Analysis: President Biden’s Sweeping EO – A Call for Regulation in the Name of Competition  

By SBE Council at 22 July, 2021, 11:03 am

by RAYMOND J. KEATING –

Given that government actions – such as taxes, regulation and protectionism – stand as the key obstacles to a vibrant, competitive market, a certain arrogance (and/or ignorance) can be detected when politicians and bureaucrats argue that more government is the only path to greater competition. Nevertheless, we have arrived at another such moment.

President Joe Biden’s executive order (EO) on “Promoting Competition in the American Economy” turns out to be a breathtaking call for increased government regulation across sectors of our economy, including technology, from social media to broadband; hospitals; prescription drugs; transportation; insurance; financial services; agriculture; and labor markets.

“Corporate consolidation” is identified throughout as the source of widespread ills, such as higher prices, low wages, restrained innovation and economic growth, fewer opportunities for entrepreneurs and small businesses, slower productivity growth, and greater racial inequality.

The White House’s EO and supporting materials make sweeping statements and accusations that turn out to be exceedingly vague, rich in Leftist political assumptions, short on sound economics, and based on little more than a political bias against larger businesses and mergers.

The purpose clearly is to exert greater government control over an assortment of decisions in the marketplace, thereby having politicians and their appointees overruling consumers, entrepreneurs and businesses actually operating in the competitive marketplace – again, paradoxically, in a stated effort to advance competition.

The EO’s Premise and Assumptions are Wrong

The underlying assumption is that “big” is inherently bad in the economy.

In recent years, we’ve seen a retreat from, or a reversal of efforts to apply sound economic thinking to antitrust. Assorted progressives in academia, with some now in the Biden administration, have pushed efforts to use antitrust regulation to fulfill political preferences by emphasizing a bias against large businesses, and assumptions that competition is suffering.

The idea is to create an opportunity for advancing a hyper-regulatory agenda via antitrust. The academics putting forth this agenda claim the “neo-Brandeis” or “neo-Brandeisian” label in reference to former Supreme Court Justice Louis Brandeis, who opposed big business essentially for being big. Like Brandeis, these activists reject serious considerations of economics, markets and business.

Indeed, after being a meaningless mess during its first eight to nine decades in existence, antitrust law and regulation since the 1970s has been focused on assessing issues of monopoly and mergers from the perspective of consumer welfare. This lent some rationality and legitimacy to antitrust laws that were, for the most part, created out of politics and gross misunderstandings of how markets work. However, Biden, his antitrust appointees and assorted Members of Congress wish to shift away from how consumers may or may not benefit, to an expansive agenda covering a wide range of issues. It’s an attempted return to a time of uncertainty and political whims, with the point being to make it easier to regulate, restrain, and even break up large businesses.

Reflecting this expansive take on antitrust regulation, the Biden EO says, “This order recognizes that a whole-of-government approach is necessary to address overconcentration, monopolization, and unfair competition in the American economy.”

Specifically, the EO calls for more than a dozen federal government agencies to undertake 72 initiatives.

Unfortunately, only two of these proposals actually would be beneficial. Those would be Biden’s calls for reining in unnecessary occupational licensing and allowing hearing aids to be sold over the counter. These two deregulatory measures would benefit entrepreneurs, workers and consumers, and stand in stark contrast to the preponderance of the EO, which again is focused on expanding the reach and control of the federal government via antitrust regulation.

Indeed, the Biden EO seeks to advance a host of longtime political favorites for Democrats that would have obvious negative results for the economy, including for consumers, workers, entrepreneurs, businesses and investors. For example:

The EO supports various efforts that would impose price controls on prescription drugs. Given the high costs, enormous risks and vast uncertainty of working to create life-saving and life-enhancing prescription drugs, vaccines, and medicines, price controls turn out to be a surefire way to discourage essential entrepreneurship, investment and innovation. If one desires the development of fewer new and improved drugs, vaccines and medicines, then price controls turn out to be the right policy choice.

The EO calls for reimposing net neutrality regulation on broadband providers. Net neutrality regulation has always been government activism and costs in search of a real-world problem.  Net neutrality regulation advocates assume, without evidence, that broadband providers have an incentive to abuse their own customers. Such regulation would treat dynamic, competitive broadband markets and networks as if they were 1930s-style monopolies. Of course, in reality, broadband providers have clear incentives to serve both content providers and content consumers well. Net neutrality regulation would create costs and uncertainty that limit investment and innovation, including by threatening government rate and business model regulation.

The EO would seek to rollback productive legislation that partially deregulated freight railroads. After over-regulation of railroads led to declining investment, innovation, upkeep, safety and competitiveness, Congress wisely passed, and President Carter signed into law, the Staggers Rail Act in 1980. As explained in an SBE Council study:

“The Staggers Act partially deregulated railroads in terms of setting prices for services and setting rail rates, making decisions regarding what routes to use, and establishing shipper contracts, that is, allowing freight railroads to make decisions based on market conditions. The changes were positive and dramatic for the railroad industry in terms of efficiency and productivity, capital investment, maintenance and safety, market share, profitability, and reduced costs and enhanced service for customers.”

Through this EO, however, President Biden seeks to unwind what has been accomplished in reviving American railroads. Again, the results would be government dictating business operations and models, and reduced incentives to invest in the freight railway industry, with competition in freight transportation suffering accordingly.

The Biden EO urges increased government controls over leading technology companies, including by opposing mergers, limiting the ability of technology firms to offer free services to consumers, disrupting business models so as to diminish service quality, and restricting lines of business firms can enter. The negatives for consumers if such measures were imposed should be clear, but entrepreneurs and small businesses also would suffer, given that targeted so-called “Big Tech” firms, such as Amazon and Facebook, provide invaluable services to and often serve as partners with entrepreneurs and small businesses. See one of SBE Council’s recent briefs on how small business and so-called “Big Tech” work together.

The EO seeks to the Department of Health and Human Services to “standardize” plan options in the National Health Insurance Marketplace. Efforts to have government “standardize” health insurance plans inevitably lead to special interest lobbying to be part of such standardization; politics overruling consumers and competition in the market; and increased costs that can come in the form of increased taxpayer burdens, fewer consumer choices, and/or political rationing of care.

The EO deals with certain labor market issues as part of an overarching effort by the administration to expand the power of labor unions. As labor unions become less and less relevant in the private marketplace – registering only 6.3 percent of private-sector employment in 2020 compared to, for example, 24 percent in 1973 – they seek more power via politics. Expanded labor union membership, however, raises costs and reduces opportunities for both workers and businesses.

Some Republicans Have Helped Fuel the Regulatory Zeal

By the way, it must be noted that President Biden and Democratic Members of Congress are not alone in this unwarranted assault on “big business.” As for Republicans in Congress, they should be realizing now that if you play with fire, you’re bound to get burned.

Republicans have joined Democrats in Congress, as well as in the public arena, in urging regulation of so-called “Big Tech” largely due to political disagreements – real, perceived or manufactured – with certain large social media companies.

The Republican argument against regulatory efforts by the Democrats, to the extent that it has existed, has been that the GOP does not wish to go that far. Of course, though, once the door is cracked opened to more regulation, those seeking far more invasive controls will take the opportunity to kick down the door, and they will not stop with technology firms. That clearly is the case with the Biden EO.

Economics 101 and Key Market Basics

In the end, it is important to make clear that this Biden EO ignores several key basic realities about our economy and markets.

First, competition actually is alive and well in our economy. Again, ironically given the title of this EO – “Promoting Competition in the American Economy” – and its sweeping call for more regulation, competition only suffers when government chooses to impose onerous tax and regulatory burdens on entrepreneurs, businesses and investors.

Thanks to an economy that promotes competition and innovation, consumers are enjoying a vast array of products, more innovation, and lower prices, and large companies across industries face competition from current, emerging and future rivals. From technology to railroads, no large businesses can afford to stop innovating, to raise prices as if they were monopolists, and to fail in providing quality service. Consumers, entrepreneurs and other businesses – both domestic and international – would punish them accordingly.

In addition, while we all should be concerned about lagging, or even declining entrepreneurship in the U.S. economy, that has nothing to do with the actions of large businesses or consolidation, as wrongly asserted in this EO. Instead, our woes on the entrepreneurship front have to do with misguided and costly government policies, such as burdensome actual and threatened taxes, regulations, and trade barriers, along with increased government spending draining resources from the private sector.

Second, it needs to be recognized that all of the political rhetoric about monopolies and consolidation, the U.S. economy overwhelmingly is a small business economy. Consider that, according to the latest Census Bureau data, there are more than 32 million businesses in America, and 98 percent have fewer than 20 employees. Meanwhile, there are only a little over 20,000 that have 500 or more employees. Our economy is brimming with opportunity for entrepreneurs and small businesses across all industries, again, as long as government doesn’t inflict unnecessary burdens.

Third, the Biden administration seems to miss the basic point that “big business” does not equate with some kind of negative. While the president and administration appointees clearly assume this to be the case, as illustrated by this EO, all large businesses today started out as small businesses. That is the case with all of the industries being targeted for hyper-regulation and government controls via this EO, including pharmaceutical; technology like broadband providers and social media; manufacturing; transportation like freight railroads; financial; and health care businesses.

Large businesses became large by serving consumers well in the marketplace. One would think that a U.S. presidential administration would celebrate such leading companies, often global leaders, but instead, the Biden administration chooses to attack them.

For good measure, while being a large business does nothing to assure future success, large businesses that do excel in the marketplace can benefit from economies of scale, enhanced productivity and lower prices. Those are economic positives, not nefarious undertakings that warrant some kind of government crackdown.

Another irony in all of this is the fact that large businesses usually possess the resources to better withstand the costs of government regulation. Indeed, one factor that can drive mergers is exactly this, i.e., that large companies being better equipped to deal with burdens of government regulation.

Fourth, as noted previously, small businesses are partners with and customers of large businesses, such as, for example, Amazon.com and Facebook. Unfortunately, when the government decides to interfere with how such companies do business – like dictating their business models and operations, and overruling the decisions made by consumers in the marketplace – small businesses suffer right along with the large firms. Likewise, employees at such firms and those seeking work wind up being hurt.

Fifth, the uncertainties and costs created by an EO such as this – from the threat of increased regulation and government controls to the actual implementation of such measures – diminish incentives for investment, and thereby restrain entrepreneurship and innovation. If the objective here is to undermine U.S. competitiveness in the global marketplace then the Biden administration is right on track.

Indeed, this Biden EO amounts to a bizarre attack on American businesses, from the largest to the smallest. In one sense, it’s hard to understand why a White House would go down such a path. It certainly is not based on economics. Instead, it has the whiff of radical politics. And along these lines, this executive order actually fits into an old political strategy on the Left, i.e., blame business for problems generated mainly by government, and in turn, argue for even more government controls.

Still, this stands out as an especially bizarre time to engage in such attacks given that the U.S. economy is struggling to recover from the pandemic, and we need robust entrepreneurship, investment and business growth and hiring to get back on a path of economic growth that will truly help all Americans.

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