Time for a Break
Over the first year of his presidency, Joe Biden has battled COVID-19, attempted to bolster a pandemic-plagued economy, and implemented a withdrawal from Afghanistan negotiated by the previous administration. In such event-filled times, it has gone all-but-unnoticed that Biden has also answered the warnings of some political observers by taking steps to curb monopolization that has defined corporate America for four decades. Using antitrust laws dating back to 1890, he and members of his administration have acted on deals in the publishing business and the aerospace defense industry. But is his ultimate target Big Tech, where government, as Biden once said, has an obligation to “come in and level the playing field”?
To clarify his position on competitiveness, Biden issued an executive order on July 9th in which he declared that “the American promise of a broad and sustained prosperity depends on an open and competitive economy.” Noting that consolidation had become a mainstay of business, Biden argued that “robust competition is critical to preserving America’s role as the world’s leading economy.” Among the industries he singled out were agriculture, defense, telecommunication, and technology. Saying “we must act now to reverse … dangerous trends,” Biden ordered his administration “to enforce the antitrust laws to meet the challenges posed by new industries and technologies, including the rise of the dominant Internet platforms.”
“The order takes an all-of-government approach to address competition,” says Diana Moss, president of the American Antitrust Institute. “That’s good because there is a boatload of empirical evidence for economywide declining competition. It’s a problem every consumer and every small entrepreneurial business should care about.”
But the administration has done more than issue executive orders, recently making news by using antitrust laws in an attempt to protect competition in a legacy industry: book publishing. Last autumn, Penguin Random House, the largest publisher in the world, which itself is part of the German media conglomerate Bertelsman, proposed the acquisition of its main competitor, Simon and Schuster, in a $2.175 billion deal. A review by the government ended on November 2 when the Department of Justice filed in the U.S. District Court for the District of Columbia a civil antitrust complaint attempting to block the purchase.
“The publishing industry is already highly concentrated,” the Biden Administration argued—after years of mergers only five major publishing houses remain—and further consolidation would affect both the number and type of books that get published.
“I worry about the range of books that would be acquired, the authors that would get contracts, the marketing opportunities that might be reduced,” says Jamie Fiocco, owner of Flyleaf Books and past president of the board of directors of the American Booksellers Association. Lack of competition means smaller advances for authors, she believes. “How do you make a living at this at a certain point? And if these books don’t get published, it’s the dumbing down of America.”
Another proposed acquisition targeted by the Biden Administration, this one in the aerospace defense industry, has national security implications. Lockheed Martin, the nation’s largest defense contractor, announced in December 2020 the proposed purchase of Aerojet Rocketdyne, the nation’s largest rocket manufacturer, in a $4.4 billion deal. News of the proposed sale prompted industry insiders to claim the acquisition would pose a dangerous threat to competition in the defense industry.
Executives at Lockheed Martin were unfazed by the criticism. “How does China operate its defense industrial base?” James Taiclet, the company’s chief executive officer, was quoted as saying. Critics pointed out that perhaps China was not an appropriate model for the way America should conduct business, particularly in the defense industry. But Taiclet insisted that “a classic antitrust perspective,” as he called it, was “dwarfed” by “added costs” and problems resulting from “a supply chain that’s quite fragmented.” In short, profit trumps competition.
The Biden Administration appeared to acknowledge such concerns when, in June, the Federal Trade Commission and the Department of Justice issued new guidelines regarding a vertical merger (the merger of two or more companies that provide different functions on the supply chain). Then, on July 16, Senator Elizabeth Warren of Massachusetts wrote a letter to Lina M. Khan, the Biden-appointed FTC chair, sounding a warning about the “monopolistic behavior” in the defense industry.
“In the two decades starting in 1980,” Warren wrote, “waves of merger activity and consolidation transformed our nation’s defense industry from a competitive market with over 50 firms to an oligopoly of only five large rivals. After decades of horizonal consolidation, the remaining giants in this sector have shifted to vertical consolidation, buying up key suppliers and input manufacturers in order to integrate operations up and down their supply chains.” Warren urged the FTC “to re-evaluate the best method to protect competition,” including “not allowing such transactions”—like the Lockheed-Aerojet deal—“to proceed in the first place.”
Khan responded to Warren on August 6th. “I believe the antitrust agencies should more frequently consider opposing problematic deals outright,” Khan said, before concluding that “[t]he larger the market share, the higher the risk that a vertical merger will result in a reduction of competition post-merger. For that reason, I prefer structural remedies that prevent the harmful integration of assets, or would support the Commission moving to block the merger altogether.” Such a move could be complicated by the fact that at present three of the five commissioners were appointed by President Donald Trump with one seat left unfilled. Still, Khan made clear the position of the Biden Administration: to block mergers that harm competition.
And never has competition in the defense industry been more crucial. “Recently, we have become concerned with the hypersonic rockets that the Chinese have shown,” says Hank Naughton, Jr., a defense industry analyst appointed by Secretary of State Hillary Clinton to the International Security Advisory Board. Referring to a series of unannounced rocket launches carried out by the Chinese military to highlight the country’s ballistic capabilities, Naughton believes that “we need to catch up with the Chinese. We are not ahead of them; we are behind.” Competition will “always drive new and better ideas” to help the U.S. keep pace in a de facto arms race such as this one.
Former Congressman Silvestre Reyes of Texas, who served on both the Arms Services Committee and the House Intelligence Committee, which he chaired for two terms, shares national security concerns. “We should be worried about the Chinese and their attitude that proliferation is something they are willing to accept if that’s what it takes to defeat the United States,” Reyes says. “But we can’t rule out rogue elements in the Middle East and we should always be concerned about Russia when we have someone like Vladimir Putin in charge. He has made no secret about returning Russia to its former worldwide status.”
With such looming threats, Reyes argues competition within the defense industry is vital. “It is dangerous to have all of our marbles in one basket,” he says. “It defies logic. It’s greed. That’s the only rational answer I can see. They’re putting greed before national security.”
These skirmishes may presage efforts the Biden Administration will take in another sector: Big Tech. During 2020, first the FTC and then the Justice Department opened investigations into what the Los Angeles Times called “potentially anti-competitive acquisitions” carrired out by Facebook, Google, Microsoft, and Amazon over the last ten years. The Biden Administration only intensified the scrutiny of the industry. Indeed, in his executive order, Biden made the point of saying that “today a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage.”
Biden has not hidden his distrust of companies like Facebook, which is already the target of antitrust lawsuits resulting from past monopolistic business practices. Indeed, his selection of Khan, a longtime outspoken critic of Big Tech, as FTC chair was seen as a warning shot fired at the industry. Khan once told the New York Times Facebook was guilty of making “killer acquisitions”—buying a company to shut it down—the very action that proves it engages in monopolistic practices that can best be combatted by breaking up the offending corporation.
Not since the Gilded Age has America seen corporate titans control through anti-competitive practices vast areas of the economy from technology to transportation to communication to defense, all to the detriment of working-class citizens, the common good, and national security. The robber barons of the Gilded Age were ruthless in their efforts to expand their wealth. The result, of course, was the antitrust lawsuits brought by the federal government that broke up the monopolies and restored competition to business—the very type of competition Biden has made a centerpiece of his administration.
“The U.S. has the largest and longest-standing market-based economy in the world,” Moss says. “But markets do not self-regulate. Markets work really well when you have robust competition. Markets need referees and we have not had good refereeing for the last 40 years.” Moss believes antitrust laws must be used to combat the monopolistic behavior that has been amplifying since the 1980s. It’s a challenge, but Biden and his administration appear posed for the fight. “Pushing back against recent history is not easy,” Moss concludes. “It’s like turning around the Titanic.”