Last Friday, President Biden signed an executive order entitled “Promoting Competition in the American Economy.” In it, he made the case that over the past 40 years, the United States took the wrong approach on antitrust and corporate power.
The goal of the captured economy project is to focus on the intersection of policies which, via the force of law, restrict the freedom of private actors in ways that slow growth and redistribute wealth upwards. This isn’t to say that new rules aren’t needed in some areas or the rules we currently have shouldn’t be enforced more stringently, and it certainly isn’t to say that a regulation needs to be regressive for it to deserve paring back or doing away with.
But regressive regulations, rules that exist at the intersection of state intervention and upward redistribution, can easily be overlooked or given a pass in an environment where the focus is on clipping the wings of private actors. After the past few years of techlash, I was understandably nervous about the focus of an executive order focused on competition, along with many others. The Trump administration had shamelessly used the bully pulpit and threats of regulation against particular firms to achieve political ends or indulge the whims of the president. Such a dynamic makes it possible for competitors of those on the wrong side of the Administration’s crosshairs to slip under the radar and benefit from politically motivated regulation. From a more progressive administration, my concern is less that favored firms will get a pass while their rivals suffer excess scrutiny, but instead that the executive will be too hostile to the private sector generally. In practice, this would have meant taking a “more is more” approach to regulation, treating the private sector as a foil, and ignoring the ways in which state intervention undermines a competitive market.
My fears have been allayed.
When the executive order mentions the need for a “whole-of-government approach” that should include “rescinding regulations that create unnecessary barriers that stifle competition,” it signals a clear understanding that even though it is necessary for the government to take a more active role to police the behavior of the largest firms, there are certainly places where intervention does harm to competition and growth by benefiting entrenched actors with legal tools to be used against would-be competitors, as is the case with patents or non-compete clauses.
This is a serious piece of policy written by and with input from serious people. You will find no mention of Section 230, so-called “woke capitalism,” or any of the other bugaboos used by the previous administration in its bully pulpiteering. Some mention is made of practices unique to big tech (such as data surveillance), but scrutiny is also placed on the transportation, healthcare, finance, and agricultural sectors. These proposals were crafted by people who live in the real world, are not “Too Online,” and will not weaponize antitrust and competition policy to go after rivals while giving sweetheart deals to favored firms.
Rules, Not Outcomes
Though the EO makes mention of the rise of concentration and the need for “review [of] the horizontal and vertical merger guidelines,” and also affirms that “the United States retains the authority to challenge transactions whose previous consummation” was in violation of current antitrust laws, the majority of policy-oriented text is focused on addressing specific behaviors. This is an excellent strategy. I believe that “size agnosticism” is a preferable approach to questions of concentration than a precautionary approach which cuts firms down to size before they weaponize such size in a manner which would offend even the staunchest advocates of the consumer welfare standard. However, it is undeniable that the potential for firms to leverage their market power poses a risk. When there exists a system where firms can exercise such power in anticompetitive ways, a size-agnostic view becomes a moot point. It’s not that bigness is necessarily either beautiful or a curse, but it can be abused.
To take the example of reviewing previous mergers, I am of two minds. On the one hand, there are some rule of law implications associated with giving a second look at previously approved mergers with an eye to challenging them. A retrospective analysis of previous merger policy is unobjectionable and a worthwhile endeavour to be sure, especially as a guide for future action. But it is not unreasonable to be concerned about new administrations reversing the decisions of previous ones. On the other hand, though, accepting the value of divestment and breakups for large firms that act in restraint of trade but opposing challenges to mergers that were approved in error is a distinction without a difference. This is especially true if post-merger a firm exercises its newly acquired market power in an abusive fashion.
This executive order strikes the right balance by addressing conduct and regulations that allow these firms to leverage such market power in the first place. Reviews of non-compete clauses, a demand for the FDA to fully implement regulations on purchasing hearing aids over-the-counter (which the FDA simply declined to do even after the passage of the Warren-Grassley Over-the-Counter Hearing Aid Act), a reversal of the Trump administration’s view that antitrust is “misappli[ed]” in the context of intellectual property, and reviews of pay-for-delay deals will go a long way to ensure that the beauty of bigness can be preserved while keeping potential excesses in check.
Scrutiny is the Best Form of Competition
Institutionally, the executive order places a special focus on departments and agencies collaborating and closely examining where rules and practices in areas of the economy under the purview of those departments deserve closer scrutiny. In particular, the EO creates a White House Competition Council to “coordinate, promote, and advance Federal Government efforts to address overconcentration, monopolization, and unfair competition in or directly affecting the American economy”.
This news, if taken completely out of context, could easily be viewed as a nothingburger. It’s quite easy for elected officials to start new offices, task forces, or councils in the federal government that then put out reports that nobody will read or act on. Find any issue that currently ails our economy or government, and there’s a solid chance that the Government Accountability Office or some public interest nonprofit has a report that’s at least a few years old that generated little attention. There are plenty of smart, committed, serious people who have been thinking about what has gone wrong in recent decades, which policies contributed to it, and what should be changed. That’s not to say that all of the diagnoses or answers are obvious and that there isn’t valid debate to be had over whether or not something is a problem that demands government action. Rather, my point is that for every time the question “why is nobody talking about X?” is asked, the answer is usually “somebody is, but nobody cares enough.”
Classical public choice theorists like Mancur Olson, James Buchanan, and Gordon Tullock focused on the role regulation in the form of increased intervention plays in creating policies counter to the public interest. And this is true–it’s entirely possible for a regulation framed as being in the public interest to harm the public in a way that benefits entrenched interests. This view of regulatory capture was put forward most famously by George Stigler over 50 years ago. What adherents to that old time religion overlook, however, is that the logic of public choice works just as well to explain the removal or watering down of regulations designed to inhibit the behavior of private actors. This is especially true in cases where the private actors in question were regulated to prevent them from restricting the behavior of other private actors. Steven Vogel called this “deregulatory capture” and argued:
Daniel Carpenter and David Moss (2013) and their collaborators have stressed that regulatory capture is a variable and not a constant. That is, political economists should not assume regulatory capture, but rather examine the factors that account for more or less capture among industrial sectors, across geographical regions, and over time.
The financial sector offers the most prominent case of regulatory capture in recent years. Yet the finance industry was generally not asking for more regulation, but less. It pressed for the repeal of the Glass-Steagall regulatory separation of commercial banks, with federally insured deposits, from investment banks. And it lobbied against the regulation of derivatives, complex financial instruments such as futures and options that derive their value from some other underlying asset such as a commodity. So that suggests that we might usefully add deregulatory and anti-regulatory capture to our conceptual toolbox. [Emphasis in original.]
So are the dynamics the same as those of Stigler’s regulatory capture? Well, not exactly. The finance cases are consistent with the basic logic of the theory of regulation in that the concentrated interests of the industry have more political influence than the more diffuse interests of consumers, and the industry successfully obtains policies that allow it to gain higher “rents” (unearned returns).
If you’re a rent-seeker, you thrive on nobody paying attention. But someone is now paying attention. The new Chair of the Federal Trade Commission, Lina Khan, has never been shy in her views on market concentration and anticompetitive practices. There is no reason to believe she will become bashful anytime soon. Tim Wu, currently Special Assistant to the President for Technology and Competition Policy, has also been a vocal critic of and had significant influence on the final product put out by the White House. Personnel is policy, and the Biden administration has put in place a number of officials and advisers who care about these issues and have fire in their bellies–say what you will about their policy preferences.
Congress: Get the Lead Out
However, there are clear risks to executive action. A new administration could easily undo or make toothless Biden’s executive order. At worst, you can have an irredeemably Harding-esque executive branch that will not enforce the laws passed by Congress. This is a risk that must be taken seriously, and which only Congress can mitigate if not forestall. The duties of the White House Competition Council include “identify[ing] any potential legislative changes necessary to further the policies set forth” in the executive order, and Congress would do well to implement–or at least consider–legislation to complement and buttress the policies included in the EO.
Several of the policies outlined in the EO would be relatively easy (from a technical, if not a political standpoint) to make into law. It is well within Congress’ power to ban non-compete clauses, and this year Senators Chris Murphy (D-CT) and Todd Young (R-IN) introduced legislation doing so in almost all cases. Right-to-repair is also well within the purview of Congress (and state legislatures). Rep. Joe Morelle (D-NY) has introduced legislation to address equipment manufacturers’ failure to make parts and diagnostic tools available. Ron Wyden (D-OR) introduced legislation last year on right-to-repair for medical devices. It’s possible for Congress to use the Full Faith and Credit Clause to require interstate licensing reciprocity, and while direct regulation of states’ licensing requirements by Congress is probably unconstitutional, the Restoring Board Immunity Act would condition state licensing board antitrust immunity on states to regularly review their licensing regulations. In 2017, Senator Amy Klobuchar (D-MN) introduced the Preserve Access to Affordable Generics Act, which would substantially limit “pay-for-delay” deals. I’m sure other bills have been introduced which would address the substantive policies advanced in the EO, so this isn’t a comprehensive list. The point is that entrepreneurial legislators have been floating these ideas for a while, and Congress should act to make moot many of the provisions of the EO.
As a rule, it is preferable for a good policy to be enacted via legislation than by executive order. This smattering of bills would directly address some of the anticompetitive practices the EO singles out, and as legislation would be far more stable than an executive order. Further, it is possible via legislation to create either private causes of action or empower states to act, which most of these bills do to varying degrees, something that cannot be done by the White House alone.
In addition to these benefits of codifying the policies in this executive order or any others that may emerge in the coming years, one other reigns supreme: insulation from the judiciary undoing their efforts. As former FTC Commissioner Joshua Wright wrote in a Wall Street Journal letter to the editor:
Imagining the FTC as Icarus flying without the constraints of history, economics or law is a fun thought experiment, but we’ve been here before. Ms. Khan’s initial steps are indicative of a regulatory overreach that will end with the FTC’s wings melting in the courts. This path does not lead to incremental, much less radical, change. I predict early headlines that appease a rabid base, frustration for FTC staff and a new, volatile partisanship at the agency, but actual results that leave unsatisfied the progressives aching for radical change.
Wright’s letter is highly critical of Khan’s early actions at the FTC and the Biden executive order more broadly, so take his comments with a grain of salt. I’m as concerned about executive overreach as much–more even–than the next guy, but the tone was a touch melodramatic. And while he does not go into specifics (it is only a letter to the editor, to be fair), it’s a risk the Biden administration should take seriously. Unlike the last administration, Biden has staffed his cabinet and agencies with adults, so a repeat of the Trump Administration’s shambolic performance in the courts is unlikely. Regardless, a conservative judiciary may still be less than enthusiastic about a significant expansion of enforcement actions by the executive branch. Enshrining the rules put forward in statute, wherever possible, will go a long way to make it harder for even the most conservative judges to strike them down.
These aren’t earth-shattering insights. But for the past 40 years, Congress’ capacity has declined. This is in no small part, of course, due to Newt Gingrich’s successful effort to lobotomize Congress by cutting congressional staff during his time as Speaker of the House. But there has most certainly been a broader trend of Congress outsourcing the policymaking process to the executive branch, with rulemakers doing the job legislators should be doing and courts batting clean up (with mixed results). This executive order, while a mixed bag, contains many good policy ideas, and if Congress wants to capitalize on its momentum, or at least make sure it isn’t undone, it should reassert itself.
My general reaction to this executive order is one of cautious enthusiasm. In this administration, it is expected that mergers will be blocked and others revisited more so than in previous administrations, with more aggressive enforcement of policies designed to block anticompetitive conduct. And it’s entirely possible that the hammer will come down harder than it should on some as a way to show that the Biden administration means business and as a way for the state to reestablish its superiority over the private sector. This is by no means guaranteed, and the administration most certainly has its hands full with the ambitious wish list already laid out. I do not mean to cast a pall over this new approach to corporate power, especially considering this order is a course-correction for the policies of the past forty years. It’s something to keep an eye on, but the jury is still very much out and this new policy framework deserves a fair chance.
It is worth pointing out, of course, that not all concentration is created equal. For example, the decades-long trend of increased hospital mergers should be arrested and undone as quickly as possible. Not only does this require an energetic FTC and DOJ, which this administration clearly has, but a review of anticompetitive regulations like scope-of-practice restrictions for non-MD healthcare practitioners, supervision requirements to allow the same to establish their own clinics, and certificate-of-need (CON) regulations. CON laws in particular, which require government approval for investment in medical equipment, can often make hospital divestment far more difficult than it should be.
Other mergers, however, are at worst harmless. For example, shortly after the signing of the EO the FTC announced a new inquiry into the Amazon-MGM merger. My view is that this merger would be beneficial, making a wide catalog of MGM’s works available to consumers. Further, as Amazon Studios has become a producer in its own right, I’d be very excited to see what derivative works Amazon would create from that catalog. While FTC Chair Khan’s most famous law review article directly challenges the consumer welfare standard as the yardstick by which we should measure Amazon, it’s still only an inquiry.
Of course, it’s entirely possible that aggressive enforcement will put the fear of God into large firms and encourage them to behave more as good corporate citizens. The turn toward deregulation and greater market liberalization (so-called neoliberalism) which began nearly half a century ago was a valuable thing, but with great power comes great responsibility. The latter has been lacking.
I should stress in closing that while the concerns I have raised are, I believe, valid, they are at this moment hypothetical. It is entirely possible that the FTC and the DOJ will be too aggressive in their enforcement against mergers and in the pursuit of breaking up larger firms, but as of this moment this is not the case and what I offer is only speculation.
But those concerns aside, my general view of this executive order is a positive one. It is excellent that the Biden administration is taking the issue of competition, the abuse of private law, and regressive regulation seriously.