President Donald Trump plans to gut antitrust regulations.The Associated Press
American capitalism is in terrible danger – and Donald Trump could be its nemesis.
The scattershot policy pronouncements from the Oval Office make it clear: This President will be no enemy of monopoly; he will seek to level no playing fields; he will erect no barriers to corporate power; nor he will appoint any watchdogs with a mission to curb market abuse or predatory commercial behaviour.
How do we know this? Only months ago, the then-presidential candidate styled himself as the outsider, the self-made man who would fight in the corner of blue-collar workers against the power of banks. He accused Wall Street of corruption, stuffing the pockets of establishment Democrats and Republicans.
So, what has he done to bring power back to the people? He has threatened to gut the Dodd-Frank regulations, the laws introduced to curb the speculative behaviour that led to the 2008 financial crisis. And he is about to stuff his cabinet with Wall Street alumni, notably Steven Mnuchin, the former Goldman Sachs partner who is the President's choice for Treasury Secretary.
You could see this as no more than the reverse pedal of a politician who curried favour with voters only to get back to business as usual when his bottom hits the executive chair. But it's more than that. The clue may be in his latest best friend, Peter Thiel, the PayPal founder and amateur political philosopher, who apparently has been assigned the unofficial role of finding suitable candidates to head up the new administration's antitrust executive, notably the heads of the Federal Trade Commission and the Department of Justice antitrust division.
The problem is Mr. Thiel has no problem with monopoly – he reckons it's a good thing. He reckons that the measure of a good business is its ability to create its own market. Whether a product or a service, the first mover's job is to ruthlessly exploit his advantage in being way ahead of competitors, profiting from those high margins until the competition catches up or, better still, innovation takes the market in a new direction.
It's a nice idea and it reflects in the glory of PayPal's brethren, the platform companies Google, Facebook, Amazon and Uber. Google has colossal market share, but that isn't the point. It is the tendency of monopolies to move horizontally and vertically into other markets that poses a danger to the economy. The United States' antitrust authorities have abandoned their investigations of Google, perhaps a consequence of the $15-million (U.S.) Google spent last year lobbying Congress and various agencies.
Google, Facebook and Amazon are not kindred spirits of the new President. Their outrage over the temporary ban on immigration from several Muslim-majority countries was genuine. But, again, that is not the long-term issue that is central to the future of American capitalism: How do government and society respond to a business enterprise that has the power to control access to markets and the capacity to engage in predatory pricing and market abuse?
Consider Amazon, a company that is growing worldwide at a staggering speed. From its origins as an online bookshop, it is now a retailing colossus. The attrition of conventional retailing on the high street is well documented, a consequence of Amazon's strategy of forgoing profit for market share. Even more important is Amazon's power over market access, which has become essential for a huge swath of small to mid-market retailers.
Amazon, Google, Facebook and Uber represent a new antitrust problem. Google is still under investigation in Europe for abusing its dominant position in search, but the United States is at risk if it continues to ignore the danger of allowing these platforms to extend their reach into new markets.
In a recent article in the Yale Law Journal, Lina Khan argues that these online platforms have become critical intermediaries, controlling the essential infrastructure on which their business rivals depend. Without Google, it is almost impossible for any business to communicate and reach its customers today, while Amazon controls the product distribution network for a vast part of the consumer marketplace.
Google and Amazon are no longer just businesses. They have become utilities and, as such, require regulation to control their monopoly power.
We know that Google and Amazon are essential conduits for communication and commerce, without which the modern economy would not function easily. The counterargument to regulation is that it effectively enshrines a monopoly rather than disrupting or disassembling it. However, the tycoons of the new economy cannot have it both ways. If the Internet colossuses argue that competition and innovation is the solution, they must show how it is working. It is true that the old AT&T has long disappeared into a mobile market cacophony, but that was only after the grand old utility was broken up into "baby Bells." We need a new impetus behind antitrust, and Mr. Trump is not it.