14 December 2021

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Democracy for Sale

by Paul Whelan

Monopolies, Lobbying, and the role of Competition Policy in preserving our democracies

 

We live in an age of immensely powerful corporations that pervade many areas of our day-to-day lives, and their power only grows as they consolidate all consuming monopolies. These corporations in turn alchemise their vast wealth into political power through lobbying. Lobbying groups for business interests are twice as influential as any other, non-business interest, group. The reason why? Because lobbying works. A recent report from the American Economic Liberties Project exposed a positive link between increasing monopolies and lobbying spending. The takeaway? Monopolies seek to acquire political power, whereas competitive businesses focus on competing with each other, as businesses should.

 

The report examines influence over the US Federal Government through lobbying spending of corporations, examining the link between increasing monopolies in certain sectors and the increased political power of those corporations. The sample industries selected were the “Big Business trifecta”: internet companies, pharmaceutical manufacturing companies, and fossil fuel (gas and oil) producers. 

 

 

Key findings

 

The more concentration there is, the more lobbying there will be

 

The more market power (its share of the marketplace) a company gains, the more it will lobby. A conclusion we can draw from the report is that while smaller, more competitive businesses have to focus on competing with other companies, monopolies have the time and resources to seek political power in order to retain, and even increase, that monopoly.

A time lag between concentration and lobbying spending

However, there is one caveat. This pattern of mutually rising concentration and lobbying is only clear when factoring in a time delay for when the rise in lobbying begins; this time delay is unique to each industry. For example, for internet companies and fossil fuel producers, this delay is four years, while for pharmaceutical manufacturers it is three. Therefore, it takes some years for the effects of concentration to take hold and shape lobbying spending.

For any budding antitrust lawyers, the finding that the impact on lobbying is offset by several years is important. Defining the market is key in competition law to determine whether a company is too dominant, with lawyers having to prove a causal link between the strengthening of a dominant position, and the impact on competition.  These time lags are an additional factor, or indeed a tool, that need to be taken into account when assessing monopolies and their dominance within a specific market.

 

 

A decisive moment

 

As politicians such as President Biden consider widening the scope of antitrust legislation to target not just consumer harm, but also the size, structure, and power of companies themselves, this report could not come at a more important time. President Biden’s new head of the U.S. Federal Trade Commission, Lina Khan, and the European Commissioner for Competition, Margrethe Vestager, are both advocates for a wider view of the role of competition law in regulating all powerful corporations such as Amazon. Indeed, the two met in early December in Washington DC and launched the “Joint Technology Competition Policy Dialogue” which will focus on transatlantic cooperation on enforcing competition policy in the technology sector. 

Khan and Vestager both believe the current market concentration cannot be understood solely through the usual, narrow “consumer welfare” lens of analysis, and its over-focus on price and quality. Khan wrote in a 2017 article “potential harms to competition posed by Amazon’s dominance are not cognizable if we assess competition primarily through price and output….a company’s power and the potential anticompetitive nature of that power cannot be fully understood without looking to the structure of a business and the structural role it plays in markets.

 

The report by the American Economic Liberties Project  urges us to reassess competition law, and even to cast our minds eye back to the very establishment of antitrust law. Antitrust laws were founded to not only prevent consumer harm from powerful monopolies, but to also preserve our democracies. As Senator John Sherman put it in 1890, “If we would not submit to an emperor, we should not submit to an autocrat of trade.” New companies such as Facebook, which do not extort consumers’ reliability on them to extract higher prices, still exert immense influence over our democracies, as most potently seen in the disinformation rampant in the 2016 and 2020 US general elections. Yet the narrow concept of antitrust laws focusing on output and price are unable to reign in companies like Facebook. For example, often these companies do not charge a monetary price for their services, therefore reliance on traditional price theory to establish consumer harm is unworkable. Amazon’s business model means it often does not turn a profit, but instead invests aggressively in expansion and predatory pricing, allowing it to become the omnipresent titan it is today.

 

This report places weight on the side of the debate that favours a broader view of antitrust that encompasses the notion of “power”, in order to capture the activities of companies such as Facebook and its influence over our democracy. It also seeks to capture those companies, such as Amazon, that may be the incredibly efficient company, providing low prices to consumers, that antitrust laws hoped to create; but is still a corporation that exerts undemocratic levels of power over government and undermines its rivals through its dominance and structure.

The current, narrow concept of competition law and “consumer harm” fails to capture and understand this not new, but in fact old, concept of the role of antitrust law: of saving our democracy from the wealthy and powerful.

 

 

Future regulation

 

 

So where do we go from here? Competition policy must now focus on undoing market concentration, in order for corporations to focus on competing with each other, rather than lobbying politicians to change the rules of the game to best suit them. 

By way of example, structural separation laws prohibit a dominant firm from entering new markets that would place it in competition with smaller firms dependent on their goods and services. Because online giants like Amazon operate as intermediaries, they control the very infrastructure their business rivals depend on. This is a structural issue competition law must broaden to encompass through structural separation laws. Such laws also have great potential as anti-corruption tools, preventing corporations using domination in one sphere as leverage in another, whether it be political or financial. The conduct of predatory pricing must also be examined.

Importantly, regulations must do more than just prevent further concentration, but reduce it, otherwise current positions of monopolies, with the power and influence that involves, will just become entrenched.

 

Applying this to the EU

 

Could this broader concept of antitrust work in the EU? The Treaties do not define what the goals of EU competition law are, with the EU Courts interpreting and filling out the competition articles: Articles 101 and 102 TFEU. The Courts and the Commission still favour a narrow consumer welfare approach, but the EU Courts have considered public policy goals outside of just consumer welfare before, such as environmental protection and the administration of justice, as they understand the importance of reading treaty articles in the context of other EU law and principles. Therefore, the EU courts should use competition law to also protect the democratic values enshrined in the Treaties, and the constitutions of the Member States.

 

Read more about the report here.

 

 

Related topic in the EU:

 

In August 2021, in a report called “The lobby network: Big Tech’s web of influence in the EU”, Corporate Europe Observatory and Lobby Control showed the incredible lobby firepower of Big Tech. This new study provides a unique and detailed analysis of the lobbying power of tech companies at EU level. It maps the biggest players, their networks and countries of origin, and uncovers their lobby budgets and access to EU decision makers. The research also unveils how this lobbying power plays out in practice in the context of ongoing EU policy debates on the Digital Services legislative pack. Tech giants have spent almost one hundred million euros in a year to influence some European Union laws that could limit their excessive power, representing the largest ever effort to lobby the EU. 

 

Explainer

 

As reported by Playbook on December 7th, Vestager and her new US equivalent Lina Khan, launched the “Joint Technology Competition Policy Dialogue”, which will focus on trans-atlantic cooperation on enforcing competition policy in the technology sector. 

 The two generally agree on taking a harder approach to regulating the big tech companies, and embracing a wider approach of competition law than just what’s referred to as “consumer welfare”, i.e. as long as prices are low consumers are not hurt. 

 

Our work on that field:

 

The Global Corruption Barometer reveals that corruption is on the rise in the European Union.

New report shows how corporate lobbyists are undermining EU due diligence legislation

Civil society organisations call for Conference to include marginalised communities