Get Messy!

Book Review: Tim Wu. The Curse of Bigness. Antitrust in the New Gilded Age (2017)

In March 2019, the next elections for the European Parliament will take place. If you think about what you could wish from your MEP, the new book by Columbia law professor Tim Wu might give you some hints. The Curse of Bigness is about controlling big business, especially in the digital sector. Written from an US-perspective, it also is a pointer to what is missing in EU-politics.

Antitrust is about fighting inequality

For us Europeans, one of the most telling passages of the book is the where Wu explains why, in his opinion, antitrust law-enforcement, which had a glorious tradition in the US, has lost momentum from the 1960s onward. The enemies of antitrust, he writes, had

won the culture war, by convincing a vast middle comprising practicing lawyers and judges seeking respectability with the appearance of rigor.

That’s it: a culture war. Not fought over issues, but over the method of making policy. Those responsible for interpreting and enforcing the law, according to Wu, were moved away from antitrust because enacting antitrust to them just seemed too messy a business.

A culture war. Not fought over issues, but over the method of making policy

Here’s the background: In the original phrasing, the intention and justification of US-antitrust-legislation was to fight inequality – “inequality of condition, of wealth, and opportunity”, thus the words of Senator John Sherman, initiator of the famous Sherman Antitrust Act of 1890. Trusts, and big business in general, Sherman claimed – following the famous Supreme Court judge Louis Brandeis – created a “a kingly prerogative, inconsistent with our form of government.” Antitrust, therefore, was regarded not only as a watchdog for the efficient functioning of markets, but as an instrument to ensure the balance of power. For lawyers, judges and politicians, this created ample room for interpretation. In other words: messiness! This kind of messiness, according to Wu, just was at odds with the more scientific or technocratic style of policy-making that emerged in the 1960s. To put it differently: Professional ethos and career ambitions of state lawyers dealing with antitrust paved the way for a policy more favorable to big business.

Lessons from history

In the US, the new policy went along with a different interpretation of the legal heritage. In Europe, in contrast, the more business-friendly approach is already enshrined in the very idea of the Union, which has committed itself to deal with matters of economic policy only. When it comes to antitrust and merger law, the EU legal framework (Regulation No 139/2004) explicitly limits the rationale for legal action to ensuring “dynamic competition”, “growth” and “standard of living”. Balance of power? Never heard of.

In the European Union, we do not have a legal and political tradition that we could refer to as a glorious past such as Tim Wu does in The Curse of Bigness. That’s a pity, as any reader of Wu will instantly recognize. But what still counts are the lessons from history and the arguments Wu puts forward to make his case.

History – that’s the so-called Gilded age. To put it in a single sentence:

By the early 1900s, nearly every major industry in the United States was either already controlled by, or coming under the control of, a single monopolist.

The monopolist’s name: John D. Rockefeller. Owner of Standard Oil, US. Steel, railroad monopolies in the West and the Northeast and the Atlantic shipping giant International Mercantile Marine Co.

Risks of concentrated economic power

The argument: Big business, Wu claims, poses a threat to democracy because of its’ lobbying power – resulting in a situation where the majority (among them ordinary citizens) lose basically any chance to have their interests served in the legislative process. The mechanism that is responsible for this is simple:

Concentration of economic power also yields the danger of accumulated political power.

Collective action is hard to organize because of the problem of free-riding. Big business, on the other hand, is organized already – and thus has a tremendous advantage. A simple calculation demonstrates the case:

A middle-class tax cut might save each member [of a group with 100 million members] $500 year. However, it might also require someone to invest 50 million to lobby and ensure passage of that tax cut.

Each member would have to contribute just 50 cents in order to gain $500. The problem: Organizing a collection among 100 million people is difficult. And from an individual perspective, there is no need to contribute: if others will, that’s fair enough.

Concentration of economic power also yields the danger of accumulated political power. Antitrust-policy in the postwar period, Wu emphasizes, arose in the United States and Europe in reaction to the role big business played in stimulating the rise of fascism.

In the words of US-lawyer Thurman Arnold: “Germany became organized to such an extent that a Fuehrer was inevitable; had it not been Hitler it would have been someone else.”

Should we be worried? The idea that we are steering towards a new Gilded Age does not seem to be so far-fetched. In a recent discussion paper, the McKinsey Global Institute points out that only 10 percent of the 6,000 of the world’s largest public and private firms capture 80 percent of economic profit, whereas the top 1 percent of the Top 6,000 account for 36 percent of all economic profit within the group.

When government tries to remodel the economy for the sake of efficiency, it has amassed a mixed record. When government uses its power to achieve clear moral ends, it has a strong record.

Concentration of business happens in all branches of the economy. One sector, though, is especially apt for concentration: the digital sector. Network effects, which play a dominant role in digital business, are responsible for the predominant winner-take-all-economy in the whole field. Today, seven out of eight of the world’s most valuable companies belong to the digital economy: Apple, Alphabet (Google), Microsoft, Amazon, Facebook, Tencent and Alibaba. All of them are platform companies. All of them hold enormous power not only because of their lobbying capacities, but also because they provide services that constitute the very backbone of today’s economy and society, including the communication sector. (Just remember how Facebook recently discredited critics by linking them, via the Facebook social network, to the politically seemingly unwelcome George Soros). Network effects are not the sole reason for the giant size of these companies. All of them gained their position also through a great extent by mergers and acquisitions. (For Facebook, again, the list of acquisitions comprises already 70 entries).

Not too healthy a prospect for a democracy. What we urgently need is a conception of antitrust and a European merger policy aiming not merely to secure the efficient functioning of markets, but at putting checks and balances to power – be it political or corporate power. In principle, government is in a good position to do so. To echo the words of Franklin Foer, long-time editor of the renowned US-magazine The New Republic, from an older Netopia-review:

When government tries to remodel the economy for the sake of efficiency, it has amassed a mixed record. When government uses its power to achieve clear moral ends, it has a strong record.

That’s the message for your MEP: Get moral on big digital platforms. Get messy. Make policy. Campaign for an amendment or a clarification of regulation 139/2004!

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