderate her views. When asked, she noted “potential criminal activity” by big tech firms, in an allusion to possible price-fixing by Google and Facebook in ad markets.
And yet, Biden’s gamble paid off. The right-wing took the choice of Khan in good faith, and at a moment of deep partisan bitterness over virtually every issue under the sun, 22 Republicans chose to oppose big tech, cross the aisle and vote to confirm her to run the agency tasked with enforcing fair trade rules in America.
To call this appointment remarkable understates the point. That Khan is on the commission, with Republican votes, is surprising enough, but for her to be Chair is downright shocking. It’s too soon to know what Khan is going to do in her new role, but her appointment is already sending shock waves in the enforcement community globally. Antitrust policy is run by a small yet international community of lawyers and economists who know each other. In every country, some of them are cheering this move, while others are horrified. But they all know it matters, because as goes the U.S. on antitrust, so goes Europe.
And Khan, if she is able, will take competition policy in a very different direction. There are hurdles, as the FTC does require a 3-2 vote for most major actions, so it’s not like Khan can bring cases on her own authority. Still, this is a big deal. And it wasn’t just antitrust enforcers and monopolists who realized the import of this pick.
Wall Street and the Crisis of Legitimacy
Over the past two days, Khan’s nomination has been discussed several times on CNBC, with analysts looking at which stocks to buy or sell due to her appointment. While the general sentiment among analysts is alarm, CNBC star Jim Cramer, in a later segment, argued not to worry. Breaking up big tech, he said, would help boost investor returns because big tech firms are worth far more in pieces.
While it’s true that researchers are finding that stronger antitrust laws are good for stock prices (which is something I noted in 2019), the far more important point is that Wall Street is having this debate about the Federal Trade Commission at all. It’s been a generation since the FTC was taken seriously as a meaningful player in the organization of our economy and markets. Every so often some official will make noise about a tougher stance on competition, citing Senator John Sherman or Teddy Roosevelt in a fancy speech, only to back down. Getting sanctioned by enforcers is increasingly a joke. As Commissioner Rohit Chopra noted, “it's become a right of passage for Silicon Valley companies to get an FTC consent decree."
This crisis of legitimacy is longstanding, but it became evident antitrust enforcement was irrelevant in 2013, when the FTC, even though it had good evidence of monopolization by Google, dropped its antitrust claims against the search giant, and then kept secret how much evidence it had. The flaccid nature of these enforcement choices was further emphasized when Facebook was fined $5 billion by the FTC over its Cambridge Analytica scandal. It sounds like a lot of money, but upon the announcement of the fine, the firm’s stock price jumped up by tens of billions of dollars. As if a regulator couldn’t get any more deferential to power, the FTC didn’t even make the announcement of the fine. Facebook did, on an earning’s call no less.
In other words, Khan is stepping into a leadership role at a demoralized and insular institution, with a culture of timidity. That can’t last for much longer. Khan’s reputation is such that many are looking to Biden’s appointment of her, and her confirmation with Republican votes, as a signal that politicians want to end the era of concentrated economic power. Either Khan fixes the FTC, or in ten years the FTC will probably not exist in its current form.
The FTC’s New Deal Resurrection
This moment isn’t the first time the FTC has been nearly left for dead as a handmaiden of monopoly, and then resurrected. In fact, a similar scenario occurred at another moment of extreme monopolization, a few decades after the FTC’s birth.
The origins of the FTC go back to the birth of corporate America, at the turn of the century, when J.P. Morgan had engineered a merger wave to create many of the giants we know, like General Electric and U.S. Steel. In response, Teddy Roosevelt created the Bureau of Corporations in the early 1900s to help lead investigations into these firms. Woodrow Wilson turned this agency into a full commission with regulatory authority in 1914, with the goal of breaking up corporate giants and regulating the resulting competitive markets.
But the FTC, though it had some successes, didn’t quite work. World War One got in the way, and then the FTC was neutered by courts and captured by monopolists in the 1920s. By the early 1930s, populists, most of whom had been aligned with Wilson, had had enough. Many came to despise the FTC, because far from a commission to address monopolization and create fair trade practices, it had turned into a vehicle for legalizing monopolies.
When I was researching my book, I found an amazing letter in the archives from anti-monopolist Congressman Wright Patman, who later was a strong supporter of the FTC, illustrating the depth of this anger. Patman, in writing to a fellow Texas anti-monopolist, proudly noted that he “succeeded in eliminating $300,000 from” the FTC budget, and expressed hope that soon “we will finally abolish that useless Commission altogether.”
New Dealer populists like Patman didn’t end up eliminating the FTC. Instead, they resurrected it with new leadership and funding, until it became the guardian of small business in America. From the 1930s until the 1960s, the FTC brought suits against chain stores to stop the kind of predatory pricing and discriminatory behavior that Amazon-style chains like A&P had routinely used to destroy independent retailers. The populist economic strategy worked. After an initial collapse of independent retailers in the early 1930s, their numbers recovered and America became a mix of chain and independent stores, as well as small, medium, and large manufacturers, a high-wage high-growth economy.
That period lasted until the 1970s, when naive consumer advocates trained by Ralph Nader took over the FTC. Reared in a period when politicians had been wholly friendly to consumer rights, these activists largely saw the FTC as a consumer-only focused commission. In doing so, they unwittingly killed the political support base of the agency, which had been rural and southern small businesses.
In the 1980s, Reagan, pointing to these failures, restructured the agency. His FTC Chairman James Miller began getting rid of populist lawyers, and stocked it instead with neoliberal economists. Clinton, Bush, and Obama continued down the path Reagan laid out, even as Walmart and other chain stores gobbled up the economy. By the time the FTC gave up on the Google monopolization case in 2013, the failure, though dramatic and far-reaching, was more a ratification of the collapse of anti-monopoly rules than anything else.
So the failure is great, and the monopoly crisis is now urgent. The question, therefore, is what Khan’s appointment means, not just for antitrust or competition policy, but politics more broadly.
Where Is King Manchin of the Senate?
If you talk to most progressives or Democrats who watch MSNBC or CNN, the most significant domestic policy storyline is whether Senator Joe Manchin of West Virginia will validate their legislation on voting rights, spending, or the filibuster. They perceive a narrow partisan path for wielding power, and failing that, despair.
What is fascinating about the nomination and confirmation of Khan is that it suggests a different political roadmap, not just for Democrats but for Republicans as well. Both parties are confused and trying to figure out what they think, with scuffles within parties as much as between them, mirroring the disputes within the commercial world. Political operatives, pollsters, politicians, and lawyers in both parties are not comfortable with this new populist language and policy and how to wield it.
On the right, libertarians and corporatist lawyers are the only ones with the substantive chops to operate in this dense and complex area. On the left, there’s a cultural dislike of commerce. Some Democratic activists often imagine, wrongly, that business questions are wonky, niche, and not relevant to ordinary people. Thinking about monopoly power isn’t really even politics to them, or if it is, using terms like ‘markets,’ and ‘competition’ signifies conservative political beliefs.
Nonetheless, it’s evident there is interest on the right and left in addressing concentrated private power through revamped competition policy enforcement. What is increasingly clear is that there is consensus that something must be done, and that there is opportunity here to steal this issue from the other party. Both the Democrats and Republicans are trying to outflank each other on who is stronger on antitrust.
In many ways, competition policy is very similar to trade, where Donald Trump stole the traditional Democratic issue and made it his own, accurately pointing out that Democrats like Bill Clinton and Barack Obama pursued policies incentivizing offshoring to China instead of protecting American jobs. Rather than oppose Trump on trade, populist Democrats quietly worked with Trump to reorient American policy. Trump’s trade chief, Robert Lighthizer, was the only cabinet member respected by Democrats, and was able to bring nearly every Democrat on board for a rewrite of NAFTA. Biden is trying to steal this issue back; Katherine Tai, who is Biden’s pick for trade, has continued Lighthizer’s agenda, with some modifications (like challenging pharma’s vaccine monopoly).
Unlike many social questions, in other words, antitrust and related issues like trade cross party lines and are areas of consensus. That doesn’t make them unimportant, even though they aren’t often reported on CNN. Competition policy is a massively consequential area, and not just in the tech platform area, which is the centerpiece of current debates. Pretty much every part of the economy is full of concentrated power, whether pharmacy benefits managers, search engines, meatpackers, or candy monopolists.
Deploying antitrust, fair trade rules, and other competition policy can have huge impacts on prices, workers, innovation, and prosperity more broadly. While Biden is drifting a bit on some of his priorities, running straight into the buzzsaw of the Senate, on competition policy he just took a big step forward, and did so with conservative support.
Perhaps it’s time for the administration, and Congress, to focus a bit more on where they have made progress on driving consensus, which is antitrust and concentrated power. That’s where real political success is happening. The path forward isn’t easy, and there are many obstacles, from courts to funding to the make-up of the commission. But FTC Chair Lina Khan, with the right support, might just be able to help both parties lead us somewhere that most Americans want to go.
New York Returns as an Anti-Monopoly Powerhouse: My last issue was the most important antitrust update in a generation, a New York bill by state Senator Michael Gianaris to make abusing a dominant position in a market illegal.
The day after I wrote up the bill, it passed the state Senate, and is now teed up for the Assembly later this year or early next year. What’s amazing is that Gianaris’s bill isn’t the only anti-monopoly bill moving in New York. The very same week, the state Senate also passed a bill to roll back “right to repair” restrictions, which are contractual restrictions by dominant firms blocking the ability of customers to repair everything from iPhones to wheelchairs to medical equipment to tractors to military weapons systems. Meanwhile, the Assembly passed a bill to regulate pharmacy benefits managers, the shadowy middlemen in the pharma pricing supply chain who help drive up prices and screw independent pharmacies at the same time.
That’s three significant bills in totally different areas! The antitrust bill and the right to repair bills are not guaranteed to get through the Assembly but the PBM bill is likely to become law. The Empire State has always been a center of anti-monopoly policymaking and thinking. It turns out, it still is.
Private Equity Roll-Up Controls 25% of All Messages to Congress: Phone2Action, a private equity backed roll-up funded by Frontier Capital, is buying up the advocacy space. Here’s one of their latest press releases.
Phone2Action, the world’s leading provider of grassroots advocacy software, contributing nearly 25% of all advocacy messages to Congress, will now become a category-defining solution where public affairs and government relations professionals can collaborate on projects, gain insight into key bills and policies, galvanize people to act and influence public policy.
I’ve been told reliably that this company uses Eastern European developers, which is a common theme for private equity-owned software firms. Imagine the possibility of hacking by foreign governments, who will now have access to a large swath of what constituents are telling their members of Congress.
Harvard Business Review’s Advice to the Private Equity Industry: Private equity is in crisis. Apollo is facing investor demands over subpar returns, private equity PR campaigns are going south, and the industry is desperately trying to get retail investors to replace the money they would have gotten from pension funds. Moreover, the return of ‘club deals,’ in which PE funds band together to hold down prices of portfolio firms, suggests that the market is at its peak.
Two private equity industry executives, Karim Khairallah and François Mann Quirici, discussed this slow motion crisis in the Harvard Business Review. Their basic theory is that private equity is 50 years old, and as it is now a mature industry, the easy money in financial engineering is gone. Target firms are hollowed out or bought up, there’s no one left to fire, and acquisition prices are too high at this point. So what’s left?
They encourage private equity funds to combine their portfolio firms in what they call an ‘ecosystem.’ A different way to put it is they are sort of encouraging monopolization. “As a basic example,” they write, “two businesses could coordinate the procurement of common services to reduce costs.” Bargaining power is market power. They also note, in a weird jargon-y argument, that “revenue relationships between interacting businesses” could be a driver of high returns.
Now, it’s hard to figure out exactly what they mean. I suspect we’re seeing a repeat of the late 1960s when conglomerate owners couldn’t figure out how to drive any efficiencies out of owning a line of business that made missiles and a different line of business that made, say, tennis rackets. Conglomerates were in the end all about playing accounting games, aka financial engineering, and thus made no economic sense.
The difference is that in the 1960s and 1970s, we enforced antitrust laws, so conglomerates couldn’t monopolize even if they wanted to. This time, PE fund managers, who are basically just conglomerate managers reborn, can create monopolies if they are able. It’s not entirely clear whether they will be able to do so. But they will try.
Thanks for reading. 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 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.