The following remarks were delivered to a congressional panel by Roosevelt Fellow and Senior Economist Marshall Steinbaum on March 22, 2017.
Antitrust, and competition policy more broadly, is the classic intersectional economic policy issue of our time. The evidence of the current policy’s failure is all around us: long wait times, or no customer service at all, when you’re trying to fix your internet connection. Higher prices for test prep tutoring—if you’re Asian. Inconveniences like long lines at airports that you can get around—for a fee. Once-vibrant competing local journalistic outlets, all of whose ad revenue is now gobbled up by Facebook and Google, which reward those content creators whose news is the fakest. And labor markets that just don’t work.
Why do you have to work for summers—years even—for no pay in order to land your first job? And what kind of person is able to put in that kind of time investment? Why are sandwich delivery people and charter school teachers being forced by their employers to sign non-compete clauses saying they cannot take another job if they leave their current one? Why do restaurant franchising contracts stipulate that franchisees may not hire managers from one another’s stores? Why does pay for workers with the same skills and experience depend increasingly on the firm where they manage to get a job? And if that firm sees fit to outsource their job to a contractor, why is the best move for workers usually to just agree to be rehired by the contractor at a lower wage? Why are rates of small business formation, startup growth rates, and overall business dynamism lower than during any previous business cycle since we’ve been collecting firm-level labor market data?
The causes of all of these problems can be traced back to lack of competition, which is in turn the direct result of changes in policy made in the federal antitrust agencies and in the judiciary starting around 1980. There’s no mystery here: Whereas it once took a strong stance against market power wherever in the economy it could be found, the federal government now turns a blind eye on behavior that would once have been seen as violating antitrust laws.
Two large companies merging and laying off half of their shared supply chain, including closing factories in Illinois, Iowa, and Arkansas—as occurred when Whirlpool purchased Maytag in 2006—came to be seen as a good thing because it made the merged company “more efficient.” The sole criterion of anticompetitive behavior was whether it raised or lowered prices for consumers, and even on that weak standard, the evidence is that antitrust policy has been too lax, with much behavior that penalizes consumers and impairs innovation waved through on the strength of “expert testimony” that is in fact bought and paid for by industry.
Overall in the economy, corporate profits are higher than ever and corporate costs of capital are low—and yet corporations are not investing and creating jobs, secure in the knowledge that their market share won’t suffer. They have no competitors, and when they do, those competitors are owned by the same shareholders, who do not want the companies in their portfolio competing with one another to bring their profits down. The investment that should be happening and would happen if markets were competitive is instead increasingly going to those shareholders as dividends and share buybacks, or just sitting on the balance sheets of corporations and their overseas subsidiaries in tax havens.
The missing investment goes a long way to explaining macroeconomic slack and poor labor market outcomes—stagnant wages, absent job opportunities, credentialization requirements for the jobs that do exist, ever-growing student debt, living with parents or roommates far longer than would have been necessary in an earlier era. In this economy, a job is a privilege, which is a big reason why promises to keep jobs on shore are so politically successful—if another job was right around the corner, as it would be if we got our competition policy back in order, keeping the ones we have at all costs would be less pressing. Workers would be better able to make their voices heard in their workplace—securing fair pay and benefits, reasonable hours and leave policies, reporting rather than suffering in silence for racial and gender discrimination and sexual harassment, and immunity from the whims of managers who blame their employees for their own incompetence. As my former colleague John Schmitt said, “We have almost no job security in the U.S., no legal requirement for severance pay and, with very few exceptions, can be laid off without notice.” All of these things go hand in hand with a slack labor market.
I used to be a bicycle messenger in New York City—though, as are many workers in the modern economy, I was not an employee of my company but an independent contractor. Notwithstanding that, I was required to accept the orders coming from the dispatcher on the schedule and pay they decided, meaning that I could not accept orders from rival companies and choose a delivery itinerary between them to maximize my pay. That was a clear case of misclassification, but it was also anticompetitive, and the larger problem of labor misclassification (as independent contractors rather than statutory employees) implicates antitrust as well as labor law. There is currently an antitrust class action against Uber on the grounds that their business model is a price-fixing conspiracy among hundreds of thousands of independent businesses—the drivers, who should be on their payroll. Several economists have proposed to grant Uber and similar firms the loophole they need to get around both labor and antitrust law in one fell swoop: a “third category” of “independent worker” who would be immune from both. That is a step in the wrong direction, enshrining in law the regulatory arbitrage that plays a major role in stagnant wages, lost jobs, and monopsonistic labor markets.
It was once federal policy in this country to diffuse economic power from Wall Street and Washington by means of robust antitrust laws that meant it was possible to start a business in a regional hub without getting squashed by monopolized distributors, or just run a family farm without all the profits going to pay intellectual property rents to seed- and fertilizer-producers. It was federal policy to hook up the farthest-flung parts of this country to an electricity and telephone network, because that’s what was necessary to be an economic person in a modern economy. Now we have a vast “digital divide” that excludes rural areas and low-income and minority neighborhoods in cities, because there just aren’t profits there to be made by the big telecoms companies. So instead those folks are paying through the nose for wireless data and in other ways—the toll they pay to get access to the modern economy.
Let me take a second to mention what the problem is not. The labor market’s problem is not the proliferation of “occupational licenses” that place credentialing requirements on entering certain professions, onerous and unfair though those might be. The Federal Trade Commission created an “Economic Liberty Task Force” whose aim is to persuade states to roll back these licensing requirements. But the FTC’s time would be better spent cracking down on labor market monopsony—meaning the power of employers to dictate wages and restrict employment. The paper I wrote with Mike Konczal showed that this, and not excessive licensing, is the explanation for the labor market’s problems, and the Federal Trade Commission, tasked with the mission of preserving fair competition for all market participants, should look there and not at the relative non-problem of occupational licensing. Moreover, there is some danger that the FTC might seek to act against forms of worker organization that do not enjoy immunity from federal antitrust action under the Clayton Act—and that would be an even greater threat to worker voice than wasting time on occupational licensing.
In closing, lax antitrust and competition policy is a big reason for our current problems creating jobs and making the labor market function to the benefit of all. Up here on Capitol Hill, I hear all the time about what can we possibly do to create jobs. Whereas over in another part of town, at the FTC and DOJ, job destruction is considered good, so long as consumers get some of the “benefit.” That narrow view of antitrust has not served us and our labor market well, and it’s time for a change. That includes far greater scrutiny of mega-mergers, opening up investigations into past mergers to see if they were anticompetitive after the fact, scrutiny for forms of labor market monopsony and coercion like noncompete agreements and other vertical restraints, Clayton Act scrutiny for common shareholding and other forms of excessive owner control of companies and whole industries, and federal review of real state-level restraints on trade, like preemption laws prohibiting municipal broadband.
For decades antitrust enforcement has seen itself as an expert, technical field in which only the credentialed few are permitted to have a voice. While the issues can be complicated, the principles at stake are not: free and fair markets, an equal playing field, universal access, and a prohibition on labor coercion and abuse of power. These things are as relevant now as they were in 1890 and in 1913 and in 1936. We’ve done this before, and robust antitrust policy played a large role in ushering in the fastest-growing decades in this country’s economic history, with opportunity and wage growth spread far and wide. An intellectual and ideological revolution reversed that tide, and it hasn’t worked out. Time to go back to what we know about how to grow an economy: strong competition, with federal policy to back it up.
Also published on Medium.