Inflation, market power, and the rising techlash

Globally, the mood is shifting fast

Welcome to the latest edition of The Counterbalance, the newsletter of the Balanced Economy Project. There is so much going on in the anti-monopoly space that we will intersperse our in-depth reporting with editions like this, focusing on recent updates.

Lawfare

We’ll put this at the top, as it is so relevant to our work: we have first hand experience of it, and it will constantly influence our outputs. This recent debate in the UK parliament, led by a Conservative, outlines how journalists in the UK are being silenced by libel laws. They call it lawfare: a system that benefits many with nefarious intent, including monopolists.

Our recent and coming work

We've been busy in a number of areas. Examples include:

The Washington Competition Consensus. This is advance warning of a paper we're co-writing, hopefully out in the coming months, looking at how the pro-monopoly consensus that first emerged in Chicago was foisted onto lower-income countries.

Two reports on market and financial power in Europe, by German finance experts Finanzwende, for which we provided substantial input.  First, a report on Private Equity in Care in three European countries, which was featured in a front page story in Der Spiegel (and benefited from our input and analysis in our detailed submission on a similar subject to the UK's CMA.) Second, a report on how an oversized financial sector harms Europe's economy and society, with associated webinar. (The German version, Der Finanzsektor ist zu Groß, is here.)

Our submission to the UK's Department for Business, Energy & Industrial Strategy (BEIS) on competition policy and the regulators’ mandate. More on this soon.

Stakeholder capitalism and monopolies. Stakeholder capitalism, responsible capitalism, corporate social responsibility -- whatever you want to call it -- has long ignored the actual elephant in the room: monopoly power. It's time for this to change. Another paper we're co-writing, hopefully out soon.

Finance and the Competitiveness Agenda. We're involved in a series of initiatives in the UK to expose the dangers of a particular interpretation of "competitiveness" for the financial sector, which is re-emerging as a crowbar for risky deregulation. We were involved in an initial event in November, wrote this NY Times article, engaged with UK politicians e.g. via this, and will co-publish more soon. (See this previous Counterbalance edition, exploring this rich area.)

Children’s Social Care - a follow up. We already made (and noted here) an extensive submission to the UK’s Competition and Markets Authority (CMA) on the role of private equity in children’s social care. The CMA came out with a report, and we’re crunching the numbers to produce a new report of our own. Also out soon.

Tax and monopoly power. In the coming months we will be looking at how tax systems might be used to push back against market power and monopolies, in a globalised world. As we scope this, in partnership with the Tax Justice Network and others, we’d welcome comments, tips, and pointers.

Inflation and market power

Inflation is back. Is market power to blame? A standard economist's response is that market power may account for the level of prices, but not so much for the recent change in the level of prices (ie inflation.) As Jan Eeckhout put it, "market power is an oil tanker; inflation is a jumpy Zodiac."

There is a lot to this, but it's not the end of the story.  There is plenty of new interest in this, mostly in the U.S. (e.g. here or here.) Monopolists can often use disruptive changes - such as those stemming from the fallout associated with the pandemic - to fatten profit margins and raise prices.  And it goes the other way too: monopolisation "can lead to disruption in times of stress, causing shortages and price spikes."  The Biden administration is looking into the links, which are multiple and varied, and it's probably significant that prices are down in US meatpacking and gasoline, two sectors that Biden has repeatedly called out for price gouging.  We’ve often remarked on the links between private equity and market power, and there is good evidence on this side of the Atlantic that private equity-backed firms are using that power to raise prices more than other firms are.

There is always more than one reason for inflation, of course. But if you're looking to tackle it, and especially the longer and more embedded trend of rising and large markups, then anti-monopoly is essential.

Global techlash: the temperature slowly rises

We noted in the last edition of The Counterbalance that regulators around the world are getting increasingly angry about monopolies, the threats they pose, and their often ‘openly contemptuous’ approach to the rule of law. Here are some further signs of (somewhat) stiffening spines, though still far short of what is required. There have always been legal cases against big tech firms, but now there is quite a rush. And hopefully we are just getting started.

There is a lot happening in the United States, such as new progress on breaking up Facebook, but since we explicitly do not focus on the US (because many capable others are), we will put (almost) no US analysis in here. Here is a selection from a broader field of actions breaking out in other parts of the world.

Class action suit in the UK led by Liza Lovdahl Gormsen seeks £2.3 billion in damages, plus interest, against Meta, after 44 million Facebook users in the UK had their data exploited after signing up to the social network.

Internet standards “hijacked” by big tech The W3C, the main global organization for setting standards on the world wide web, "has been captured by Big Tech." Movement for an Open Web has made formal, detailed submissions to the UK’s CMA, US Department of Justice (DoJ) and European Commission charging W3C with bias, favouring the giant tech corporations in its procedures and decision-making, and failing to comply with antitrust laws. (See also MOW’s piece Google is Destroying Journalism.)

The Gig Economy Project. A journalism and research project replete with news and information about the three-way struggle between gig workers, governments, and tech platforms. Focused mostly on Europe, with regular updates.

In Canada, a new antitrust mood emerges

In land of moose, maple syrup - and monopoly, a new antitrust mood is in the air. Today, three millennials (and friends of The Counterbalance) published this first-of-its-kind paper for the Ministry of Innovation, Science, and Economic Development looking at case studies in data-driven Markets in Canada and challenging policymakers to take a comprehensive approach to modernising competition legislation. 

Last October, Canada’s Commissioner of Competition, signaled that reformers may be pushing at an open door, when he said: "Globally, we are witnessing a dramatic international shift towards more aggressive enforcement of competition laws. . . . Canada remains at a standstill." More recently, he said: "Efficiencies are generally things like, you know, a bunch of people will be laid off, we’ll sell some trucks, we’ll close down some trucking routes. Those are the things that count as efficiencies, and they’re weighed off against higher prices for consumers”. The previous Commissioner said something similar, and see our friends in Canada writing and podcasting on this (listen on Apple or Spotify).

It has been 14 years since the last review of Canada's Competition Act, and change is overdue. There has been a call for submissions - start here.

A worldwide trustbusting revival. Antitrust is becoming seen as a “Swiss-army knife”: a tool to fix lots of different problems. “We need to push for a broader notion of consumer harm,” declares Margrethe Vestager. (Not far enough: we must push for a broader notion of anti-monopoly, beyond the narrow consumer focus.)  According to calculations by The Economist, The four biggest UK firms accounted for a larger share of revenue in 2018 than a decade earlier in 58% of 600-odd subsectors. Concentration in the EU has been going in the same direction, if more slowly. “For all the antitrust commotion, M&A activity remains strong in Europe and America, as companies take advantage of cheap capital and a surfeit of pandemic-distressed targets.”

Human sufferers from Dealmaking. "I’m sleeping two hours a night . . . I go to bed after midnight wide-awake with my heart racing,” says Amy, who asked not to use her real name. A "torrent of M&A deals in the past 12 months" has contributed to severe mental health problems at top law firms. Not to mention in the rest of the economy.

UK's CMA boss blasts Apple and Google, which "have developed a vice-like grip over how we use mobile phones."  He said "There is now a general consensus that some of these acquisitions should not have gone ahead," echoing what his Australian colleague Rod Sims said in August. Separately, the UK’s Competition Appeal Tribunal has provisionally allowed the CMA to intervene in Epic Games’ lawsuit against Google (this is additional to the Epic case against Apple). This Quartz piece suggests more green shoots are emerging.

India opens fourth concurrent Google probe India’s antitrust enforcer has opened its fourth ongoing competition probe into Google, this time alleging that the technology giant is abusing its dominance by imposing unfair and arbitrary conditions on news publishers. Of course it is.

Italy fines Amazon €1.13B for abusing market dominance. (See also Amazon's Toll Road, by Stacy Mitchell, showing how the company took $121 billion in sellers’ fees in 2021. "Policymakers must target its market power directly. . . focus on undoing that integration.") 

Germany designates Google, in a first for a new law (called Section 19A). This designation of “undertaking of paramount significance across markets” - a kind of super-dominance - which opens it up up to a range of special obligations.

From the DC Attorney-General, Karl Racine "My office is suing Google for deceiving users and invading their privacy. Google claims that changing your device and account settings protects your data. The truth is, since 2014, Google has systematically surveilled users no matter what settings they choose."

LinkedIn accused of monopoly LinkedIn illegally maintained a monopoly over professional networking services through anticompetitive data practices and a secret agreement with Facebook, a proposed class of LinkedIn users has alleged.

Pushback on Activision and Microsoft (including from us.) Microsoft is far from the worst tech monopolist, but this does raise significant concerns.

France's competition chief falls. Isabelle de Silva, who had showed some zeal for taking on big tech companies, is suddenly, and surprisingly, brought down. Politico said: "among the reasons for her departure was her unwillingness to fall in line with Macron's economic agenda — namely its embrace of corporate champions." (Supporting national champions is an alluring but generally disastrous strategy to 'improve competitiveness by reducing competition'.) De Silva may also have come a cropper for taking on large merging media interests; French media also mention palace intrigues and rivalries. Her farewell speech is here.

The economic costs of funded pensions. This may seem far from competition policy, but it addresses a key driver of monopolisation: the role of the financial sector in driving monopoly (as our last edition described,) the role the global labour movement could play behind the scenes, and what the alternatives are.

Cloudmoney. A fascinating new book from Brett Scott on finance, big tech, crypto, the nature of money, and more. It begins: "This book is about a merger and an acquisition. The merger is between the forces of Big Finance and those of Big Tech. The Acquisition is of power." In bookshops in May. (On crypto, see also Matt Stoller’s recent piece: “Crypto is a movement based on the theory that the existing nation-state is a system rigged by billionaires, and the right response is to create a different and more corrupt order rigged by different billionaires, money launderers, and dictators. It will of course all end in tears.”)