The election of Donald Trump has prompted many stories about how, or whether, he will roll back the policies that make up President Obama’s economic legacy, including the Affordable Care Act and 2010’s Dodd-Frank banking regulations. But one of the most important, if underappreciated, stories of the coming administration will be Trump’s approach toward big business and the system that regulates it: anti-monopoly policy.
In the past year, via an executive order and several papers from the White House’s top economists, President Obama and his team began paving the way for tougher competition policy. His administration has blocked more mergers than administrations in the recent past, including successful challenges to such mammoth deals as GE and Electrolux, Comcast and Time Warner, and Halliburton and Baker Hughes. Meanwhile, Elizabeth Warren and even Hillary Clinton (far from anyone’s idea of a trust-buster) came out in favor of more aggressive anti-monopoly policy, and the Democrats added an antitrust pledge to their party platform—a plank that had been absent since 1988.
This momentum was especially evident in remarks made recently by Renata Hesse, the acting head of the Justice Department’s Antitrust Division, in which she advocated for overturning a generation-old approach to regulating corporate concentration. Hesse rejected the central principles of what’s called the Chicago School (after the University of Chicago, where it originated) of antitrust philosophy, a relatively hands-off approach that has dominated American anti-monopoly policy since President Reagan took office. Hesse mapped out a vision of economic regulation that would, if maintained by the next president, result in a radically different approach to regulating markets and harnessing the power of giant corporations.
Whether Donald Trump would like to pursue that agenda remains largely unclear. On antitrust regulations, as on so many subjects, he has refrained from articulating a clear policy position, save for a few isolated remarks and a promise to block the proposed deal between AT&T and Time Warner. Still, he may have good reason to embrace antitrust enforcement. “His base is largely populated by people who are struggling … who are probably on the short end of the inequality stick,” says Diana Moss, the president of the American Antitrust Institute, an advocacy group. Moss thinks that robust antitrust enforcement would be in keeping with Trump’s populist campaign promises.
In a speech delivered at Georgetown University’s law school in late September, Hesse took direct aim at the Chicago School idea that antitrust policy should put economic efficiency above all else. Instead, she articulated a more populist view of competition policy, saying, “Antitrust enforcement promotes the interests of the public over the power of the few.” Whereas the Chicago School favored the sorts of policies that let huge corporations take shape in the name of delivering products to consumers at ever-lower costs, Hesse was pushing for a renewed focus on how increasing competition matters “at all levels of the economy,” including for workers, small business owners, and producers who sell to big companies.
In doing so, Hesse harkened back to the philosophy of those who developed federal antitrust policy in the late 19th and early 20th Centuries, including Senator John Sherman, President Woodrow Wilson, and Supreme Court Justice Louis Brandeis. Like Thomas Jefferson a century earlier, they argued that the concentrated power of private corporations—in their day, best embodied by Standard Oil and the railroad trusts—inhibited the development of a decentralized, democratized society and economy.
Sherman, Wilson, and Brandeis’s approach to competition dominated American political economy from the turn of the last century into the late 1970s, and it shaped almost every corner of American business. Researchers have found that concentration decreased significantly from 1960 to 1980, in industries as varied as manufacturing and retail, and that in general “the scope of competition increased substantially” during that time. For instance, the five biggest meatpackers controlled nearly half the market in the 1890s, but by 1976, the four biggest firms controlled 25 percent of all beef slaughter.
Meanwhile, entrepreneurs started businesses at a much higher rate than they do today, and citizens in all regions of the country saw their incomes converge. And of course, the middle-class boomed. During this period, strong anti-monopoly policy enjoyed broad support across party and region.
But in the 1960s and 70s, a coterie of conservative economists and legal theorists—many of them based at the University of Chicago—began to argue in favor of a radical restructuring of American antitrust law. Many of these thinkers—among them Milton Friedman, Alan Greenspan, and Richard Posner—argued that antitrust law ought to prioritize economies of scale, which they argued would yield cheaper, better goods and services for consumers.
Robert Bork became the most articulate and popular advocate of this philosophy in 1978 when he published The Antitrust Paradox. In the book, he disputed decades of antitrust jurisprudence and argued that competition policy should only be used to maximize “consumer welfare.” He argued for dramatically scaling back antitrust enforcement and urged regulators to be more accepting of businesses’ claims that their behavior benefits consumers—recommendations that were taken up by William Baxter, Ronald Reagan’s choice to head the DOJ’s antitrust division.
Today, almost every corner of the American economy shows the effects of this rapid shift in antitrust enforcement. Walmart alone accounts for a quarter of all dollars spent on groceries in the U.S.; three pharmacies control 99 percent of the pharmacy market, and two of them want to merge. When The Economist, in its research, divided the American economy up into roughly 900 sectors, it concluded that about two-thirds of them became more concentrated between 1997 and 2012. This concentration, coupled with the persistently high profits of many American companies, led the magazine to conclude in the spring that “the fruits of economic growth are being hoarded.”
While Hesse’s speech can be read as a response to these developments, there was one notable omission from her antitrust blueprint: Other than a few mentions of online-review websites, she barely discussed the effects of e-commerce on concentration, despite the extremely rapid consolidation of power in many markets. Amazon, for instance, captures between 35 and 40 percent of all online spending and sells 65 percent of all e-books; Google and Facebook claim 64 percent of all online ad revenue; and Google claims some 64 percent of all search-engine traffic.
Maurice Stucke, a professor at the University of Tennessee College of Law, says it is vital that anti-monopoly regulators focus on internet goliaths. As “we transition into a data-driven economy, several of the significant shortcomings [of the Chicago School] are magnified,” he said. For one, the Chicago School’s focus on efficiency and prices is ill-equipped for the online market, in which many products are free but some companies still are able to engage in anti-competitive behavior.
Though the Obama administration has become stronger on antitrust issues as of late, it has also been loath to take on these internet companies. The Federal Trade Commission dropped an investigation of Google in 2013, despite the fact that its bureau of competition recommended a lawsuit. And, when book publishers claimed Amazon was a bookselling monopoly, the government in 2012 instead used its powers to go after publishers. The government may be unwilling to check such potential “platform monopolies” because the companies hold immense influence in Washington, and many Obama administration officials, including Hesse herself, have worked for Google.
Donald Trump has shown some desire to stand up to these internet firms, albeit in his own vindictive way. In May, after harshly criticizing the reporting in The Washington Post, the newspaper recently bought by Jeff Bezos, Amazon’s CEO, Trump noted that Amazon has a “huge antitrust problem.” Trump may well stick to that claim, but if he uses antitrust enforcement as a political cudgel instead of a sound and fairly applied piece of policy, it will weaken the justification for any efforts to induce competition. There is a history of this in the United States: President Nixon used the threat of an antitrust suit to try to extort positive coverage from the big TV networks, for instance.
It is still too early to tell where Trump will come down on this, and on antitrust policy more generally. Inequality, Diana Moss argues, is a “competition problem.” Therefore, “if Trump is to deliver on his populist message, then logically … he should appoint strong antitrust enforcers to prevent further widening in the gaps of inequality.” Still, it is also perfectly plausible that Trump would appoint the sort of pro-Chicago School voices who would take issue with Hesse’s vision.
Whatever happens, Hesse’s speech will likely remain useful, either as a viable roadmap for the President-elect’s antitrust enforcement or for that of his successor—and as a rearticulation of an older, neglected anti-monopoly philosophy that might yet gain prominence again.