The nation’s antitrust police, asleep for the past few decades, barely opening their eyes to buzz through the latest corporate mergers, finally seem to be emerging from their slumber. That is a very good thing for the American economy.
This month the Justice Department filed suit to prevent Penguin Random House from buying rival book publisher Simon & Schuster. It’s the most interesting antitrust action in a long time. In pursuing the case, the Biden administration is attempting to break out of a cage that has constrained antitrust enforcement since the 1980s.
The effects on our economy
The power of large corporations can warp the economy in several ways. The most familiar is that companies with monopoly power can impose higher prices on consumers. To the extent federal antitrust regulators have done anything in the past few decades, they have objected to deals that seemed likely to result in higher prices.
But big companies also can pad profits by squeezing their workers and suppliers, and they can influence politicians to entrench their advantages.
The Penguin case is a landmark because this time, the government says it is intervening to protect workers — the people who write books. Publishers pay authors to write. Having fewer publishers means less competition, and the government says that allowing this merger would allow the combined company, and its remaining rivals, to pay smaller fees to authors.
Checking corporate power over workers as well as consumers is a necessary corrective. A 2018 study estimated that 20 percent of Americans work in highly concentrated labor markets, meaning that there are few alternative employers for the work they do within a reasonable commuting distance. “It means that employers have the power to underpay those people,” said one of the authors, Ioana Marinescu, an economist at the University of Pennsylvania. In a separate paper, Marinescu and her co-authors calculated that employers underpay workers by about 17 percent of the amount justified by the workers’ productivity.
Authors are facing the same imbalance of power that has held down wages for computer engineers in Silicon Valley and for workers who cut chickens into pieces. Last year the government charged Neeraj Jindal, the former owner of a Texas physical therapy staffing company, with conspiring with other employers in the Dallas area to suppress the wages paid to physical therapists. In January the Justice Department indicted SCA, a subsidiary of UnitedHealth Group, for entering into no-poaching agreements with other health care companies. The government’s evidence included a helpfully explicit email “re people” sent by an executive at one of the other health care companies describing an “agreement” not to recruit employees from other participating firms.
Meet the monopsony
At first blush, it may seem that companies with the power to squeeze workers — the technical term is “monopsony” — would pass along savings to consumers in the form of lower prices. I am an author, and like Stephen King, I am delighted by the government’s intervention. But should readers be rooting for Penguin & Schuster?
In fact, monopsonies are bad for consumers, too. Monopoly and monopsony are different forms of market power, but both let corporations sell less stuff without making less money. In the words of Attorney General Merrick Garland, a concentrated publishing industry will produce “fewer books and less variety for consumers.”
The Penguin complaint focuses on the potential harm to the authors who get the largest payments from publishers, people like King and the Obamas. It’s not a particularly sympathetic group of possible victims, but the choice is strategic. Antitrust minimalism is deeply ingrained in the federal judiciary. The Biden administration is trying to shift 40 years of legal thinking. It makes sense to start with a narrow case where the facts are relatively clear.
The historical background
The idea that antitrust enforcement should be restricted to consumer welfare was introduced in the 1970s by conservative economists and lawyers who believed the economy did not require government supervision. They believed the self-interested behavior of corporations was generally in the public interest, too, and that market forces would check misbehavior.
In an influential 1978 book, “The Antitrust Paradox,” conservative jurist Robert Bork argued that the government’s conduct of antitrust enforcement was arbitrary and economically damaging. He couldn’t erase the existence of antitrust laws, so instead he articulated a new, minimalist “consumer welfare” standard: Absent clear evidence of harm to consumers, he said, the government should not intervene. (In keeping with the norms of conservative discourse, Bork also insisted that his new standard wasn’t actually new.)
Biden has presented his approach to antitrust as a break with Bork. “Forty years ago, we chose the wrong path, in my view, following the misguided philosophy of people like Robert Bork, and pulled back on enforcing laws to promote competition,” Biden said this year in signing an executive order detailing areas in which the government would seek to increase competition. He said he wanted to restore what he described as the antitrust tradition of “the two Roosevelts” — Franklin and Theodore.
But according to historian Alan Brinkley, a decisive moment in the decline of antitrust came several decades before Bork, when Franklin Roosevelt’s administration shifted from a focus on restructuring the economy to a focus on redressing inequity. The New Dealers arrived at a truce with their opponents. The government “would not try to redistribute economic power and limit inequality so much as it would create a compensatory welfare system (what later generations would call a ‘safety net’) for those whom capitalism had failed,” Brinkley wrote. “It would not reshape capitalist institutions. It would reshape the economic and social environment in which those institutions worked.”
Another way of putting the same point is that ever since Franklin Roosevelt, liberals have focused on improving the lives of Americans as consumers while substantially ignoring their welfare as producers. Bork’s circumscription of antitrust is a logical, if extreme, expression of that worldview. One might say that he spelled out the consequences of Roosevelt’s choice.
In acting to protect producers, the Biden administration is not just breaking with Bork. It’s breaking with Roosevelt, too. It’s a break that’s long overdue.