Return of the trust busters?

THE decision by the US Federal Trade Commission (FTC) early this month to bring a lawsuit to block Nvidia's US$40 billion acquisition of chip company Arm was a significant move on several levels.

First, the FTC halted what would be the biggest semiconductor industry deal in history, arguing that the proposed takeover would unfairly undermine Nvidia's competitors, quell competition and hurt consumers.

At the same time, the decision demonstrated the readiness on the part of the antitrust regulators nominated by President Joe Biden to apply more scrutiny of business mergers and to block monopolies as part of an effort by the new Democratic administration to bolster competition in the economy.

The move was also the first merger decision by the FTC under the leadership of Lina Khan, an American legal scholar and a long-time critic of large corporate mergers and technology monopolies, who was expected to make a big splash in Washington.

She was a "fearless champion for consumers and workers" who was "committed to restoring competition to our markets", as Democratic Senator Elizabeth Warren from Massachusetts described the 32-year-old former Columbia University professor, who was born in the United Kingdom to Pakistani parents and who moved with them to the United States when she was 11 years old.

Khan is heading a group of left-leaning legal advocates who have devoted their careers as academics and lawyers to crusading against corporate consolidation, particularly in the powerful high-tech sector, and who have proposed not only to block business mergers but also called for the break-up of large companies.

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They include, among others, Jonathan Kanter, a lawyer who handled cases against Facebook and Google, and who would head the Justice Department's antitrust division, and Tim Wu, special assistant (for technology and competition policy)to the US president, who has called for breaking up Facebook.

Indeed, President Biden has made it clear that he was ready to advance an aggressive policy agenda aimed at loosening the concentration of power not only in the technology sector but also in the pharmaceuticals, healthcare, and finance industries, including by breaking up some of the giant companies.

Although Biden spent his career of 40 years in Washington as a pro-business politician, he seems to have undergone an intellectual transformation when it comes to antitrust policy.

Hence he now embraces the views of progressive Democrats like Senator Warren who contend that the alleged rampant concentration of power across American industries has not only hurt the interests of consumers but also stunted economic growth.

Indeed, President Biden has already issued a number of executive orders that call for greater scrutiny of business mergers and to press for more competition in several industries. "Capitalism without competition" was "exploitation", the president stated when announcing the orders.

As a law student, Khan published at the age of 29 a scholarly article in the Yale Law Journal that helped reshape the debate over antitrust policy by proposing that anti-competitive behaviour by a company like Amazon shouldn't be immune from prosecution just because it made consumers happy by offering them cut-rate deals.

That was a view that went against the prevailing wisdom during the pro-business environment of the early 21st century, embraced by mainstream regulators and judges: that the "bigness" of a company was beside the point as long as it served the interests of the consumers.

Khan was seen as a paradigm shifter whose ideas would eventually impact policymaking. "Ideas and assumptions that it was heretical to question are now openly contested," she said during a debate at Georgetown University in September 2018. "We're finally beginning to examine how antitrust laws, which were rooted in deep suspicion of concentrated private power, now often promote it."

The FTC chair is now being championed as an intellectual leader of "trust busters" who would transform the way America does business. By bringing "deep expertise and needed innovation to antitrust enforcement", Senator Warren said, Khan would employ her "courage and brilliance to fight dominant firms plaguing our society".

This may sound a bit like a call for a radical social-economic crusade, but then "trust busting" - a "trust" being a large corporation organised by merging rival companies and eliminating competition - was central to the development of modern American capitalism.

The argument advanced by the trust busters of the late 19th and early 20th centuries was that when companies collaborate with competitors to set prices and control production they extinguish the main driver of the free market - competition.

The trust-busting movement that gained momentum during the presidency of Theodore Roosevelt ushered what became known as the Progressive Era.

That was a time when a few hundred large companies controlled almost half of US manufacturing and greatly influenced almost all key industries and economic policy in general.

The business behemoths that were headed by tycoons like John D Rockefeller, who controlled the Standard Oil conglomerate, were challenged by a series of lawsuits and government actions.

The campaign promoted by the progressive trust busters led to Supreme Court decisions that ordered the breakup in 1911 of Standard Oil, a corporate giant controlling railroads, sugar, and oil, and the American Tobacco Company, and eventually to the creation of the FTC in 1914.

Fear of the rise of business monopolies during the era of the New Deal under then president Franklin Roosevelt and later under Democratic and Republican administrations, encouraged the Supreme Court and Congress to continue to press against anti-competitive behaviour.

But the hostility towards Big Business that characterised the Progressive Era started to diminish after World War II. By the end of the 20th century and early 21st century, growing confidence in the competitive marketplace made regulators and judges less inclined to recommend breakups as remedies to antitrust enforcement.

The push for deregulation under Republican president Ronald Reagan and Democratic president Bill Clinton, and the rise of the high-tech giants in the Silicon Valley, didn't seem the right time to advocate trust busting.

Microsoft case

One of the few high-profile antitrust cases pursued by the US government during that time was against Microsoft. In 2000, a federal judge ordered the company to be split up, severing Microsoft's Windows operating-system business from its Web-browser business to stop the company from illegally bundling Internet Explorer with Windows, to hobbling competition from rival browsers. Yet the ruling was later overturned, reflecting the reluctance to challenge big companies then.

As Khan sees it, we are back in an era where companies like Amazon are the contemporary versions of Standard Oil, crushing competition from rivals and distorting the marketplace, and Jeff Bezos, not unlike John Rockefeller, is hurting the long-term interests of consumers.

But then, when was the last time that you witnessed large protests of angry consumers in front of Amazon headquarters? Consumers who benefit from the low prices of the products it sells love the company, and their sentiments have influenced the way regulators study the issue.

But as Khan wrote in her Yale Law Journal paper, focusing on low consumer prices misses the important point: Giant companies like Amazon have an inherent advantage that undermines competition. "The long-term interests of consumers include product quality, variety and innovation - factors best promoted through robust competitive process and open markets," she emphasised.

But it's far from clear whether Khan and the other new trust busters are in a position to launch the kind of changes in the regulatory system that were introduced during the Progressive Era and its aftermath, and to convince the judges who tend to have the last word when it comes to antitrust decisions - that low prices come at the expense of competition.

Many of the federal judges, not to mention the justices on the US Supreme Court, were nominated by Republican presidents who don't share the innovative legal ideas advanced by Khan.

Also, there continues to be persuasive legal and economic cases against Khan's agenda, including the notion that companies like Facebook and Amazon are Standard-Oil-like monopolies.

And with the Democrats maintaining a tiny majority in the House of Representatives, and the Republicans expected to take over Congress next year, it's unlikely that the Democrats would succeed in passing legislation that would provide more power to antitrust regulators.

Indeed, a US judge has already thrown out an FTC suit against Facebook, arguing that there was no persuasive argument that the company was a monopoly and directing the FTC to refile the lawsuit. Amazon, at the same time, requested that the FTC recuse Khan from any cases involving the company, citing her previous criticism of it and other Big Tech firms.

The difficulties that President Biden has faced in advancing huge New-Deal-like social-economic spending programmes demonstrated that he isn't another Franklin Roosevelt. Soon we will discover whether, when it comes to trust-busting, President Biden is another Theodore Roosevelt or not.