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Washington Monthly: The FTC Might Just Be Progressives’ Secret Weapon

by Sandeep Vaheesan

A century ago, reformers gave the Federal Trade Commission extraordinary powers to take on abusive corporations. It’s time to wake the agency up.

It is by now widely acknowledged that the United States has a corporate concentration crisis. Sectors across the economy—from agriculture to airlines to online search to pharmaceuticals to telecommunications—are dominated by a handful of giant corporations, and the trend is only accelerating. Globally, 2017 saw the most mergers and acquisitions in history; as of this writing, 2018 was on pace to set new records. Think AT&T and Time Warner, CVS and Aetna, Disney and 21st Century Fox, and so on. The consequences of all this consolidation include lower wages, extortionate health care prices, and government at every level beholden to big business. It’s great for corporate executives and shareholders, who are enjoying record profits—and terrible for most everyone else.

The trend derives primarily from radical policy shifts during the Reagan administration combined with the activism of conservative judges who, applying cartoonish right-wing economic hypotheses, intentionally reinterpreted antitrust laws—which were designed to limit monopolies and consolidation—in ways that favor monopolies and encourage mergers. With scores of Trump-appointed judges coming on board and Brett Kavanaugh ensconced at the Supreme Court, that phenomenon is likely to get even worse. It now looks like we may be stuck for another generation with a federal judiciary that is ideologically opposed to the government doing anything about the increasing dominance of corporate goliaths.

Yet a powerful anti-monopoly instrument already exists and is waiting to be used. It turns out that progressives faced a similar impasse more than a century ago, in the wake of the original Gilded Age, when they saw their attempts to fight back against monopolies thwarted by a comparably reactionary Supreme Court. The solution they crafted involved the creation of an institution with the explicit legal authority to prevent and undo concentrated corporate power. That institution is in sad shape today; indeed, it perversely devotes resources to attack the very people it was designed to protect. But it remains a potentially potent weapon. With the right leadership and prodding from Congress, it could once again be used to strike back at the monopolists who are choking off America’s democracy and economy, and overcome the judicial forces protecting them.

America, meet the Federal Trade Commission.

The origins of the FTC date to 1911, when the Supreme Court ordered that John D. Rockefeller’s Standard Oil be broken up for violating the Sherman Antitrust Act. That decision is often remembered as a great triumph over plutocracy, but, in a key way, it was actually the opposite. While the Court found that Standard Oil had engaged in specific abusive and unfair practices, it also held that there was nothing wrong or per se illegal about being a monopoly. So long as a business didn’t engage in “unreasonable” behavior, as determined by the courts, it was free to grow without limit in scale and dominance.

The Court’s reasoning enraged populists and progressives, who argued that private, unregulated monopoly was inherently dangerous to American democracy and accused the conservative justices of ignoring Congress’s clear intention in passing the Sherman Act. In response, Congress in 1914 enacted two landmark statutes. First was the Clayton Antitrust Act, which updated the Sherman Act by explicitly outlawing a range of practices, including mergers that could reduce competition. Second was a law that created a powerful new agency called the Federal Trade Commission.

Governed by five commissioners who are appointed by the president and subject to Senate confirmation, the FTC was designed to make sure that judges would never again undermine anti-monopoly laws. Congress specifically gave the FTC the explicit authority not merely to prohibit “unfair methods of competition,” but also to define what counts as “unfair.” Under Section 5 of the Federal Trade Commission Act, the agency can use its broad investigatory capacity to build expertise on new business practices and industries and update its own powers over time.

In delegating this authority to the FTC, Congress sought to guarantee that antitrust policy would be made by a body required to answer to the public. One senator supporting the law stressed that the agency would be independent—commissioners are appointed to fixed terms and can only be fired for cause, but the FTC would also be accountable to Congress for its funding and direction: “I would rather take my chance with a commission at all times under the power of Congress, at all times under the eye of the people…than…upon the abstract propositions, even though they be full of importance, argued in the comparative seclusion of the courts.” The principal Senate sponsor of the FTC Act aimed to create an agency that would be a “servant of Congress.”

The FTC’s early years produced a mixed record. In 1919 it published a landmark report on the meat-packing industry, laying the groundwork for a breakup of the dominant meat-packers and for legislation to ensure competitive markets in livestock. But in the 1920s, progressives lost control of Congress and the White House, and the FTC became cautious about using its great statutory power to regulate big business.

In the 1930s, Democrats moved to force the agency to once again stand up to concentrated private power. In 1933, populist Texas Representative Wright Patman cut $300,000 from the FTC’s budget and threatened to abolish the agency, complaining that it had strayed from its “very useful purpose” and become “the most useless board in existence in Washington.” That same year, President Franklin Roosevelt went so far as to fire one overly business-friendly commissioner—a move that was overruled in court, but that got the message across. Later, the New Dealers turned to the Antitrust Division of the Department of Justice as the main tool for fighting monopoly. But for fifty years, the FTC provided vital support to the DOJ in the fight against monopoly, using its Section 5 power to stop business practices that threatened competitive market structures in industries like auto parts, footwear, and even movie trailers. In the 1960s, the agency took a lead in efforts to stop conglomerate mergers that would have consolidated unrelated lines of business under one firm. In 1975, it settled a case against Xerox that ended its dominance in photocopiers and helped unleash competition and innovation in the then-emerging market.

The FTC also took a leading role in protecting independent retailers against the power of large manufacturers and giant chains. In the 1930s, the agency successfully sued the A&P grocery chain—arguably the Walmart of its time—for using its power to squeeze suppliers and obtain discounts that rival grocery stores didn’t get. A decade later, the government sued A&P again, ultimately forcing it to break its food-trading arm off from its retail division.

Over the years, liberals and populists nonetheless often expressed frustration with the FTC. In the early 1950s, Patman’s House Small Business Committee criticized both FTC leadership and case selection. In the 1960s, an American Bar Association report faulted the agency for being chronically inefficient, failing to develop priorities, and pursuing trivial cases. A 1969 report by Ralph Nader’s study group was even more scathing.

But if the FTC in this era rarely used its full statutory authority to overcome hostile courts and tackle corporate concentration, that’s mostly because it didn’t have to. Beginning with the New Deal, and especially under the leadership of Chief Justice Earl Warren, the Supreme Court applied Congress’s economic and political objectives for the antitrust laws and supported vigorous antitrust enforcement and other progressive economic regulation. Working with a friendly judiciary, the FTC, along with the Department of Justice and other federal regulators, helped reduce corporate concentration across the economy through the early 1980s.

But a backlash was building among business interests and the conservative judges and academics they supported. In the 1960s and ’70s, a generation of economists and law professors associated with the University of Chicago, most notably Robert Bork, radically reinterpreted antitrust law in a way designed to reverse the post-1930s progress. Although the Nixon administration generally enforced anti-monopoly law with vigor, the judicial conservatives Nixon appointed to the Supreme Court had been converted to Chicago School’s pro-monopoly worldview. In fact, that approach was so influential in elite legal circles that even Democratic-appointed judges have largely gone along with it.

To see how profound this shift in legal philosophy was, consider two different pronouncements from the bench. In 1958, the Supreme Court described the first federal anti-monopoly law, the Sherman Act, as “a comprehensive charter of economic liberty” designed to promote “an environment conducive to the preservation of our democratic political and social institutions.” By contrast, in 2004, a majority opinion by Justice Antonin Scalia—joined by liberal Justices Stephen Breyer and Ruth Bader Ginsburg—asserted that monopoly “is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation and economic growth.” In interpreting a law that Congress intended to prohibit monopolization, the Supreme Court was paying tribute to the virtues of monopoly. According to Scalia’s reasoning, society needed to be protected from the risk of too few opportunities for businesses to monopolize markets.

Unfortunately, in the years since the Reagan administration embraced Robert Bork’s pro-monopoly approach to competition policy, the FTC has largely failed to push back. Today, the FTC, along with the DOJ’s Antitrust Division, operates on the assumption that corporate mergers typically generate economies of scale and other productive efficiencies and thereby lower prices to consumers. (A partial exception to this rule was when Bill Clinton appointee Robert Pitofsky chaired the FTC between 1995 and 2001.)

Nor has the FTC bestirred itself to break up or tame the giant monopolies that dominate more and more of the economy. Following a lengthy probe of Google for exclusionary and other anti-competitive practices in the search market, the FTC in early 2013 opted not to file suit and instead accepted “voluntary commitments” of good behavior from the tech giant. An inadvertent leak of an internal FTC memo in 2015 indicated that legal staff had recommended suing Google but were overruled by the commissioners.

Worse, even as it has accommodated corporate power, the FTC has trained its guns on the little guy. The agency has filed dozens of lawsuits against independent contractors for engaging in collective bargaining and other concerted activity. Targets of the FTC’s recent anti-labor actions have included church organists, ice skating coaches, music teachers, and public defenders. The agency has even weighed in against state and local collective bargaining rights for home health aides and ride-sharing drivers, and—straying far outside its statutory mandate—has devoted significant resources to opining on state and local occupational licensing rules that provide a way for blue- and pink-collar workers to earn a decent living. (Phillip Longman recently explored this phenomenon in more detail.)

All this may sound like a pretty strong brief for just blowing the FTC up. But today’s progressives should remember that, thanks to the progressives of yesteryear, the agency still has extraordinary power to make antitrust policy thanks to its statutory authority to identify and prosecute “unfair methods of competition.” In the right hands, the FTC could become just the tool we need today to roll back decades of consolidation and monopolization.

The agency’s expansive mandate, combined with well-established legal doctrine that instructs courts to defer to federal agencies that administer open-ended statutes, gives the agency effective legislative power to regulate and structure nearly every kind of market. Big business lobbyists and conservatives in Congress—and even Republican-appointed FTC commissioners—have long known this, which is why they have repeatedly demanded that the agency’s Section 5 authority be somehow curbed, if not by changes in law, then by the appointment of commissioners and staff who promise never to use it. Now some progressives are waking up to the reality of the FTC’s potential greatness as well. In early September, Rohit Chopra, one of two Democrats on the five-member commission, urged his colleagues to use their authority to crack down on harmful business practices.

Large corporations and their trade associations would almost surely challenge any such effort by the FTC, and today’s conservative Supreme Court majority may be tempted to block it. But doing so would require a particularly brazen effort to ignore not only the clear intent of Congress, but two of the Court’s own precedents. In its most recent pronouncements on the FTC’s statutory power, the Court has ruled that “courts are to give some deference to the Commission’s informed judgment” and that the FTC can consider “public values beyond simply those enshrined in the letter or encompassed in the spirit of the antitrust laws.” In other words, according to the Supreme Court itself, FTC commissioners have ample room to restrict corporate mergers and harmful business practices (like below-cost pricing and employee non-compete clauses) as they see fit.

But first the FTC must be convinced to act. Already, the Democratic-controlled House alone can credibly threaten the agency’s funding if it doesn’t live up to its mission. The House, for instance, can use both appropriations and public hearings to pressure the FTC to stop prosecuting the church organists of the world, to concentrate on harmful mergers, and to take action against other anticompetitive corporate practices. If the agency still doesn’t get the message, Congress can redirect its budget to state attorneys general, many of whom—such as newly elected Keith Ellison of Minnesota—might be eager to take on abusive corporate power if they had the necessary resources.

A progressive Congress created the FTC to protect our democracy and economy from the crippling force of concentrated corporate power at a time when the courts were making that task impossible. A century later, we find ourselves in the same position. But this time, progressives don’t need to design a new monopoly-fighting weapon—it already exists. Congress just needs to be reminded how to use it.