Rising power of monopolies directly threatens democracy through concentration of power and control of political markets.

Americans today are fast reawakening to one of the essential truths of human society – that political economics is the art of governing how people compete with, and exercise power upon, one another. Competition itself is inevitable. What people can control is whether corporations and markets are structured to promote the liberty and well being of the individual, the ability of citizens to make wise decisions within democratic institutions, and the security and prosperity of the nation. For two centuries, Americans were masters of engineering competition policy to achieve these ends. Citizens used antimonopoly laws and policies to make themselves the most equal and free people in the world, and the most prosperous, innovative, and powerful. They did this even as new technologies and industrial systems repeatedly revolutionized social and economic structures. But four decades ago the United States radically altered how we think about and enforce competition policy. Rather than aim to promote liberty, democracy, community, and technological advance, policymakers in the early 1980s said we should focus on efficiency alone. The ultimate result? Today Americans face the gravest set of domestic threats to our liberty and democracy since the age of the plutocrats, perhaps since the Civil War. The speed at which Americans are awakening to the crisis of concentrated power is encouraging. It was only a little more than three years ago that this Subcommittee held a hearing on the wisdom of focusing foremost on efficiency in enforcing antitrust law. Most who testified that day denied that America faces any monopoly problem at all. Today, by contrast, the great majority of Americans want some sort of action against bigness. And enforcers and legislators are rising to the challenge. The Justice Department and the Federal Trade Commission have brought lawsuits against Google and Facebook. And in the most democratic antimonopoly action in American history, the attorneys general from 49 states, Puerto Rico, the District of Columbia, and Guam have launched investigations of Google and Facebook, and many of those states have joined to file three additional far-reaching lawsuits. On top of that are the smart and timely efforts to update, strengthen, and refine America’s antitrust laws, here in the Senate – notably with Senator Klobuchar’s important new bill – in the House, and in states across the nation. The people of the United States see the threat, and they are relearning how to use the sword of antimonopoly. The people of the United States aim to keep our democracy. Our task today is to begin to map out Stage Two of this once-a-century battle to restore peoples control over the U.S. political economy. I congratulate the subcommittee for recognizing the need to look beyond the immediate threats toward the ultimate goal, which is to establish a rule of law that can effectively protect American liberty, democracy, and prosperity for the long haul of the 21st century. I congratulate the subcommittee also for placing antitrust law within the larger framework of competition policy. The members are clearly breaking free of the intellectual and technical constraints placed on antimonopoly a generation ago by Robert Bork, Richard Posner, and other pro-monopolist thinkers. They are relearning that the purpose of American state is not only to protect the people from all dangerous concentrations of power abroad, but to break or neutralize all dangerous concentrations of power right here at home. To help us map our path on this next stage of the fight, I will focus today on what I believe are the five main challenges we must meet if we are to succeed. These are: • Understand the ways in which monopoly threatens democracy. • Remember the original purposes of competition policy. • Relearn how to use nondiscrimination rules and bright line rules – the two main tools of antimonopoly. • Create a coherent U.S. competition policy, by reintegrating antitrust with trade policy, patent policy, and national security industrial policy. • Understand the political, economic, and intellectual opportunity before us. I) UNDERSTAND HOW MONOPOLY THREATENS DEMOCRACY Our first task if we are to establish a smart and effective Competition Policy for the Twenty-First Century is to understand exactly how monopoly threatens American liberty and democracy. American democracy is founded on the assumption of a rough equality of personal independence, well-being, and opportunity. Such rough equality is what emboldens citizens to speak freely and to work together to address common problems, both of which are essential to any true democracy. Monopolization therefore threatens democracy in two ways. First and most obvious is that it results in concentration of power and control in the hands of the few. Second, and more insidiously, concentration of power and control suppresses exactly the sort of debate and actions necessary to fight monopoly. Over the last decade, Americans have begun to recognize the role that monopolization has played in concentrating dangerous amounts of power and control in the hands of the few. Thanks to the work of the economist John Kwoka, and others, we now know that prices for many basic services and goods have gone up dramatically in recent decades, despite the fact that the main focus of antitrust enforcement has long been to drive prices lower. Thanks to the work of the economist Jose Azar, and others, we also know that over this same period, monopolists have driven down American wages by 20% or more in most industries and regions, and often by more than 30%. Americans also have developed a better understanding of how concentration of power in retail, services, and farming contributes to this concentration of wealth. A good example here is the immense amount of power now held by two families – the Waltons and the Bezos. Until 1981, U.S. policy aimed to distribute the ownership of America’s retail stores among tens of thousands of families. Today, as a direct result of changes in competition policy under Reagan, the Waltons and the Bezos dominate vast swaths of America’s retail business. Both families have also concentrated enormous wealth in their own hands – to an extent that makes a mockery of the promises of democracy. The Walton family, for instance, is richer than 150 million Americans put together. The equation here is simple. Rising prices plus falling wages plus less opportunity to build independent business equals ever greater inequality, of wealth and hence of power. But recognizing the link between monopolization and inequality is only the first step towards addressing the political threats posed by concentration of power and control. And it is not even the most important step. Indeed, monopolization poses two other threats to American liberty and democracy that are far more immediate, yet far less well studied and understood. Autocracy within the corporate system. The basic problem here derives from the combination of monopoly control over some particular economic activity, and a license for the monopolist to discriminate in how it treats those under its sway. In some cases, the monopolist discriminates in the delivery of some essential service. In others it discriminates in the delivery of some essential product or component. In both instances, the ability to discriminate in the delivery of a product or service empowers the dominant corporation to exercise more or less direct political control over the dependent corporation or person, who do and say whatever is necessary to retain access to the market. There is nothing new about how the combination of monopolization and the license to discriminate, nor about dominant corporations using this combination to control dependent corporations and people. At the height of the power of the Wall Street “plutocracy” of the early 20th Century, when much of the political power of the United States was concentrated in the hands of a small clique of bankers led by J.P. Morgan, President Woodrow Wilson wrote: “Some of the biggest men in the United States, in the field of commerce and manufacture, are afraid of somebody, are afraid of something. They know there is a power somewhere so organized, so subtle, so watchful, so interlocked so complete, so pervasive, that they had better not speak above their breath when they speak in condemnation of it.”1 We should be absolutely clear about what monopolization plus discrimination means. Whenever a person’s property is not secure, whenever that person’s property can be taken or crushed at will, it means rule of law itself has collapsed. Or rather, it means that the whim of the monopolist has become the law of the land. The most immediate political result of such a system of arbitrary control is silence. Those who are harmed and who should criticize the monopolist do not speak up, for fear of retribution. A good example of such arbitrary rule is the semiconductor industry. In recent months, a shortage of semiconductors has paralyzed much of the international production system, including assembly lines of General Motors, Ford, and Volkswagen. The main reason for the shortage is that a single corporation - Taiwan Semiconductor Manufacturing Corporation – was allowed to capture a monopoly over the manufacture of high-end semiconductors. TSMC then chose not to invest in sufficient new capacity to serve all potential customers. It can be far more profitable, after all, simply to pit existing customers against one another in competition for capacity on TSMC’s foundries, and to charge them more for their products. And what do the executives at the manufacturers thus harmed do in response? Rather than decry the concentration of power by the monopolist TSMC, or the failure of TSMC to invest in sufficient capacity, even the largest of manufacturers remain silent in public, while begging for supply in private. They do so because they are afraid TSMC will respond by inflicting yet more pain on their enterprises, such as by arbitrarily shifting already scarce supplies to their rivals. But let’s be clear. This is no isolated instance. We see this same fear to speak out in almost every corner of the American political economy today. This includes companies that depend on Amazon to get to market, including even the most powerful of book publishers. We see the same fear among the companies that depend on Google and Facebook to get to market, including even the most powerful of news publishers. We see the same fear among the companies that depend on Amazon and Google and Apple to distribute their films and music and television shows, including even the most powerful producers of art and entertainment. The breakdown of information systems. Democracy also depends on the ability of citizens to communicate freely with one another, and to deliberate with one another based on a roughly similar understanding of facts. But the combination of monopolization and discrimination is swiftly breaking down the systems Americans have long used to gather, process, share, and debate news and information with one another. Two threats especially stand out. The first is the way in which dominant intermediaries – Google and Facebook foremost – are exploiting their chokeholds to divert advertising into their own vaults, away from independent publishers. This diversion of tens of billions of dollars has resulted in the loss of tens of thousands of journalism positions across the nation. And it has resulted in the bankrupting of thousands of important publications, and the financial degradation of thousands more. The overall result is that less and less well-reported, well-edited, trustworthy information is generated in the United States as a whole, and within each individual region of the United States specifically. Open Markets was among the very first organizations to warn of this threat, in public events in the summer of 20162 and 2018.3 Since then, this threat has received a lot of attention, from policymakers and law enforcers around the world, including recent public and private antitrust lawsuits in the United States. There is some good news here. Senator Klobuchar just yesterday introduced important legislation that would provide news publishers with breathing room, while Americans work out a permanent fix to the problem. But thus far, however, no legislature has developed a mature plan to rebuild a truly open and competitive market for news and information that is not – to at some degree – ultimately regulated, manipulated, and taxed by Google and Facebook. The second threat derives from that combination of monopolization and discrimination. Here the basic problem is that Google and Facebook increasingly deliver different news, information, and advertising – including highly targeted propaganda and misinformation – to each individual citizen. Google and Facebook say that such targeted information serves the interests of each individual citizen. Whether that is true or not, the ultimate political result is an atomization of the public, to a degree that makes it ever more difficult for citizens to engage with one another through constructive political interaction, and to identify and master the great problems of our time.