PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Laying a Deeply Flawed Foundation to Hyper-Regulate U.S. Tech  

By at 21 April, 2021, 11:24 am

by RAYMOND J. KEATING-

The impulse to heavily regulate particular businesses, industries or sectors tends to spring from politics, special interest influences, and/or economic confusion, rather than from sound economics. That has long been the case with antitrust regulation, including the current antitrust drive in Congress against leading U.S. technology firms.

After a series of hearings, the House Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary on April 14 voted 24-17 to accept the “Final Report on Investigation of Competition in Digital Markets.”

In effect, not much, if anything, was changed in this final report from what the majority had published previously in October of last year. The vote was strictly along party lines, with the Democratic majority at 24 votes and the Republican minority at 17. It is good news for small businesses and the startup ecosystem that Republicans did not sign off on the far-reaching final report. In October of last year, Republicans issued a shorter report that showed some eagerness for expanding the regulatory reach of government against U.S. technology businesses – namely, Amazon, Apple, Google and Facebook. As a reminder, these successful businesses went from small startups to global leaders.

SBE Council broke down the assorted shortcomings with these reports, including highlighting the many benefits these firms have brought to customers, including small businesses; how economics and markets actually work vs. the mistaken assumptions offered in the reports; and the role of politics to the detriment of consumers in the area of antitrust regulation, among other particulars. We summed up some key points this way:

“Let’s be perfectly clear: Neither report offers recommendations that will improve antitrust law and enforcement. Most of the proposals labor under mistaken assumptions; and would actually inject more politics and uncertainty into the antitrust equation, while moving antitrust law, regulation and enforcement further away from sound economics.

“The Democrats’ majority report is intent on a vast expansion of antitrust regulation and enforcement, including tossing out the consumer welfare standard in favor of, effectively, more politics over economics; while the Republican report also argues for expanded regulation and enforcement, but more tentatively so at least in terms of the language used.

“The overwhelming tendency in the Democrats’ report is to make sweeping declarations about increased and inevitable monopolization (such as: ‘Over the past decade, the digital economy has become highly concentrated and prone to monopolization.’), along with ‘weakened innovation and entrepreneurship,’ that ignore the dynamism of the tech economy, the enormous benefits derived by consumers, actual consumer decisions, and the definition of a monopoly.

“As for the Republican report, it is willing to go along with the Democrats on a number of proposals, raises questions about others, and rejects some. As stated, ‘We prefer a targeted approach, the scalpel of antitrust, rather than the chainsaw of regulation.’ As it turns out, though, the Republican ‘scalpel’ is far from targeted.” 

In the end, the purpose of the committee’s reports is to attempt to dress up or disguise the supplanting of consumer sovereignty and market competition with government and political controls as something beneficial, which it most assuredly is not. Indeed, the final report will serve as a kind of foundation upon which a wide array of costly and invasive regulations will be proposed in multiple pieces of congressional legislation in early May. The purpose behind this divide and conquer legislative strategy being orchestrated by Committee Chairman David Cicilline (D-RI) is to get some Republicans on board at least some of the far-reaching efforts. As noted in the committee’s final report:

“…the Subcommittee identified a broad set of reforms for further examination by the Members of the Subcommittee for purposes of crafting legislative and oversight responses to the findings of this Report. These reforms include proposals to: (1) promote fair competition in digital markets; (2) strengthen laws relating to mergers and monopolization; and (3) restore vigorous oversight and enforcement of the antitrust laws. The Subcommittee intends for these recommendations to serve as a complement, not a substitute, to strong enforcement of the antitrust laws. This is particularly true for acquisitions by dominant firms that may have substantially lessened competition or tended to create a monopoly in violation of the Clayton Act. In these cases, the Subcommittee supports as a policy matter the examination of the full range of remedies—including unwinding consummated acquisitions or divesting business lines—to fully restore competition that was harmed as a result of these acquisitions and to prevent future violations of the antitrust laws.”

Again, this report pushes for misguided and drastic actions taken by government based on a deeply flawed foundation. The basic economic problems with antitrust intrusions remain clear, such as:

● Politicians ignore or fail to understand that even the largest firms in a dynamic economy face competition from current, emerging and future competitors.

● Since firms can only gain market share by serving consumers well, antitrust actions involving assumptions about “monopoly” or “monopoly power” (both ill-defined by antitrust advocates) mean, by definition, that political decisions will overrule decisions made by consumers in the marketplace.

● Government setting random limits on mergers, and even breaking up companies, means, again, that politics override market competition and consumer decisions. As explained in a previous SBE Council analysis: “As for mergers and acquisitions, the success, failure, or something in between, will rest upon such matters as improved management, efficiency gains, reduced overhead, synergy, combined and complementary expertise, enhanced abilities to enter new markets, and so on. In the end, mergers ultimately will, and should, be put to the test of competition and consumer decision-making in the marketplace, rather than being subject to political preferences, or bias against mergers and ‘bigness’ per se.”

● Changing antitrust law so that it more explicitly embraces the “protection of competition” has nothing to do with actual competition, but instead is about empowering special interest politics to seek out government favors, with the economy and particularly consumers suffering. While there are significant shortfalls regarding antitrust action, it would multiple times worse if the consumer welfare standard were to be tossed aside.

● The default in government is to assume or assert market failure, usually when there actually is none, while either never considering government failure or discounting it to the point of it being inconsequential. The too-often prevailing assumption is that that government action will never make matters worse. This is perhaps most obvious in the area of antitrust regulation where government regulation that overrules competition and consumers, yet is assumed to benefit competition and consumers.

As noted, again, in a previous SBE Council analysis, antitrust action very much is regulation, and it often is the most invasive and costly kind of regulation:

“Indeed, supporters of antitrust action like to say that antitrust is better than regulation. In reality, antitrust action is regulation. And it is regulation at its most extreme, in that it involves government intervening to dictate business models, operations and firm size; deny decisions to merge or acquire other businesses; and even break up companies.”

However, this is what those voting for this final report, and many others in Congress, would like to see happen, with this report serving as at least partial justification.

The House Subcommittee on Antitrust, Commercial and Administrative Law didn’t make the case for increased antitrust regulation of so-called “Big Tech.” Instead, it once again revealed why antitrust regulation needs to be seriously reined in, so that the decisions made by entrepreneurs and businesses, subject to the disciplines of competition and consumer sovereignty in the market, are able to drive innovation, and economic and income growth forward.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

 

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