Lina Khan’s Battle to Rein in Big Tech | The New Yorker
▻https://www.newyorker.com/magazine/2021/12/06/lina-khans-battle-to-rein-in-big-tech
Open Markets studied industries ranging from banking to agriculture. In case after case, Lynn found, the number of companies in each market had been reduced to a few big entities that had bought up their competitors, giving them a disproportionate amount of power. Consumers had the impression of vast choices among brands, but this was often misleading: many of the biggest furniture stores were owned by one company; a large percentage of the dozens of laundry detergents in most supermarkets were made by two corporations. After consolidation, it became easier for furniture sellers and detergent manufacturers to raise prices, compromise the quality of their products, or treat employees poorly, because consumers and workers had few other places to go. It also became much more difficult for entrepreneurs to break into the marketplace, because competing with these giants was almost impossible. As huge companies became even bigger, much of the American middle class struggled with stagnant wages. In Lynn’s view, the issues were connected.
Khan began researching book publishing. “There was a sense that this industry was in crisis,” she recalled. Publishers had come under pressure, first from chain stores like Barnes & Noble, and then from Amazon, which sold electronic books by pricing them at a loss, in order to encourage consumers to buy its Kindle e-book readers. Amazon eventually controlled more than seventy per cent of the e-book market, a dominance that gave it the ability to force publishers to accept its terms, undermining the business model they had long used to subsidize the creation of a wide variety of books. When publishers tried to band together to fight Amazon, the Justice Department sued them, fearing that their action would increase the retail price of e-books. The publishers saw Amazon’s power as potentially leading to a decline in the free exchange of ideas and as a crisis for democracy. Increasingly, so did Khan. Her work helped provide the basis for a piece that Lynn published in Harper’s, in February, 2012, called “Killing the Competition.” Today, he wrote, “a single private company has captured the ability to dictate terms to the people who publish our books, and hence to the people who write and read our books.”
Khan told me that she started to see the world differently. “It’s incredible, once you start studying industry structure and see how much consolidation there has been across industries—in airlines, contact-lens solution, funeral caskets,” she said. “Every nook and cranny of our economy has consolidated. I was discovering this new world.” At one point, she investigated the candy market, identifying nearly forty brands in her local store that were made by Hershey, Mars, or Nestlé. In another project, about the raising of poultry, she found that most farmers had to purchase chicks and feed from the giant poultry processor that bought their full-grown chickens, which, because it had no local competitors, could dictate the price it paid for them.
On June 15, 2021, Khan was sworn in as the chair of the Federal Trade Commission, the agency responsible for consumer protection and for enforcing the branch of law that regulates monopolies. At the age of thirty-two, she is the youngest person ever to head the F.T.C.
Amazon taught a generation of consumers that they could order anything online, from packs of mints to swimming pools, and expect it to be delivered almost overnight. According to some estimates, the company controls close to fifty per cent of all e-commerce retail sales in the U.S. and occupies roughly two hundred and twenty-eight million square feet of warehouse space. It makes movies and publishes books; delivers groceries; provides home-security systems and the cloud-computing services that many other companies rely on. Amazon’s founder, Jeff Bezos, wants to colonize the moon. During the Presidency of Barack Obama, Amazon’s relentless expansion was largely encouraged by the government. The country was emerging from a devastating recession, and Obama saw entrepreneurs like Bezos as sources of innovation and jobs. In 2013, in a speech given at an Amazon warehouse in Chattanooga, Tennessee, Obama described the company’s role in bolstering the financial security of the middle class and creating stable, well-paying work. He spoke with near-awe of how, during the previous Christmas rush, Amazon had sold more than three hundred items per second. Obama was also close with Eric Schmidt, the former executive chairman of Alphabet, Google’s parent company. An analysis by the Intercept found that employees and lobbyists from Alphabet visited the White House more than those from any other company, and White House staff turned to Google technologists to troubleshoot the Affordable Care Act Web site and other projects. Between 2010 and 2016, Amazon, Google, and other tech giants bought up hundreds of competitors, and the government, for the most part, did not object. The analysis also found that nearly two hundred and fifty people moved between government positions and companies controlled by Schmidt, law and lobbying firms that did work for Alphabet, or Alphabet itself. When Obama left office, many of his top aides took jobs at tech companies: Jay Carney, Obama’s former press secretary, joined Amazon; David Plouffe, his campaign manager, and Tony West, a high-ranking official at the Department of Justice, joined Uber; and Lisa Jackson, the former head of the Environmental Protection Agency, went to Apple.
As a result, antitrust policy, especially as it pertains to big technology firms, has emerged as one of the starkest differences between the Biden Presidency and the Obama one.
Biden Administration has indicated that it wants to reshape the role that major technology companies play in the economy and in our lives. On March 5th, Biden named Tim Wu, a Columbia Law School professor and an anti-monopoly advocate who has argued that Facebook should be broken up, to the newly created position of head of competition policy at the National Economic Council, which advises the President on economic-policy matters. On March 22nd, Biden nominated Khan to her current role. And, in July, he selected Jonathan Kanter to head the antitrust division of the Department of Justice. Kanter left the law firm Paul, Weiss in 2020 because his work representing companies making antitrust claims against Big Tech firms posed a conflict for the firm’s work for Apple, among others. Wu, Khan, Kanter, and a handful of other anti-monopoly advocates have been referred to as members of a “New Brandeis movement,” after the Supreme Court Justice Louis Brandeis, whose decisions limited the power of big business.
Benjamin Woodring, who worked with Khan on the Yale Journal on Regulation, said that she seemed more sophisticated than the typical law student. “She understood the political dimension of regulation and the lawmaking process,” Woodring told me. “It’s so easy for law students, especially relatively green ones coming straight from college, to just treat the study of law as this disembodied language in a vacuum. But, in reality, especially with things like antitrust and civil rights, it is very much a political struggle, a complicated journey that involves all three branches. She was comfortable with the nuts and bolts of how that process worked.”
Khan started writing a paper arguing that the consumer-welfare standard was outdated, using Amazon as a case study. Amazon had avoided antitrust scrutiny so far, Khan wrote, because of the fixation on consumer prices. There was no question that consumers loved the convenience of being able to order almost anything on Amazon, and of the free and expedited shipping included in an Amazon Prime membership. Khan believed that the low costs to consumers were a short-term benefit that failed to account for the harm the company’s size and practices posed to the economy. She highlighted the company’s willingness to operate with billions of dollars in losses for years at a time, often by pricing products below what it cost to make and deliver them. This strategy has helped Amazon crush its competitors in so many markets that the company now provides critical infrastructure to other businesses, which rely on it to get their own products to market. It also has access to sensitive data about most of its competitors, who must use Amazon’s platform in order to survive. Khan proposed two ways to address the problem: One would be to return to the old idea of antitrust law, which focussed on preserving healthy competition rather than on the prices consumers paid. The second would be to treat Amazon and similar companies like public utilities, and to regulate them aggressively, including by requiring that their competitors be given access to their platforms on more favorable terms.
Independent businesses tended to be reliant on Google, Amazon, Facebook, and Apple, in order to communicate with their customers and sell their products. Cicilline’s team described the big four as “gatekeepers” that dictated how other firms could operate. They discovered that leaders of companies were afraid of speaking out against any of the dominant tech firms, especially Amazon, and worried that their coöperation with the investigation would become public. The companies understood that Amazon could block them from doing business on its site, a tactic that Amazon had used in 2014, during the e-book-pricing dispute, when it removed books published by Hachette from its Web site.
Cicilline opened the proceedings from the congressional hearing room. Before the pandemic, he noted, the companies in question were already “titans in our economy.” Since then, they had grown even more powerful, while locally owned businesses faced an economic crisis. “Open markets are predicated on the idea that, if a company harms people, consumers, workers, and business partners will choose another option. That choice is no longer possible,” he said. “Concentrated economic power leads to concentrated political power. This investigation goes to the heart of whether we as a people govern ourselves, or let ourselves be governed by private monopolies.” Khan sat beside him, in a pastel blazer and a mask.
Most of the names mentioned in the press, however, were longtime corporate lawyers who had cycled in and out of government. Karen Dunn, a partner at Paul, Weiss who had served as White House counsel under Obama, and as a senior adviser and communications director to Senator Hillary Clinton, was rumored to be under consideration for a position in the Justice Department. Dunn had represented Uber and Apple, and advised Bezos during his antitrust subcommittee hearing. Renata Hesse, a Sullivan & Cromwell partner and former Obama Justice Department official who had worked for Google and advised Amazon on its 2017 purchase of Whole Foods Market, was said to be a leading candidate for the Assistant Attorney General for Antitrust position. Susan M. Davies, a corporate lawyer who had worked for Facebook, was rumored to be Attorney General Merrick Garland’s first choice for the antitrust job. Left-leaning news outlets published harshly critical articles about the pro-corporate direction Biden’s Administration seemed to be taking. On January 28th, a piece ran in the American Prospect with the headline “Merrick Garland Wants Former Facebook Lawyer to Top Antitrust Division.”
Then, in March, Biden announced that he was nominating Khan to a seat on the F.T.C. Khan said that she was surprised when, a few months later, she was named chair. On July 9th, Biden issued an executive order instructing more than a dozen regulatory agencies to take aggressive steps to promote competition in the economy.
Khan told me that her vision for the F.T.C. takes these challenges into account. “Antitrust needs to be on the table, but we need to have a whole host of other tools on the table as well,” she said. On September 22nd, she issued a memo outlining her priorities. One of them, she told me, was to address the merger boom that’s under way; during the first eight months of 2021, $1.8 trillion in mergers and takeovers was announced. Some of the largest corporations were set to become even bigger: Amazon announced a proposed acquisition of M-G-M studios; UnitedHealth Group proposed to buy Change HealthCare; A.T. & T. wants to merge WarnerMedia, which it owns, with Discovery. “There’s a very real risk that the economy emerging post-COVID could be even more concentrated and consolidated than the one leading up to it,” Khan said.
The Wall Street Journal editorial page, which has published at least six critical pieces about Khan since she started, described her as “Icarus,” and said that her “power grab at the F.T.C. will end with her wings melting in the courts.”