A few days ago, AT&T, a telecommunications company and wireless service provider, announced a deal to acquire Time Warner, an entertainment company that owns (among others) HBO, CNN, and Warner Brothers. The proposed deal, which was estimated at approximately $85 billion, comes on the heels of a number of other major acquisitions in the media industry: Comcast acquired DreamWorks in April (after completing its acquisition of NBCUniversal in 2013). Verizon, meanwhile, announced plans to purchase Yahoo in July.
Not surprisingly, the deal was approved unanimously by the boards of both companies. The political sphere is a different story. Donald Trump vowed to block the deal. Bernie Sanders said it would mean “higher prices and fewer choices for the American people” and called for an antitrust hearing. Chuck Grassley, the Republican chair of the Senate Judiciary Committee, called for a “robust review” of the deal. Senator Tim Kaine, Hillary Clinton’s vice presidential running mate, voiced his concerns about the deal, noting that “Pro-competition and less concentration, I think, is generally helpful, especially in the media.”
And it’s not just this particular deal that’s drawing fire. Antitrust policy, which is not a subject that has traditionally drawn much attention or elicited much passion, is suddenly a hot topic. Elizabeth Warren gave an impassioned speech on the need for a stronger antitrust policy earlier this year, saying that “[t]oday, in America, competition is dying.” Clinton quietly released a fact sheet on the topic earlier this month, calling for a “new commitment to promote competition” and a strengthening of antitrust laws and enforcement. And both Grassley and Senator Mike Lee, the Republican chairman of the Senate antitrust subcommittee, have expressed discomfort with industry consolidation in recent months. Meanwhile, the Wall Street Journalreports that both the Department of Justice’s antitrust unit and the Federal Trade Commission have recently ramped up their regulatory efforts.
“We do have a very unique political moment,” says Katy Milani, program director at the Roosevelt Institute, a liberal think tank. “It has been a sleepy issue in the past, but we’re seeing Republicans and Democrats pretty strongly scrutinizing these proposed mergers.”
For the first half of the 20th century, the federal government actively concerned itself with breaking up big businesses. At the time, progressives believed that concentrating power in the hands of a few big businesses wasn’t just a threat to prices, but to democracy itself. This view that was championed by Louis Brandeis, the liberal Supreme Court Justice. In an article for The Atlantic published earlier this month, Matt Stoller, a budget analyst for the Senate Budget Committee, laid out Brandeis’ philosophy on this:
Brandeis’s basic contention, built up over a lifetime of lawyering from the Gilded Age onward, was that big business and democracy were rivals. ‘We may have democracy, or we may have wealth concentrated in the hands of a few,” he said, “but we can’t have both.” Economics, identity, and politics could not be divorced, because financial power — bankers and monopolists — threatened local communities and self-government.
That started to change, according to Stoller, in the 1970s, when a coalition of libertarian economists and legal scholars led by Robert Bork began arguing for a dramatically reduced government role. Bork and his colleagues felt that consolidation carries economic benefits for consumers (in the form of more efficiencies and lower prices), and government regulators were often incompetent and vulnerable to pressure from special interests. Quite a few liberal economists of the time agreed with this philosophy, which was referred to as the Chicago School. The Reagan administration formalized and codified this shift, rewriting merger guidelines and substantially revising the country’s antitrust policy. Today, antitrust policy largely ignores market structure and instead focuses narrowly on one question: How will a proposed merger affect short-term prices and outputs?
“The Chicago style essentially takes a line of argument that focuses on just consumer welfare when analyzing antitrust impacts,” says Andrew Hwang, a legal fellow at Roosevelt. “This has resulted in a very narrow view — it tends to ignore the broader impacts [of mergers].”
This ideological shift resulted in a marked increase in industry concentration since the 1980s. As Warren noted in her speech in June, four companies now control over 80 percent of domestic airline seats, a “handful of health insurance giants” control over 83 percent of the health insurance market, three drug store companies control 99 percent of the country’s drug stores, and four companies control almost 85 percent of the beef market.
Economists are still debating what the exact effects of all this consolidation have been, but advocates of a more aggressive antitrust policy point to a number of recent papers linking industry concentration to excessive and unproductive corporate profits (formally known as “economic rents”), declines in both business and labor market dynamism, and even higher wage inequality.
Last June, as part of its ambitious Rewriting the Rules project, the Roosevelt Institute released a report (which Milani co-edited) titled “Untamed: How to Check Corporate, Financial, and Monopoly Power.” The report lays out a number of suggestions for a more aggressive antitrust policy, many of which could be implemented without Congressional approval or action. The guidelines by which the Department of Justice and the Federal Trade Commission evaluate proposed mergers, for example, could be modified to allow for a broader consideration of how a deal might affect both overall market structure and the public interest.
“We’d really like to see a turn back to the Brandeis school of thought — with a focus on the public interest, as opposed to this more narrow focus,” Hwang says.
The report also calls for expanding the FTC’s enforcement powers, more rigorous data collection on industry concentration, a new antitrust law, and a new approach to Internet giants like Amazon and Google. Above all else, it advocates for a fundamental rethinking of the way government evaluates big deals.
“Where there is market concentration, we should be asking if that’s bad for the economy, and bad for the democratic process,” Milani says.
It’s not yet clear how many of these strategies will make their way into a Clinton or Trump presidency, but it’s certainly difficult to imagine a better time, politically speaking, to take on big business.