The Answer
Quick. Name the most consequential, provocative person in government today. Bernie Sanders? AOC? Biden? White House Chief of Staff Ron Klain? The FBI or CIA Directors?
Now try Lina Khan.
Who?
Lina Khan is the new chair of the Federal Trade Commission, a sleepy regulatory panel that governs how business does business. But, under Khan, appointed to the post in a transformative move by President Biden, the panel is about to get a lot less sleepy.
The FTC was created in 1914 to protect the public from predatory business practices and promote competition in the marketplace. For much of the last 40 years, the FTC’s view and the dominant opinion in political and legal circles was that lower prices are the holy grail of the economy.
The theory went that it is acceptable for Amazon to buy Whole Foods and provide cloud services for the government simultaneously, or for airlines to merge or for cable companies to acquire media companies, as long as consumer prices were kept low. The perfect example is Amazon, with its next day shipping and lower prices for all the stuff it sells. It all makes for a happy consumer, especially when the box magically arrives on our doorstep.
It’s a bit like doing business with Saudi Arabia, the giant gas station of the Middle East. We won’t bother you much on what goes on behind the gas station (women’s rights, stoning, murder) as long as you fill up our car.
With Amazon, we don’t much care how the thing gets delivered (predatory pricing, anti-competitive behavior, workplace surveillance), as long as it gets delivered. Our government, charged with our national welfare, won’t get in their way. Jeff Bezos has taken that tacit deal with federal regulators and built the most powerful business of all time. Same with Facebook and Mark Zuckerberg. We like the personal connection and convenience so much on Facebook that we are happy to ignore the surveillance capitalism, the algorithmic encouragement of conspiracy theories and the June 6 Capitol riot, and the encouragement of Russian election interference.
As long as we get our dopamine hit from Amazon Prime video and our Facebook connections to high school classmates, we are OK with the slow destruction of the Republic.
That was before Lina Khan went to Yale Law School and wrote a treatise called The Amazon Paradox in 2017 at the age of 27.
To quote from the summary:
“In addition to being a retailer, it (Amazon) is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space.” She might have added that Bezos owns The Washington Post.
Khan’s theory goes like this. Low prices don’t matter much if a company becomes so powerful that it harms society. If companies get so big, they artificially lower prices to prevent competitors from competing, inhibiting competition and innovation. Amazon, Apple, Facebook, and Google all do it. It is anti-capitalist. Un-American, you might say.
Think Standard Oil, AT&T, Microsoft. These are examples of companies that violated anti-trust laws and became too powerful. As a result, the government sued to break them up to varying degrees of success.
Encouraged by a defanged and impotent federal government, the Big Four (Amazon, Apple, Google, and Facebook) have grown powerful by buying up competitors and shutting them down or using their market power to keep competition at bay. Big businesses like Comcast and Cargill follow the model.
That stifles innovation, hurts shareholders, and slows job growth. That executive assistant who works at Google making $70k per year? What if Google was broken up into different companies and that assistant could sell their stock options and move to a new company. They cashed in, and they are still working, creating value for their family and society.
The Supreme Court ordered the break-up of Standard Oil in 1911 to stop John D. Rockefeller from preying on smaller companies and squashing competition. His behavior was bad for capitalism and bad for society. The same is true of Amazon, as Khan suggests.
We used to care about anti-trust law and competition in the American marketplace. Under the Sherman Anti-Trust Act, passed by Congress in 1890, anti-competitive behavior was a crime. President Teddy Roosevelt railed against the corporate “trusts,’’ in which companies worked together to fix prices to their benefit. For decades, you could not own a newspaper and a TV station in the same market. But in the 1980s, under the Reagan administration, that changed. Corporate was king, and the Chicago school of economics ruled the day. Led by the writing of infamous professor and later federal judge Robert Bork***, low prices were everything. Make it good for the consumer to buy stuff, and the society will benefit.
Khan is not alone in her view that these companies are bad for business. Senators Elizabeth Warren and Amy Klobuchar are leading Senate efforts to stop these companies from owning the commercial sales platform while participating in those sales at the same time. In addition, Congress is considering a range of bills to stop anti-competitive behavior. And there is an odd bi-partisan approach because pro-Trump Republicans are angry at Facebook and others for shutting down their conspiracy talk.
But the leader of these efforts is a 32-year-old daughter of immigrants, appointed by a president trying to change things. Her goal will be to examine these companies and their power, unlock the shareholder value caught in their corporate web, and free capitalism to do what it does best - spur innovation and create prosperity for all.
Saving capitalism and making it work better for the society is a lot to put on a 32-year-old law professor.
But Lina Khan is The Answer *** to a lot of questions plaguing the economy and the Democracy.
The lobbyists for these companies will howl. And Mark Zuckerberg’s army of PR spinners will work overtime to message their way out of this. But they are up against a mind who has their number and is not afraid to call them out. And she is the chair of a powerful government agency. Elections matter.
NOTES
The mention of Robert Bork above brings back memories for anyone over 60 years old. It was Bork who, at the order of President Nixon, fired a special prosecutor investigating the Watergate scandal after his bosses at the Justice Department refused. Later nominated to serve on the U.S. Supreme Court, his nomination was defeated. The chairman of the Senate Judiciary Committee that oversaw the nomination? Senator Joe Biden.
Credit goes to Kara Swisher and Scott Galloway for the nickname “The Answer.’’
For a great accessible book on a complicated subject, check out Zephyr Teachout’s “Break ‘Em Up - Recovering Our Freedom from Big Ag, Big Tech and Big Money.’’ (support your local bookstore)
