Over the last nine months, the number of corporate mergers sent to the feds for review has reached a staggering new zenith, increasing 40 percent over 2019. In August alone, companies announced 369 major mergers, about 12 per day. The head of antitrust enforcement at the Federal Trade Commission (FTC), one of two competition agencies within the government, called the current pace astounding.
There are several reasons behind this unprecedented wave. Companies and private equity firms that stockpiled cash over the past 18 months are now spending it, often to grab market share in a recovering economy. Some industries shaken by the pandemic recession, like aerospace, have come to believe consolidating rather than competing is the best way forward.
But mainly, industries are consolidating because, for the past 40 years, policymakers, judges, and law enforcers have not only allowed big mergers, they have encouraged them, deeming them beneficial for customers and the economy. This turns out to be catastrophically wrong. By every measure, in small towns and big cities, mergers have killed jobs, suppressed wages, smothered independent businesses, and left residents despondent and cynical, as our stark political and economic divide grows ever wider.
President Biden has implemented the most ambitious anti-bigness program in a half-century or more. He has appointed dedicated trustbusters like Lina Khan and Jonathan Kanter to lead the long-moribund antitrust agencies, and in July he issued a sweeping executive order to promote competition and fairness for small businesses and workers. For the first time in many decades, the government and its law enforcement agencies have a clear understanding that, to combat corporate concentration and the harms it causes, you must stop companies from buying their way to dominance by taking over their rivals or suppliers.
But all of this hard work will matter little without addressing another barrier: an intentional overreliance on byzantine economics that convinced judges that most corporate mergers do more good than harm, creating thickets of pro-merger court decisions that can undermine earnest attempts at enforcement. Congress needs to pass new laws that undo these bad policies and precedents.
President Biden has implemented the most ambitious anti-bigness program in a half-century or more.
It appears that lawmakers in both parties may be preparing to do so. Earlier this month, Sens. Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) introduced a bill that would explicitly ban Big Tech monopolies from favoring their own products at the expense of small businesses that rely on their platforms. In the House, one of a series of bipartisan bills would drastically restrict Big Tech acquisitions, and another would bar self-preferencing. Rep. David Cicilline (D-RI), who heads the House Judiciarys Antitrust Subcommittee, has said another package of antitrust reform bills that go beyond tech is on the way; Klobuchar has already proposed major changes to how we police mergers. Fighting monopoly power is broadly popular, among the public and, increasingly, on the Hill.
Decades of unchecked mergers have reshaped our economy drastically, to the detriment of working folks, small towns, and everyday shoppers. Only by changing the law can this merger wave be broken. With the economy clogged with corporate monopolies, its a moment, and an opportunity, that Congress must not let pass.
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TWO DECADES AFTER CONGRESS passed the first anti-monopoly law in 1890, lawmakers understood its glaring flaws. The Sherman Act proved useful at stopping the abuses of existing monopolies; indeed, it was used to break up Standard Oil, American Tobacco, and other corporate titans of that era. But what it couldnt doand what Congress came to believe the laws must dowas stop monopolies from forming in the first place.
The Clayton Act, passed in 1914 as part of the most sweeping antitrust reforms in history, banned anti-competitive mergers, but also sought to halt price discrimination, predation, and other corporate wrongdoing intended to build monopoly power. Along with the creation of the Federal Trade Commission to enforce it, the Clayton Act was intended to be our greatest weapon against corporate abuse.
For various reasons, including Americas entry into World War I, its potential wasnt realized in subsequent years. The war effort itself triggered more consolidation. By the 1930s, faced with economic calamity brought on in part by concentrated corporate power, Congress passed the Robinson-Patman Act banning price discrimination by producers and chain stores, and FDR appointed antitrust enforcers who began using all of their tools aggressively.
After World War II, consolidation began to rise again. So Congress passed the Celler-Kefauver Anti-Merger Act, making clear that all corporate tie-ups, including those between suppliers and sellers, could unfairly hurt competition, independent businesses, workers, and local communities. And in the 1970s, Congress once again strengthened antitrust law in the face of a changing economy with the Hart-Scott-Rodino Act, requiring that enforcers be notified and have a chance to review every big merger before it happened.
Even in a fictional world where big mergers lead to lower prices, the antitrust agencies have for decades roundly ignored myriad other dangers.
As the anti-monopolist Sen. Estes Kefauver explained in a 1958 congressional report, lawmakers can and should update the antitrust laws from time to time to ensure that our existing laws are adequately enforced so that the public is afforded the full protection guaranteed by the laws.
But in the 1980s, everything changed. The Reagan administration embedded in policy the conservative Chicago school economic philosophy, triggering a decades-long wave of unchallenged mergers that has yet to abate. Deal making grew in North America from less than 2,400 mergers in 1985 to more than 18,600 in 2017, according to the Institute for Mergers, Acquisitions and Alliances. Deals worth more than $1 billion, one threshold for what qualifies as a megadeal, rose from 75 in 1985 to 698 in 2018.
When companies strike these kinds of megadeals, their lawyers and lobbyists make whatever promises necessary to give the agencies and judges cover for their grant of approval. Claims that monopolies are more efficient and better for the economy almost always come with a guarantee of that ultimate panacea: lower prices for regular folks. Under the narrow consumer welfare standard that took hold of antitrust in the 1980s, thats all that matters.
But even this baseline claim has been a lie all along. After Whirlpool bought Maytag, its main rival for appliances like dryers and refrigerators, researchers found that dryer prices rose, while the selection available to shoppers fell. Thats not an exception; prices rose significantly in three-fourths of mergers studied after they were approved by the antitrust agencies, according to studies conducted by Northeastern University professor John Kwoka.
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Even in a fictional world where big mergers lead to lower prices, the antitrust agencies have for decades roundly ignored myriad other dangers, like layoffs or lower wages for workers, or hollowed-out communities where the merging companies operated.
For the folks who used to work the Maytag assembly line in Herrin, Illinois, the plant was more than just a job. A whole towns worth of people worked there, nearly a thousand in all. Most of the jobs were union, with security and benefits. It was like a big old family over there, says Clarence LeMasters, who had worked at the plant for 35 years, ever since he graduated high school.
After the merger with Whirlpool, which already made washers and dryers in Ohio, rumor was that Whirlpool would close the plant. Two days before Christmas 2006, it happened. The company didnt need the plant in Herrin, even if Herrin needed the plant.
I feel like Ive been screwed, LeMasters, 67, says now from his home in nearby Creal Springs. Thirty-five years, down the drain.
The Maytag plant closure screwed more than just the workers. Unemployment in Williamson County, Illinois, where Herrin is located, leapt from 3.7 percent in October 2006 to nearly 7 percent in February 2007. A month before the plant closed, more people were employed in Williamson County than at any time in its recent history. A month after the closure, that number fell by more than 2,000, suggesting that it affected jobs beyond the plants walls. Since then, employment in the county has never reached pre-closure levels. The region has literally never recovered. Its a story so common its become a tropethe big merger happens and the factory town goes dark.
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Lina Khan, as nominee for commissioner of the Federal Trade Commission, speaks during a Senate Commerce Committee confirmation hearing, April 21, 2021.
ALLOWING THIS LEVEL of destructive corporate concentration is a failure both of our merger laws and of the way they have been enforced. Fixing the problem will take changes to both.
Bidens executive order on competition directed his administration to work with the FTC and other regulators to identify monopoly problems in the economy and to fix them. Included in that order was a request that antitrust enforcers revisit current, overly permissive merger guidelines and issue new ones if needed. That process is already under way; Lina Khan and the FTC revoked the Trump-era vertical merger guidelines in September.
Biden has also nominated powerful monopoly critics to lead the antitrust agencies: Khan at the FTC, and attorney Jonathan Kanter as the yet-unconfirmed nominee to lead the Justice Departments Antitrust Division. Since their appointments, almost every major deal-making law firm in America has issued client guidance warning that the administration was ready to crack down on mergers.
Since taking over in June, Khans FTC has told companies that the agency would continue reviewing mergers for competition problems even after the statutory 30-day waiting period lapsed. In other words, companies that close deals without the FTCs explicit go-ahead do so at their own risk. This week, the FTC restricted companies that pursue anti-competitive mergers from engaging in future acquisitions.
Just the threat of antitrust action can stop bad deals from happening; ask insurance giants Aon and Willis Towers Watson, which called off their merger-to-duopoly earlier this year after the government sued to stop it.
But critics say bad mergers like Aon and Willis should never have arrived at the agencies in the first place. The Aon/Willis deal would have created the worlds largest insurance brokerage and left the industry controlled by two co-monopolists, along with Marsh McLennan. The brazen attempt at consolidation ended, but only after the Justice Department spent time and investigative resources to stand it down. Were a more conservative administration to change leadership at the agencies, deals like Aon/Willis may once again get waved through regulatory review.
Just the threat of antitrust action can stop bad deals from happening.
Thats why the law must change, and change substantially. Right now, most mergers are judged based on economic formulas that can be gamed by corporate lawyers and economists, who can hide a mergers potential for harm. That wasnt always the case. Before the Reagan Revolution, Congress and the agencies embraced a simple philosophy: If an industry has a competitive structure, with lots of players competing for customers or workers, the economy and everyone in it would benefit.
Amending the merger laws to again embrace that simple, clear philosophy would have major benefits. Not only would it prevent industry structures where two or three companies wield control, but it would create clear, easy rules for corporate America, without needing expensive economists and lawyers. If the law, for example, bans any merger that would reduce the number of firms in an industry from five to four, that makes the decision easy for a company thinking about buying a rival. Meanwhile, shoppers, workers, and others get ample choice, while independent businesses are assured they wont be at the mercy of some powerful buyer, supplier, or gatekeeping middleman keeping them from the market.
Earlier this year, Klobuchar introduced a sweeping antitrust reform bill that would, in part, make mega-mergers and acquisitions by dominant companies presumptively illegal. Meanwhile, a proposal circulating among congressional staff and advocacy groups would go further, outright banning some mergers based on both company size and their power in the industries in which they operate. Something like this could be part of the second, broader package of House reforms.
Any effort to overhaul the merger laws wont be easy. Republicans in Congress have backed a series of narrow antitrust bills aimed at Google, Facebook, Amazon, and Apple, in large part because they believe these companies have censored conservative speech and have otherwise hurt Republican causes. Their concern doesnt extend to other parts of the economy. Getting Republicans to back aggressive regulation of the same corporate monopolies theyve championed for decades is no small task, and without Republican support, any antitrust bill wont survive.
But there are now clear signs of hope that broad antitrust reforms, including a merger reform bill, may be possible. Lawmakers from both parties increasingly see corporate concentration as a drag on the economy and bad for communities. Ken Buck, the Colorado Republican shepherding the Big Tech antitrust bills through the House, seems to understand the harm monopoly power can inflict on small businesses and shoppers. Grassley, an Iowa Republican deeply connected to farmers in his state, has long recognized how consolidated agribusiness hurts small farmers, independent meat processors, and everyday folks at the supermarket.
A source close to Congress tells the Prospect that while the timing of a merger bill and the exact makeup of a second, broader package of antitrust reforms remains up in the air, congressional action over the past half-year or more makes clear the appetite, and perhaps plan, for more extensive revisions. The House Judiciary Committee has already held four hearings on various ways to strengthen the antitrust laws, including a hearing that, in part, explored how mergers have increased employers power over workers. More hearings on antitrust reforms are expected.
Without changing the law to create clear limits on mergers, hopes of ending our monopolized economy would be relying on two things most conservative policymakers typically avoid: more resources and more regulation. To handle the deluge of mergers, the agencies would need to spend exponentially more just to keep up. And without bright-line limits, unaccountable judges would remain in charge of regulating American industryan unpalatable situation regardless of politics.
If Congress does nothing, the consequences will likely be severe. At the moment, any attempt to fight a bad merger in court runs head-on into a generation of bad case law, particularly for mergers between suppliers and sellers that tend to be harmful for small businesses. Even if Congress provides additional funding for the antitrust agencies, as they are readying, a failure to amend the law to prohibit the most problematic mergers will leave officials perpetually struggling to do their jobs.
Congressionally crafted law with bright-line limits on concentration would stop dangerous deals from ever leaving the boardroom, to the benefit of small producers and sellers in tech, agriculture, and every other industry. If we didnt allow massive corporate mergers, would the Maytag factory in Herrin still hum with industrial energy? The answer, very likely, is yes. Sadly, the damage those corporate mergers have inflicted across America is done. Its the next megadeal, and the ones after that, that we have to stop.