Trust-Busting Is Back

Joe Biden’s pick for chair of the regulatory Federal Trade Commission was a slightly nontraditional one: a 32-year-old Pakistani American lawyer named Lina Khan who’s been described as a “antitrust rock star.” She has big ideas about how corporations wield their power, and why large companies—i.e., monopolies—especially in Big Tech have remained unregulated for so long. This is exciting for Matt Stoller, who’s a research director at the American Economic Liberties Project and advocates against monopolistic business practices. Stoller says that if he had his way, the FTC would be preventing businesses from getting so big that they distort the market and jack up prices—like what megacorporations including Amazon and Google and others have been accused of doing. The FTC hasn’t done that kind of regulation for decades now—but could Khan turn the agency around? And in the process, will she finally be able to bust up these humongous companies? On Tuesday’s episode of What Next, I spoke with Stoller about Lina Khan and the potential counterrevolution in antitrust enforcement. Our conversation has been edited and condensed for clarity.

Matt Stoller: The FTC really hasn’t done anything for 30, 40 years. And people were OK with that. Let me give you an example. What is the most costly, inefficient, and basically predatory sector of the economy? Health care—prices are insane, the quality is bad. The Federal Trade Commission is supposed to be dealing with things like hospital consolidation, practices in the pharmaceutical industry, the medical supply chain. It’s supposed to oversee corporate mergers and stop the ones that create monopolies. But it has never stopped a single pharmaceutical merger over the last 40 years, and the pharmaceutical industry is the most price-gouging industry, as most people in America know.

Mary Harris: Given everything you’ve just said, how big of a change is it that Lina Khan has been put in charge?

I think it’s a really massive shift. The reaction among the antitrust world was explosive. The big thing to know is it’s not that the FTC has done a good or bad job over the last 40 years—I mean, I don’t think it’s done a good job—but, more importantly, it hasn’t been relevant. It hasn’t mattered. People don’t know commissioners’ names. Now you’re seeing people in Europe, antitrust lawyers all over the country, investment analysts, and Big Tech people kind of freaking out that the FTC actually picked somebody who wants to govern.

Lina Khan is like the Simon Biles of the antitrust world, to give you a sense of who she is. She started as business journalist, which is how she learned about the economy. In the early 2010s, right after the financial crisis, she was covering a bunch of different industries, everything from chicken farming to Amazon’s book division to chocolate to seeds and chemicals to airlines, and small business formation in general. She was talking to business people who were facing monopolies, and she wrote a bunch of stories about what it was like to deal with these monopolies, why these monopolies existed, and the market regulation problems. She’s not an economist. She didn’t learn all this through a theoretical mindset. She talked to business people and to monopolies, like, what’s your strategy here? Then she went to law school and used her journalistic skills—her ability to tell stories, her understanding that it’s really important to have an empirical foundation of evidence, not from weird, opaque models, but from talking to people that are in these markets.

In 2017, Khan wrote a law review article titled “Amazon’s Antitrust Paradox,” which was a way of saying, We have these laws against monopoly power. How is a firm like Amazon so powerful and so dominant? In that article, Khan described the way Amazon was invisible to antitrust laws. It was a remarkable attack on the way we’ve organized antitrust over the past 30, 40 years. And that was an explosive article—you don’t usually think of law review articles as going viral, but this one did. Here’s this law student who reshapes the debate over antitrust in her 20s. That’s crazy.

My understanding is that the article basically argues that Amazon wasn’t being regulated because most regulators had this consumer framework for antitrust—if a company is negatively affecting consumers, that’s when you step in. Amazon wasn’t perceived like that.

The framework that enforcers have is called consumer welfare rights. You have two ways of understanding antitrust enforcement. The traditional way is market power: Are these firms powerful and big? Are they using coercive practices to bully their competitors, suppliers, customers? Price is one aspect of that, but not the only aspect of it.

The other way to understand antitrust is the efficiency or consumer welfare model. In that model, the only thing people really care about is consumer prices. Are consumer prices low? If they’re low, then there is no antitrust violation going on. But what Amazon was engaged in below-cost pricing, charging less than the item cost so that it could drive competitors out of business and then eventually raise prices later.

There’s one part of Khan’s paper where she showed that the way Amazon was able to force the e-commerce site Diapers.com—which it wanted to buy—to sell was by lowering its prices of diapers lower than Diapers.com’s, lost hundreds of millions of dollars a month, and then telling the website, Sell out to us or we’ll just drive you out of business. So then Diapers.com sold to Amazon, and then Amazon raised prices on diapers afterward.

This model is bad for workers, for consumers, for competitors, for a whole set of actors—but the fundamental dynamic that Khan is driving at is that it’s bad for democracy. The anti-monopoly tradition in America used to be rooted in the idea that you don’t want to have concentrations of economic power because they become concentrations of political power. The way to check big business is to make sure companies have rivals so they have to compete with each other instead of fighting to just take over the government—which is what they’re doing now. That’s what the point of antitrust is and was, and price is only part of that story.

That paper came out in 2017, and it was huge. You see a lot of skepticism around Big Tech right now, and it’s largely because of the movement Lina Khan has been leading. That’s what’s so important about her: She’s reoriented the intellectual and political foundations of antitrust, and of how we do business in America.

You’re talking about how we are sort of reorienting to an earlier idea of antitrust. I was reading that Khan found a quote from 1905 from Ida M. Tarbell, who was then writing about John Rockefeller. Tarbell basically describes Rockefeller as a patient general who looks out at the field and is like, OK, we need to capture that tiny little hill over there, then that tiny little hill. If I do all that, I’m going to get the whole field. She looked at this and thought, This is exactly what Jeff Bezos is doing. He’s capturing all these little pieces of the market, and all of a sudden he’s going to be running the whole thing.

You read about Rockefeller, it’s like you’re reading about Bezos—in many cases they use some of the same tactics fighting the same political battles. There really are no new scams or new ways to monopolize. It’s always about acquiring bargaining power, surveillance, rebates, kickbacks, bribes, a lot of the coercive practices. You have new things like data, but you’re basically using the same techniques to acquire power.

Why did the idea of what antitrust was or could be change over the course of the 20^th century?

The anti-monopoly tradition goes way back, but antitrust is a late-19^th-century thing having to do with the formation of industrial corporations, from the moment big business appeared. Big industrial corporations started appearing in the late 1800s all the way through the 1930s, and there were debates about how you have a liberal democracy, a republic, an American state and society, consistent with these big businesses. We’d never had that kind of concentration of power. To that era’s Americans, it looked like some of the aristocratic elements that the U.S. had broken up from. That’s how John Sherman justified the Sherman Act in 1890: He talked about autocrats of trade and kings of commodities.

There were a bunch of fights about what to do about people like Rockefeller and the firms they had formed and by the 1930s. What ultimately happened is that FDR smashed the power of the financiers. So while there were big businesses, they were forced to compete. They were heavily regulated by the government. And for a lot of industries like banks, retail stores, light manufacturing farms, they were family-size or slightly bigger. That was the way we organized the economy, and antitrust was a key part of that. Antitrust prevented big business from merging. It prevented it from cracking down on their suppliers. It protected retail stores from distributors.

Did that look like constant fines and lawsuits and oversight of mergers?

It looked like a bunch of lawsuits. The laws were pretty clear and were interpreted through the courts, and there were a lot of breakups of firms. You also had private litigation. So if someone is screwing me, I can sue them and it’s possible to bring a case and win. So you had an incentive system to prevent coercion.

Things started changing in the 1970s. Two academic schools of thought started having this argument about the concentration of economic power. On the left, scholars were happy to see businesses grow dominant as long as the government taxed them and redistributed some of that wealth. On the right, scholars saw hegemonic business as a natural outgrowth of skill and didn’t think such businesses should be highly taxed for their success. Ultimately, both sides agreed monopolies weren’t inherently bad.

The left and the right still hated each other, but the whole anti-monopoly tradition fell away.

That agreement between the left and the right, you saw it really take hold during the presidency of Ronald Reagan. He started dropping antitrust cases, firing lawyers, relaxing laws, and appointing judges who do not believe in antitrust enforcement. But the crucial point is that this attitude continued. You could see it in decisions of both conservative and liberal Supreme Court justices. You can see it guiding the policies of the Clinton and Obama administration.

Right. I mean, the Obama administration was actively bad on this stuff. I think what’s really difficult for most people to understand about the monopoly problem is that it’s really not a partisan issue—these ideas came from both the right and the left, and they came from both political parties. But the FTC under Obama had evidence of monopolization by Google, and instead of bringing a case, it decided to drop the suit in 2013, a month after Obama’s reelection, when Google CEO Eric Schmidt was sitting in Obama’s election war room overseeing voter turnout. I mean—

Conflict of interest, much?

There were a lot of suspicions about deep corruption. But the philosophical point I’m making is that these guys really don’t believe in decentralizing power because they think, Let’s concentrate power and put our friends in charge and put experts in charge, because they know how to do stuff right. There was this ideological revolution that happened from Reagan to Obama, even to Trump somewhat.

What’s interesting to me is the fact that the confirmation of Khan was bipartisan. It seems like both parties have kind of come together to realize there’s a problem here and they need to take a different tack. I’m wondering if, from watching her confirmation hearings, you saw Democrats and Republicans working through this live on air.

It’s been shifting for a few years. What is fascinating is that Lina Khan is a progressive and she’s not shy about it. She’s aggressive, too, like. During her confirmation hearings, she said that there’s potential criminal activity, and she was alluding to price fixing between Facebook and Google in ad markets. Just a few years ago, if you had somebody in one of these positions making allegations about some of the most powerful firms in the country, you would think they were going to have a rough road to confirmation, right? If you’d put someone progressive, the Republicans were going to hate her and the moderates were going to feel all squishy. But what happened here that the moderates were the ones on the ropes because the moderates are the ones who led us to the status quo, which everybody hates. The fact is that 75 percent of industries in America have gotten more concentrated over the last 20 years. The top five tech companies bought a thousand firms and nobody stopped a single one. Everyone’s really angry about that. So Lina Khan gets up there and says, here’s my philosophy, here’s my track record, and then she gets 22 Republican votes in the Senate. That’s just astonishing, and a real sea change in how we understand politics.

I wonder if there’s a sense of relief in Washington because having Khan allows them to feel like, She’s going to handle it for us, we don’t need to solve this one right now. You know, we’re putting this person in place and hopefully that’ll right the ship here.

There’s definitely some of that. When you write a letter to the FTC and you’re a senator and you say, “Hey, we passed this law asking you to do this thing,” the FTC usually ignores those letters and ignores them. Senators and Congress members are really frustrated because because FTC staff and leaders really don’t believe in in governing. They really don’t want to interfere in the business world. They feel like that’s inappropriate. So to have someone who’s going to govern, who’s going to start using the latent authority of the FTC will be a relief, I think. It’ll be interesting to see what happens when and if Khan starts saying, “We are going to start restructuring these industries and banning unfair practices and not letting monopolies run the show”—what happens then? That’s kind of that’s kind of an open question.

You’ve written about how even when the FTC does do something, it’s often not enough. Like in 2011, it fined Facebook $5 billion, which sounds massive, for being careless with users’ personal information. But the FTC didn’t even announce it. Facebook announced it on an earnings call.

And Facebook stock went up by 40 billion dollars when it announced the fine. It’s kind of a joke. That’s what the FTC is perceived as.

But there’s a broader issue here, which is that you have a crisis of the rule of law more broadly. If you look at something like the Sackler family and Purdue Pharma, the whole opioid crisis, these guys are drug dealers and they really should have been in jail for what they did, but the DOJ and the government let them off the hook. You also saw this with the financial crisis, where not a single banker of any importance went to jail. There simply is lawlessness in our economy writ large, and the FTC is a big part of it, though t’s not the only agency that’s proved to be feckless. But I think having somebody who’s going to really focus on fairness in competition in America can really change that dynamic—not just at the FTC but across the government in general. That is actually what the people want. It’s increasingly what Congress wants. Do we really live in a democracy if our government can’t touch the corporate sector?