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Today I’m going to continue our series on why anti-monopoly politics is back. First a couple of thoughts and pictures, one on Facebook’s Libra currency system and one on monopolies in the military…
Is Facebook’s Libra Legal? This is actually not a simple question, and I don’t have an answer. I’ve already mentioned that the FTC, as part of its penalty on Facebook for violating the 2011 consent decree, can bar the company from “adjacent business practices” such as payments. Today I began looking at state money transmitter license laws. Many of the state laws are similar, so I’ll copy and paste something from New York state law on how to get one. The bolded parts are what’s relevant.
Upon the filing of an application, and the payment of the fees for investigation and license, the superintendent shall investigate the financial condition and responsibility, financial and business experience, character and general fitness of the applicant and, if the superintendent finds these qualities are such as to warrant the belief that the applicant's business will be conducted honestly, fairly, equitably, carefully and efficiently within the purposes and intent of this article, and in a manner commanding the confidence and trust of the community…
What is Facebook’s “character and general fitness” for the role? Does Facebook command “the confidence and trust of the community”?
These are good questions. Kidding! They are stupid questions. Of course Facebook isn’t fit, and isn’t trusted. Every poll out there shows no one trusts Zuckerberg.
Military Monopolization: I have an article coming out shortly in The American Conservative on concentration in the defense industrial base, which is a fascinating and little examined area. Here’s a picture I’m going to be using a lot, from a Lockheed Martin executive. Stay tuned for more…
Why Is Anti-Monopoly Back? The Crack-Up…
Part one of this series is here. It was a description of the “End of History” moment in the 1990s and 2000s, when policymakers celebrated a utopian vision of globalization. Bernanke called it the “Great Moderation.” The big question for policymakers was to figure out whether it was deregulation or terrific monetary policy that led to such great economic outcomes. Essentially, “Am I too pretty, too rich, or too thin?”
What jarred this moment was the war in Iraq, and how this restructured the relationship between the American people and the media business. The war in Iraq is the first war in which there were mass protests *before* the war started. Millions of people distrusted what they were reading and hearing on the news, and many of them took to the internet to complain, using organizing tools such as blogs, listservs, and email whose political import was driven by Howard Dean’s Presidential campaign. The war opponents were right, which became clear fairly quickly.
At roughly the same time, the Federal Communications Commission, consistent with the End of History libertarianism and run by Colin Powell’s son Michael Powell, sought to loosen local media ownership rules. Deregulation was almost pro forma at this point. But something odd happened. Those same millions who opposed the war turned their attention to the media who they perceive lied the country into war, and wrote to the regulator of that media. Congress opposed the rules change, and courts sent them back to the agency for review.
Over the next few years, the FCC became a focal point of public anger, particularly on the liberal side, because the party out of power usually has an energized grassroots. Over the course of the 2000s, the FCC sought to eliminate the common carrier rules for the telecom network as regarding internet service, consistent with the overall framework laid down in the 1990s to create a libertarian paradigm online. In 2005, in a complex case called Brand X, the Supreme Court ruled in favor of this move by the FCC, ratifying the policy choice that telecom monopolists could essentially control the information flowing over their wires. This became the net neutrality fight.
A large coalition, of small business owners, nonprofits, musicians, joined together, spurred by comments like this one from AT&T CEO Ed Whiteacre who said “anybody who expects to use pipes for free is nuts!” Of course, net neutrality wasn’t about letting people get free internet access, it was about arranging internet access on equal terms, a basic common carriage rule for a public utility. This was the first popular fight over an anti-monopoly pricing law in decades. If you want to read the full story, or at least my version of the full story, it’s here. The big tech giants weren’t, at this point, giants, they were moderate sized companies on a rocket ship trajectory, but in terms of political pull, it was the telecoms who controlled D.C. and the states.
At the same time, a scholar named Barry Lynn, then at a think tank called New America, was exploring a different side of the concentration of power, looking into globalization. There had been protests against the World Trade Organization, most significantly the “battle in Seattle” in 1999 over labor and environmental standards. But Lynn in the 1990s wasn’t focused on social justice, he was a business reporter who noticed that supply chains had for some reason become increasingly brittle. In particular, he focused on an earthquake in Taiwan that in the late 1990s shut down factories halfway around the world, because an essential microchip was made in an area hit by the quake. There was no redundancy in supply.
Lynn studied this odd situation, first focusing on the problems that monopolization induces on the fragility of supply chains. Then he began understanding all the political consequences of monopolization, tracing the rise of concentration to the intellectual shift engineered by legal scholar Robert Bork in the late 1970s. By 2010, he had written two books, most importantly Cornered: The New Monopoly Capitalism and the Economics of Destruction. The Velvet Underground was a band about which it was said that they didn’t sell a lot of records, but everyone who bought one started a band. Similarly, Lynn didn’t sell a lot of books, but everyone who bought a copy became an advocate.
Lynn’s group published a bunch of different foundational stories about the concentrated political economy, mostly in the Washington Monthly. In 2010, it was monopolization and stagnant job creation. In 2012, Lina Khan wrote about concentration in the chicken industry, one on seeds and Monsanto in 2013, and followed up with Lynn on a story about the collapse of entrepreneurship, and one with Phil Longman on the failure of airline deregulation. In 2013, Lynn wrote about productivity, science, patents, and monopolization. In 2015, Phil Longman wrote about regional inequality and monopolization, and the next year discussed the conservative anti-monopoly tradition. Brian Feldman focused on the case study of St. Louis specifically in 2016, and in 2017 doing a related story on monopolization and the decline of black business.
These stories created a foundation for a different way of thinking about political economy, and paralleled the shift in political organizing techniques. All that was required was a crisis. Enter Lehman Brothers. The financial crisis was many things, and I’m not going to do a deep dive into what happened and why. Ideologies don’t die because of problems, they die when solving one problem makes another problem worse. From an ideological perspective, the crisis presented policymakers, including Bernanke and new President Barack Obama, with a choice. Obama had presented himself as a fresh face, someone who could take on the entrenched corruption of D.C. He was part of a wave; in 2006, Nancy Pelosi used the phrase “drain the swamp” to take back the House from the GOP.
So the choice fell to Obama. In 2006, Obama gave a speech to help launch the Hamilton Project at Brookings, an orthodox gathering of Wall Street Democrats who saw themselves staffing the next administration. It’s a remarkable speech, because in it, Obama gave tantalizing hints of what might have been. He knew there was a choice, between adhering to the libertarian globalization framework, and addressing social disorder. He even predicted the rise of Trump, should the people in that room fail.
There are people in places like Decatur, Illinois, or Galesburg, Illinois, who have seen their jobs eliminated. They have lost their health care. They have lost their retirement security. They don’t have a clear sense of how their children will succeed in the same way that they succeeded. They believe that this may be the first generation in which their children do worse than they do. Some of that, then, will end up manifesting itself in the sort of nativist sentiment, protectionism, and anti-immigration sentiment that we are debating here in Washington.
When Obama took office, he was beset with the choice, as were all policymakers in positions of authority. The End of History types could either adhere to their libertarian framework of free markets, and let the banking system and social hierarchies collapse. Or they could toss overboard their moral framework, and use government power to explicitly rescue banks.
At first, business leaders oriented themselves around restructuring the social contract. Banks and investors thought they would have to write down assets consistent with helping people in foreclosure, as they assumed the administration would push to rewrite bankruptcy laws. The party, most on Wall Street assumed, was over. Small businesses thought they’d get credit. As I noted a few days ago, farmers thought they could speak up without fearing retaliation from big ag, because that’s what Obama’s antitrust chief Christine Varney told them. But it was an illusion.
Led by Obama, they rescued the large banks, and in doing so, crushed the legitimacy of their moral system. Elite policymakers broadly believed that restoring the health of Wall Street would trickle down to the real economy in the form of credit growth, and that protecting the Federal Reserve and a globalized system of finance was necessary to protect democracy. Not everyone thought this way; Elizabeth Warren, then ascending politically with the help of Harry Reid, did not, and neither did Bernie Sanders, Republican FDIC Chair Sheila Bair, prosecutors like Neil Barofsky, or anti-bailout Republicans. There was a motley group of anti-bailout members in both parties. But most technocrats did think this way, and importantly, so did leaders Barack Obama, Nancy Pelosi, Chris Dodd, and Barney Frank.
And so, the real policy for which Obama will be known are not Obamacare or Dodd-Frank, but bailing out the banks, stabilizing the financial system. presiding over a foreclosure wave, arranging an informal policy of amnesty for white collar misdeeds, and engaging in lax antitrust enforcement and thus fomenting a massive merger wave. These policies were endorsed by Democrats in Congress, and Democratic voters. They were done in good faith, but broke the End of History framework.
Everyone in the world, including leaders in China and citizens in the every neighborhood in the United States, could now see that finance was highly political, and that liberal democratic rhetoric was really an ornamental cover for a system of concentrated financial and political power. Over the course of the next few years, Tea Party Republicans, Occupy Wall Street, Black Lives Matter, and a host of worldwide movements all over the world displayed anger at what they perceived of as an unjust system. And Chinese elites, as part of a strong authoritarian central government, learned to doubt the superiority of the Western model of governance, becoming far more assertive. So did big tech companies, who, in a permissive legal environment, orchestrated a giant merger wave reminiscent of that which created U.S. Steel in the late 1890s.
Still, by the end of the Obama administration, it seemed as if the crisis has been handled. Big companies like Google and Facebook, gay-friendly bastions of idealistic progressives, were running the world, and the Hillary Clinton administration, likely with Treasury or Commerce Secretary Sheryl Sandberg, was ready to take over and continue the good work of the Obama era.
But in reality, from both the inside and the outside, the End of History was over.
Stay tuned for tomorrow.
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