The Curse of Bigness

I did not know what this book was about when I started reading it, which could have been why it was as powerful to me. I hope that commenting on it does not lessen its power when you read this book, because I STRONGLY recommend this book, and will buy you a copy if you'll read it.

Consider the U.S. Government and the Constitution which dictates how it interacts, grows, and is stopped. It has its checks and balances with its power, and, for the most part, can keep itself reined in (no, not really, but as far as governments go, its the worse we have expect for all others).

What the Founding Fathers did not anticipate in the Constitution was that the government would not be the most powerful entity in the country.

Lo and behold, our times.

The U.S. Government is not the most powerful organization in the country, and such status is causing problems.

The anti-trust (nee anti-monopoly) legislation of yore, the stuff that might have been covered in U.S. History class if you took a twentieth century history class, was the government's attempt to rein in the private power that was threatening to dethrone the U.S. Government. Said legislation works only if it is enforced, and since the Bush Jr Era (quelle surprise), it has not been.

This book is a history of the anti-trust work, its origins, its failings, and its hope.

I strongly recommend everyone to read it. Wu has done a great job of explaining the problem, providing solutions, and giving hope, in as much as one can have in a surveillance capitalistic world.

[I]n enacting and repeatedly fortifying the antitrust laws the United States made a critical, indeed Constitutional choice in industrial and national policy. After a period of intense national debate, including a presidential election in 1912 where economic policy was a central issue, the nation rejected a monopolized economy and chose repeatedly over the decades to preserve its tradition of an open and competitive market. The goal of antitrust law must be understood as respecting that choice.
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Over the twentieth century, nations that failed to control private power and attend to the economic needs of their citizens faced the rise of strongmen who promised their citizens a more immediate deliverance from economic woes. The rise of a paramount leader of government who partners with monopolized industry has an indelible association with fascism and authoritarianism. It is true that antitrust alone will not cure the curse of bigness or eliminate the excesses of private power. But it strikes at the root, and getting the engines of the law restarted is an important part of dealing with a problem that has reached Constitutional dimensions.
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In its American form, the Trust Movement envisioned an economy with every sector run by a single, almighty monopoly, fashioned out of hundreds of smaller firms, unfettered by competitors or government restraint. In short: pure economic autocracy.
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For the American tradition had, to that point, been defined by resistance to centralized power and monopoly. The American Revolution itself was in large part sparked by the abuses of Crown monopolies. The original Boston Tea Party was, after all, really an anti-monopoly protest.
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As Hofstadter writes: “From its colonial beginnings through most of the nineteenth century, [America] was overwhelmingly a nation of farmers and small-town entrepreneurs—ambitious, mobile, optimistic, speculative, anti-authoritarian, egalitarian, and competitive. As time went on, Americans came to take it for granted that property would be widely diffused, that economic and political power would be decentralized.”
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As such, the movement posed a new challenge for a Constitution that was committed to limited and separate powers, and never contemplated the rise of private power as great as any of the branches of government, and able to corrupt governmental operations to suit its ends.
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Louis Brandeis, the advocate, reformer, and Supreme Court Justice, has been done a particular kind of disservice. He is still known as a great jurist; his writings on the First Amendment and privacy are exalted. But what Brandeis really cared about was the economic conditions under which life is lived, and the effects of the economy on one’s character and on the nation’s soul.
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Brandeisian economic vision. It envisions a vigorous, healthy economy, a skepticism of the self-serving rhetoric projecting the romance of big business or the inevitability of monopoly, and, above all, a sensitivity to human ends. Brandeis took matters like bigness and concentration as inseparable from the very nature of democracy, and the conditions under which its citizens would live. They determined what kind of country we would live in and what kind of environment that country would provide for its citizens.
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As the Commission wrote, the consolidation campaign had “meant the reckless and scandalous expenditure of money; it meant the attempt to control public opinion; corruption of government; the attempt to pervert the political and economic instincts of the people in insolent defiance of law.” The
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That view had important implications for what the nation and its laws should look like. A worthy nation was one that served as cauldron for character and self-development, one that “compels us to strive for the development of the individual.” Importantly, Brandeis didn’t think that such personal growth was something that just happened: He believed that it required the right conditions. As he said: “The ‘right to life’ guaranteed by our Constitution” should be understood as “the right to live, and not merely to exist. In order to live men must have the opportunity of developing their faculties; and they must live under conditions in which their faculties may develop naturally and healthily.”
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A good country and a good economy, therefore, would be one that provided to everybody sufficient liberties and adequate support to live meaningful, fulfilling lives. He thought the American founders had understood this, that “[ t] hey valued liberty both as an end, and as a means. They believed liberty to be the secret of happiness, and courage to be the secret of liberty.” Hence a worthy nation should protect men and women from any forces, public or private, that might stifle the opportunities for thriving and life.
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But it also meant freedom from industrial domination, exploitation, or so much economic insecurity that one could not really live without fear of unemployment and poverty. “Men are not free,” he wrote, “if dependent industrially on the arbitrary will of another.” Economic security was a foundation on which one could really be free in a meaningful sense—hence the importance of steady but not oppressive work, of education, time and space for leisure, parks, libraries, and other institutions.
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We like to speak of freedoms in the abstract, but for most people, a sense of autonomy is more influenced by private forces and economic structure than by government. For many if not most people, the conditions of work determine how much of life is lived—such basic matters as the length of hours worked, the threat of being fired, harassment or mistreatment by a boss, and for some jobs, questions as fundamental as personal safety or access to a bathroom. Beyond work, our daily lives are shaped profoundly by economic matters like rent, access to transportation or groceries, and health insurance, even more so than any abstract freedoms. That is why Brandeis saw real freedom as freedom from both public and private coercion.*
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He grew to detest the growing American culture of overwork, whether self-inflicted, as in the private lawyer’s case, or more menacingly, in the growing class of large firms who worked their employees past the limits of human endurance.
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Instead what Brandeis really believed was that business could be a high calling and that a good career was one that created the conditions for human thriving. He thought for most people, a truly successful career consisted in developing a skill or a craft, or building a good business, and practicing as best one could, while aspiring to live by high principles in both personal and business affairs.
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If he had a unifying principle, politically and economically, it is what we have said: that concentrated power in any form is dangerous, that institutions should be built to human scale, and society should pursue human ends. Every institution, public and private, runs the risks of taking on a life of its own, putting its own interests above those of the humans it was supposedly created to serve.
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To Roosevelt, economic policy did not form an exception to popular rule, and he viewed the seizure of economic policy by Wall Street and trust management as a serious corruption of the democratic system. He also understood, as we should today, that ignoring economic misery and refusing to give the public what they wanted would drive a demand for more extreme solutions, like Marxist or anarchist revolution.
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He added that the “trusts are the creatures of the State, and the State not only has the right to control them, but it is in duty bound to control them wherever need of such control is shown.”
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Harlan read the Sherman Act as a literal ban on trusts, which, as he would later say, presented the danger of a “slavery that would result from aggregations of capital in the hands of a few individuals and corporations.”
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As Roosevelt later reflected, “it was imperative to teach the masters of the biggest corporations in the land that they were not, and would not be permitted to regard themselves as, above the law.”
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As Justice William Douglas would later put it, “power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy.”
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Hence, antitrust law was serving as a new kind of limit: a check on private power, by preventing the growth of monopoly corporations into something that might transcend the power of elected government to control. His pursuit of this goal makes it fair to call Roosevelt the pioneer of political antitrust.
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But the broad tenor of antitrust enforcement—the broader goals of enforcement—should be animated by a concern that too much concentrated economic power will translate into too much political power, and thereby threaten the Constitutional structure.
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At some level the point is obvious: Private economic power is a rival to the power of elected governments, and firms may also seek to control politics for their own purposes.
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In a representative democracy, lawmaking is supposed to roughly match what the majority wants. If that is unclear or disputed, then we might expect or hope they’d reflect the interests of the “swing” voter—that is, the middle-of-the-road man or woman. But research shows that, for the vast majority of policy matters, that isn’t how things work at all.
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large majorities don’t get what they want on many issues. Instead, they consistently lose out to small, closely-knit groups with discrete interests around which they organize—of which the “industry association” is the best example.
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Olson’s memorable conclusion is that the small and organized will dominate the large and disorganized.
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In 2003, the industry invested $ 116 million in convincing Congress to ban America’s largest federal-run insurance program, Medicare, from negotiating for lower drug prices. That $ 116 million was, to be sure, a major investment. However, the enactment of the negotiation ban has benefited the industry (and cost consumers) an estimated $ 90 billion per year. As an investment, it returns some 77,500 percent, and is a gift that keeps on giving.
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A Princeton and Northwestern group in 2014 tested various theories of politics and concluded that a theory of “biased pluralism” best explained outcomes—that the public policies “tend to tilt toward the wishes of corporations and business and professional associations.”
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The more concentrated the industry, the more corrupted we can expect the political process to be. Here, by corrupted, we mean a political system that does not serve its stated goals—service of the public’s interests—but instead favors a few groups at the expense of the general public.
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Roosevelt’s point: Concentrated private power can serve as a threat to the Constitutional design, and the enforcement of the antitrust law can provide a final check on private power.
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For example, as a firm adds more and more employees, it needs to add more managers, and ever-more complex systems of internal control, which tend, at some point, to begin making the firm less efficient. Managers in larger firms may start to yield to the temptations of seeking their own personal enrichment and power as opposed to the interests of the firm.
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It was during the postwar years, over the 1950s and 1960s, that strong antitrust laws became most clearly identified as part of a functional democracy, and in that sense reached the fullest extent of their power, influence, and political support. Reflecting
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Hitler’s rise and exercise of power were facilitated by the German Republic’s tolerance of monopolies in key industries, including the Krupp armaments company, Siemens railroad and infrastructure, and, most of all, the I.G. Farben chemical cartel.
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That conclusion came from the observation that the main German monopolists, over the 1930s, threw their weight behind the Nazi regime when it lacked support among other key groups, and that each ultimately became deeply allied with and enmeshed in the German war effort.
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As Senator Estes Kefauver put it: I think we must decide very quickly what sort of country we want to live in. The present trend of great corporations to increase their economic power is the antithesis of meritorious competitive development … Through monopolistic mergers the people are losing power to direct their own economic welfare. When they lose the power to direct their economic welfare they also lose the means to direct their political future.
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He then turned to antitrust’s relationship to democracy. I am not an alarmist, but the history of what has taken place in other nations where mergers and concentrations have placed economic control in the hands of a very few people is too clear to pass over easily. A point is eventually reached, and we are rapidly reaching that point in this country, where the public steps in to take over when concentration and monopoly gain too much power. The taking over by the public through its government always follows one or two methods and has one or two political results. It either results in a Fascist state or the nationalization of industries and thereafter a Socialist or Communist state.
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Like Thurman Arnold, Estes Kefauver, and other Americans, the Ordoliberals believed that the true origins of Nazi totalitarianism were the concentrations of economic power that began under Bismarck. In this sense, the European competition law was entwined, from the beginning, to the commitment to democracy and human freedom.
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Since at least Adam Smith’s day, economists have favored competition and condemned monopoly.
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Sherman had much broader concerns as well. He wanted antitrust law to fight “inequality of condition, of wealth, and opportunity” and feared that the trusts created “a kingly prerogative, inconsistent with our form of government.”
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antitrust represented a democratic choice of economic structure and a check on the political and economic power of the monopolies.
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As Learned Hand had written, “It is possible, because of its indirect social or moral effect, to prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few. These considerations … prove to have been in fact [the law’s] purposes.”
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In Alcoa, Hand articulated a better repudiation of monopoly than Brandeis himself had ever managed, writing that a “possession of unchallenged economic power deadens initiative, discourages thrift, and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone.” Congress, said Hand, had chosen to “prefer a system of small producers, each dependent for his success upon his own skill and character, to one in which the great mass of those engaged must accept the direction of a few.”
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One of the real triggers for the Justice Department, however, was signs that AT& T was also resistant even to government control.
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But Bell managed to subvert or undermine many of these policies, thwarting the introduction of competition, running roughshod over the FCC. As in Theodore Roosevelt’s time, the idea of a monopolist that considered itself above government control compelled the Justice Department to action.
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Robbing banks is economically irrational, given security guards and meager returns; ergo bank robbing does not happen; ergo there is no need for the criminal law. Exaggerated only slightly, this premise has been at the core of Bork-Chicago antitrust for more than thirty years.
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First and most importantly, IBM dropped its practice of bundling (or tying) its software with hardware. That is broadly understood, even by IBM’s own people, to have kickstarted the birth of an independent software industry.
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If the effect of the litigation was to prevent IBM from killing its main emergent challengers, the IBM case was not expensive, but incredibly cheap.
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AT& T, for example, ruled its industry for decades, destroying myriad would-be challengers, with the tacit or sometimes active assistance of government. Having waited for several decades, are society and the economy supposed to wait for several more? This line of argument ignores the idea that deliberate investments in building barriers to entry can be effective, and it is often utterly rational for the monopolist to make such investments.
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We can see that it is to the George W. Bush era that we owe our present economic state, as the administration dismantled most of the checks on industry concentration.
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Cable was also freed to charge monopoly prices, and happily raised monthly prices at some eight times the rate of inflation. During a period of historically low inflation, it managed to raise its prices by an impressive 8 percent per year. Bills that were once in the $ 30–40 range rose over $ 100, and as much as $ 200 per month.
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When a dominant firm buys its a nascent challenger, alarm bells are supposed to ring. Yet both American and European regulators found themselves unable to find anything wrong with the takeover.
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It takes many years of training to reach conclusions this absurd. A teenager could have told you that Facebook and Instagram were competitors—after all, teenagers were the ones who were switching platforms.
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When Facebook spies on competitors, or summons a firm to a meeting just to figure out how to copy it more accurately, or discourages funding of competitors, a line is crossed.
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Anti-Merger Act of 1950,
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As the Supreme Court put it, the law sought to erect “a barrier to what Congress saw was the rising tide of economic concentration” and therefore provided “authority for arresting mergers at a time when the trend to a lessening of competition in a line of commerce was still in its incipiency.” For “Congress saw the process of concentration in American business as a dynamic force” and it wanted to give the government and courts “the power to brake this force at its outset and before it gathered momentum.”
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Breakups and the blocking of mergers (also known as “structural relief”) are at the historic core of the antitrust program, and should not be shied away from unduly. Breakups, done right, have clear effects. They can completely realign an industry’s incentives, and can, at their best, transform a stagnant industry into a dynamic one.
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There is an unfortunate tendency within enforcement agencies to portray breakups and dissolutions as off the table or only for extremely rare cases. There is no legal reason for that presumption: Indeed, the original practice favored dissolution as the default remedy—implied in the very word “antitrust.”
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Too much of the resistance to dissolution comes from taking too seriously the legal fiction of corporate personhood.
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But reintroducing competition into the social media space, perhaps even quality competition, measured by matters like greater protection of privacy, could mean a lot to the public.
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The simplest way to break the power of Facebook is breaking up Facebook.
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The prerequisite would be persistent dominance of at least ten years or longer, suggesting that a market remedy is not forthcoming, and proof that the existing industry structure lacked convincing competitive or public justifications, and that market forces would be unlikely to remedy the situation by themselves. In
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The “protection of competition” test is focused on protection of a process, as opposed to the maximization of a value. It is based on the premise that the legal system often does better trying to protect a process than the far more ambitious goal of maximizing an abstract value like welfare or wealth.
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Here, as just one typical example, is Representative Dick Thompson Morgan in 1914: “the one thing we wish to maintain, and retain and sustain, is competition. We want to destroy monopoly and restore and maintain competition.”
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Or as it said in the 1950s, “The heart of our national economic policy long has been faith in the value of competition.… ‘Congress was dealing with competition, which it sought to protect, and monopoly, which it sought to prevent.’”
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The English Magna Carta, the Constitution of the United States, and other foundational laws of democracies around the world were all created with the idea that power should be limited—that it should be distributed, decentralized, checked, and balanced, so that no person or institution could enjoy unaccountable influence. Yet this vision has always had a major loophole. Written as a reaction to government tyranny, it did not contemplate the possibility of a concentrated private power that might come to rival the public’s, of businesspeople with more influence than government officials, and of an artificial creature of law, the corporation, that would grow to have political protection exceeding that of actual humans.
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