Neoliberal economics says free trade is always good, and its followers try to lower trade barriers without discretion. Freedom is an essential ingredient for successful international trade—but that doesn’t mean all trade should be unregulated. Competition law expert Michelle Meagher joins Goldy to debunk common competition myths and talk about strategies to hold powerful monopolies accountable.
Michelle Meagher is a Senior Policy Fellow at the University College London Centre for Law, Economics, and Society, and co-founder of the Inclusive Competition Forum, a think tank focused on democratizing corporate power and the enforcement of competition law.
Twitter: @MichMeagher
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Competition is Killing Us: https://uk.bookshop.org/books/competition-is-killing-us-how-big-business-is-harming-our-society-and-planet-and-what-to-do-about-it/9780241423011
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Speaker 1:
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Goldy:
Goldy here. If you are a long time listener of Pitchfork Economics, you know that we spend a lot of time on economic myth-busting, which led me to a new book by Michelle Meagher called Competition is Killing Us, How Big Business is Harming Our Society and Planet and What To Do About It. So it was really fun to talk with the author, Michelle Mar, about the six myths of market capitalism and how we need to change both our ideology and the law.
Michelle Meagher:
Hi, my name’s Michelle Meagher. I’m an antitrust lawyer and I have just written a book called Competition is Killing Us, How Big Business is Harming Our Society and Planet and What To Do About It.
Goldy:
Thanks for joining us on the podcast. I guess the place to start, the first half of your book, you outline the six myths of competition. Could you quickly summarize them for us?
Michelle Meagher:
Yes, absolutely. The real core of the book is debunking the six myths that are embedded within market capitalism, and really trying to unravel this question of why does capitalism tend to concentrate wealth and power in so few hands, but spread its harm so widely. The first myth I debunk is the idea that free markets are competitive. Actually it turns out that over the last few decades, markets have been getting more and more concentrated. 75% of industries in the US and more concentrated now than they were 25 years ago. Or you could take a really profound statistic like 82% of stock market value comes from monopoly wealth of the tech sector. So this isn’t free markets working efficiently. Actually, they’re getting more concentrated.
The second myth that I talk about is this idea that companies compete to serve the interests of society. In that chapter I really talk about shareholder value. This is this idea that it’s the legal duty of company directors to maximize financial value for shareholders. What does that do? It makes companies seek market powers through market concentration, and also it forces them to attempt to shift as many costs of their business out onto society. These are all the harms that we see emanating from the corporate sector from harms to the environment, harms to the social fabric and so on.
Then I talk about the third myth. The idea that corporate power is benign, and that idea has really taken hold of regulators everywhere. This idea that big companies are efficient, they’re dynamic, they’re innovative, and therefore the last thing we should do is really hold them back or discourage them from doing what they’re doing. That idea is really based on another myth that the markets themselves will sort themselves out. Actually left to their own devices, a new competitors will come in and challenge that Goliath company. Then the next MySpace will be taken over by Facebook.
What I’ve really challenged there is this idea that corporate power is benign. In fact, there are so many ways that corporate power is leveraged against the average person. There are so many ways that we know that the imperfections of the market allow companies to entrench their power, which means that the next new challenger actually can’t come along. They’re kept out of the market. Then the fourth myth is that we already control corporate power with antitrust laws. Actually, antitrust laws have been steadily diluted over the past few decades. We see the regulators are rubber stamping mergers one after the other, and really not using the powers that they could be using to control corporate power.
The fifth myth, if you’re still with me, is that the law requires directors to maximize shareholder value. Actually, it’s a real misunderstanding of the law. The law actually allows companies to do many things, but business has decided to interpret that law in a very narrow way. There are all these mechanisms to making sure that that’s exactly what directors do.
Goldy:
It’s funny on that one, because we’ve talked a lot about it and it’s not only not the law, it’s the opposite of what the normal was 50 years ago.
Michelle Meagher:
Exactly. So if you talk to directors from companies in the ’50s, they would never have said that their duty is to maximize shareholder profit. It’s not even what most of the case law says. In the UK where I’m talking to you from today, it’s not even what the [inaudible 00:04:53] says. Yet the UK is probably the prime hub for exporting this idea of shareholder value around the entire English speaking world. So somehow the interest of shareholders are being taken into account, despite whatever the law says.
Then just to complete it, the last myth I tackle in the book is a direct response to people who say, “Well, it’s okay if companies only take shareholder interest into account because all we offer all our shareholders, we all own shares in companies either directly or through our pensions.” But actually it’s not really that surprising really, but shareholder wealth is just as unequal, if not more so than income wealth. Your shareholdings generally are directly related to how much income you have. So we find unsurprisingly that it’s white, wealthy men typically who have significant shareholder wealth. So we’re not all shareholders by any means and all of the harms that are perpetrated by companies in the name of maximizing shareholder value are really harming the poorest the most. So that’s a quick run through of the book.
Goldy:
You have just done an amazing job of not only summarizing the first half of your book, but summarizing much of what we’ve talked about on Pitchfork Economics for the past couple of years.
Michelle Meagher:
Well, I hope people still go and buy it.
Goldy:
They should because the whole book, actually, it’s not a long book. It’s not a hard read. I found it to be a great, again, in your part one, a great summary of these issues in a way that people who listen to our podcast know Nick and I can be a little tangential. So this is a very tight narrative that gets to the heart of the problem.
Michelle Meagher:
That was a real concerted effort on my part. I think one of the problems with topics like antitrust and corporate law is that the space has been really occupied by experts, technocrats, and is largely operated out of the view of the public. So people have the sense that markets are concentrating. That there’s huge economic power being wielded. They don’t have the tools to necessarily identify that. So that was a huge part of the reason why I wrote the book to distill it out in language and arguments that everyone can get their head around.
Goldy:
You mentioned the word power talking about how important that notion is, both in valuing competition, of valuing antitrust and how to respond to it. You mentioned Matt Stoller in your book, and we’ve talked to Matt about that as well. How much is that missing, this idea of confronting power? How much is that missing from the modern antitrust legal framework?
Michelle Meagher:
I’d say it’s almost completely missing. It’s starkly absent actually. The laws were originally designed to challenge concentrated economic power to protect democracy. The laws have effectively been twisted. So we’re now looking at this concept efficiency. That’s the standard to which business is held, so that standard that can conveniently be applied in a way that is actually extremely business friendly. That should be a huge concern for us.
I think that we know instinctively that there’s something wrong with the way that power is structured in our markets. We know that just looking at efficiency and just looking at how cheap things are doesn’t capture the full picture. So if we take an example like Uber. When Uber doesn’t provide paid sick leave and doesn’t provide holiday and paid rest time, all sorts of other things like parental leave, there’s a cost that effectively has to be picked up somewhere and they’re picked up in society.
If we look at just how cheap those rides are on Uber, we should really be thinking about the VC war chest that is subsidizing those rides and what we’re not getting is decent jobs for the people who are having to take that form of employment. There’s so many tricky things to unpack there, but I think one thing we know for sure is that looking at ourselves in our capacity as consumers alone isn’t enough. All antitrust cares about in terms of power is whether a company can increase its price over the competitive market level. We know that focusing just on that will absolve a lot of power that is actually exercised in the market.
Goldy:
I think another important example you use is Facebook. Facebook is using its market power to undermine democracy. That might be important in evaluating antitrust, whether or not a company has the power to destroy your democracy.
Michelle Meagher:
It should be. If we look at the Federal Trade Commission’s response to the Cambridge Analytica data breach, effectively it was a $5 billion fine, which obviously is a lot of money. But it’s not a lot of money to Facebook. They were very blithe on their earnings call, reporting to investors that they would just put aside five billion knowing the fine was coming from the regulator. It was just effectively a cost of doing business. It’s hardly a deterrent. Even just on the price aspect, we think that we get Facebook services for free. A lot of people I’m sure on your show as well have probably talked about how if a product is free, then probably you are the product. But in the case of Facebook, we’re really inputs to that product. All of our data is going to create the product that Facebook then sells to advertisers.
It’s also actually a myth that you’re not paying for it in actual money. The UK Competition and Markets Authority did a study showing that between them, the duopoly that Google and Facebook have over online ads is effectively as if we were paying a 500 pound tax from each household in the UK that’s going mostly to those two companies. I mean, if you think about that, it’s like if the UK government had said, we should impose a 500 pound tax on every household in the UK, we’d be in uproar. But we don’t really say anything when it’s going to Google and Facebook. How are we paying that? We’re paying it through the increased prices that we pay for the products we buy often [inaudible 00:10:51] those ads. It’s not free. Of course somebody is paying for it, and that somebody is us.
I think that really prices in any event is the wrong place to start. So as you say, we should be thinking about the spread of online hate, the spread of disinformation, the threats to our democracy. We should be asking, can we really ever have a free election again, an undistorted election? Obviously very relevant in America now. Can we look at the results of the Brexit referendum? There’s plenty of evidence showing tampering of information there. So I think that that’s so much more to look at than prices to consumers.
Goldy:
Can we have a functioning newspaper industry? Can we have actual journalism with Facebook and Google monopolizing all the advertising dollars?
Michelle Meagher:
Exactly, and they want us to think that there’s no other way for things to be. They say, this is really innovative. We’re serving you up your news in this convenient format. It’s right there in your Facebook newsfeed. It’s right there on your Google search results. But then when they’re forced to pay for it, in France, the French government put in a law that said, if you’re going to be scraping all of this journalistic effort, then you need to be paying publishers for that information.
Google just left that market. So as soon as they’re actually forced to do something other than this extractive business model, they decide that actually they’d rather not be in it at all. So this idea that they exist in order to spread the world’s information or to connect people, I think it’s just a really poisonous narrative to distract us from how these markets actually work.
Goldy:
Our current antitrust regime, which focuses almost entirely on consumer prices. When you’re looking at mergers and acquisitions, what’s going to be the cost to consumers. Will the price go up or will the price go down? You have industries like we have now in tech, where there is no price to consumers. We’re not actually paying a dollar value. It becomes literally impossible to evaluate the impact of antitrust if that’s the only factor you’re looking at.
Michelle Meagher:
Exactly. I think that these companies often use that factor effectively walk through their regulatory maze and say that, “Actually customers love us. They love our product.” It’s true the customers do. But it’s also true that, that might have been the case 10 years ago when these products were first being developed, but they weren’t essential products then. They were just products that you were choosing.
What you didn’t know and what you couldn’t have known then is you’re effectively locking yourself into their systems. You can’t take your data elsewhere. There’s really no competition. There’s no alternative to you as a consumer. If you don’t like the way that Facebook treats your data, you don’t have many other places to go. Unless you’re a trendy teenager, then you can use some newfangled app that I probably haven’t heard of.
Goldy:
It will be acquired by Facebook eventually, anyway.
Michelle Meagher:
Exactly. That’s exactly it. That’s been their pattern. You see that a lot of venture capitalists will openly say that they won’t invest in any of those companies unless there’s a clear path to acquisition. But who wants to go up against the might of the Facebooks, the Googles of the world? They have this enormous war chest, billions and billions of dollars. It’s just sitting there waiting to make these acquisitions, which will essentially clone your product and can compete you out of the market that way.
Goldy:
Let’s get to the solution side. You are an attorney who specialized in antitrust. So a lot of the conversations we’ve had on the podcast so far have come from economists and journalists, even philosophers, but you specialize in the law. How do we modify the law to address the situation we’re in now?
Michelle Meagher:
Well, I think that there’s a lot that we can do with the laws that we have. I think that where those fall short, we should be filling in those gaps. So I like to think of the three buckets of solutions under these three headings. I don’t actually use this framing in the book, although I really should have. So I’m going to use it from now on.
The first is that we can discuss power. The second is that we can democratize power, and the third is to dissolve power. So if I start with the first one, disperse power, that’s actually pretty straightforward. We should be using the antitrust laws for what they were designed for. We should approve fewer emerges. We should be more skeptical of the claims of efficiencies that companies make. We know that if they have the capacity to make efficiencies, then probably those are going to be rolled up as dividends to shareholders and not actually rolled down to consumers and lower prices.
So we should be more skeptical of that. We should challenge more abuses of power. We should define power much more broadly and look at all these different ways that power can be exercised. Ultimately we should break up companies where that’s possible and where it would actually help solve a problem, so where the problem itself comes from the bigness of the entities in that market. So that all goes under the bracket of dispersing power.
The second then is democratizing power. So by that I mean fundamentally changing the nature of how some of the most powerful corporations in the world work. Really this is focused on systemically important companies and forcing them to serve the public interest. That can be done for example, by changing fiduciary duties of directors. Although I always say that if you’re going to do that, then you also need to give stakeholders, that they’re supposed to be protecting, real rights to enforce that new fiduciary duty. More powerfully you can actually give stakeholders direct representation. So there should be musicians on the board of Spotify or drivers on the board of Uber. They need to have a say and visibility and some element of control over corporate decision-making.
Then another way that you can democratize power is by really encouraging countervailing power. So whilst we may have some entities that by their nature are going to be big and powerful, we also should be making space for school entities to get together, to go up against them. So if you think about collective bargaining on the part of Uber drivers, that should be allowed. It’s actually currently illegal. That would be an illegal cartel, if these drivers are indeed independent businesses as Uber and others insist they are. So we should be fostering cooperative business model and really allowing the small guys to get together, to hold the big guys to account. That’s all under the idea of democratization.
Then the final one is dissolving. On this, we can start by asking, what is it to be a corporation? How do these entities get to exist? Well, they exist through charters, but chartering used to be a different process. It wasn’t just going and filling in a form, and there you go. You’ve got a company. Originally companies in order to exist, had to get a charter from the king or queen in England or from the parliament or Congress.
It required an act of Congress to create a company and companies didn’t get to exist forever. They got a charter that lasted 20 years, 40 years. It depended on the specific project for which the charter was granted. So digging a particular canal or building a bridge. And those were the kinds of projects for which you were allowed to effectively get a monopoly because you were completing public work. You were actually doing something for the public good.
Goldy:
People forget that the whole purpose of chartering corporations was to serve the public good. Not just in vague theory, moralistic, without that legally, that was the purpose of chartering a corporation.
Michelle Meagher:
Yes. It was very specific. You had very specific things that you were meant to be doing and very specific things that you weren’t allowed to do. Like you weren’t allowed to buy other companies in your industry. You might not be able to vertically integrate. You might not be able to hold over a certain amount of debt. There are all sorts of restrictions placed on those companies. If they abuse their power, then their charters were revoked and that system had a lot of problems. It was hugely nepotistic. You effectively have to be friends with a senator to get a charter. And we definitely don’t want to go back to that kind of system.
But on the other hand, I think that we would do well to really challenge this idea that companies get to exist forever, regardless of how they operate. We should bring back this idea that charters can be revoked. In fact, charter revocation laws exist in, I think pretty much all of the states in America. We have something equivalent here in the UK. It’s just not used very often because there is this overwhelming idea that companies just deserve to exist once they’ve been created and they should just exist forever. I think that we should really be using these powers to dissolve companies of the breach, the public interest.
Goldy:
What would that look like if we were to revoke the charter of an Uber or a Facebook?
Michelle Meagher:
Well, I think an interesting thought experiment actually comes in the fossil fuel sector. So if we think about how long it’s taken for the oil industry to really own up to the catastrophic harm that’s caused by burning of fossil fuels and causing climate change, there’s all this evidence that Exxon knew, that all of these companies knew the harm that they were facilitating. They might even say that they had a fiduciary duty not to spread that information because that would have harmed their shareholders. Then if we fast forward to today, these companies are, if not falling over themselves, they’re at least trying to one by one, announce that they will change their ways. British Petroleum announced the other day that they’re going to move to net zero. So we take this process, which took decades, which in the meantime has potentially irreparably harmed the whole of humanity.
But if you have something like a power to dissolve companies that breach the public interest, I think that at the very least it would have focused people’s minds. People would have understood directors of those companies and their shareholders as well would have understood that it’s even in their own interest and the interest of the company to immediately resolve these problems and not to leave them sitting there for decades. Because if the regulator actually has the power to challenge the existence of your company at an existential level, it’s no longer a question of, “Oh, I can just pay a fine.” It’s the cost of doing business.
Or in the DuPont case, you get taken to court, and then decades after DuPont has poisoned the water in West Virginia, some of the people who were home get a payout. But for DuPont, it really doesn’t affect them in the short term. Whereas if you have something like a discussion between the government and the company saying, “Well, if you don’t clean up your act, we’re actually just going to shut you down.” We’ll just wait and see, I’m sure another energy company will come along with a less poisonous business model. Then you might have a completely different discussion on your hand.
Goldy:
Could it work? Because I was thinking and reading your book, could it work something like a bankruptcy proceeding where you take them into court and you reorganize? You don’t dispossess the shareholders in this case. You simply take over the board.
Michelle Meagher:
It could happen that way, and that is sometimes how it does happen. So in the UK, we’ve got this provision, as I said, it’s actually in solvency law. So you’re right in your intuition as to how it would operate. It tends to be used against minor financial scams or Ponzi schemes. What they do is essentially try to protect all of the stakeholders that have effectively been harmed by that company existing. So if you take the fossil fuel example, it might be repurposing the enormous market capitalization of these companies and the money that they’ve got sitting in a savings and re-purposing it towards green energy.
That company would still exist just in a completely different form. As you say, shareholders, particularly to the extent that those shareholders can be said to be unwitting participants. So that might be people’s pensions, could be protected even despite a decarbonization because we know there’s money to be made in other ways of generating energy. So it’s not like that expertise and energy wouldn’t be needed. It’s just that we need it to be pointing in a different direction.
Goldy:
Ironically, it might actually maximize shareholder value because if you’ve held on to BP and Exxon Mobile stock the past couple of years, you’ve lost a ton of value. Those stocks have been going down.
Michelle Meagher:
Exactly. So I think the point really is that through all of these measures, dispersing power, democratizing power, and dissolving it, it’s not an anti-business idea. It’s just trying to rebalance the power between business and the public and society or the state. I’s not about throwing away value. It’s about pushing business into those spaces that are most valuable and they can also be financially valuable. It’s just that you also need to tie it into things like paying taxes, corporate taxes, and not avoiding taxes. That’s you paying back into society, which was the whole compact the business had with the state in the first place.
Goldy:
Okay. So now I’ll do the classic devil’s advocate. But Michelle, the market regulates itself. Shouldn’t we just have less regulation and then we wouldn’t have all of these spillovers and negative externalities?
Michelle Meagher:
Well, Goldy, that’s a really lovely idea. But I think what you really get to there, though in all seriousness, is when people ask me what could be done everyone loves the list of legal solutions. You can flip right to the back of the book and read about all the laws that can be changed or beefed up or enforced with greater rigor. But really it’s the first half of the book, the debunking of the myths, the changing ideology, that is how we actually change things and where we can actually move the needle because these ideas are so embedded in everything. About the way that we think about economic regulation, the way that we think about wealth, the way we think about productivity, all of these things are linked together.
So I really think that it’s the ideological problem that we need to solve first and really the vision for competitive markets that I’m trying to put forward is one where as a citizen, as a consumer, and as a worker and as a parent, as a member of humanity, I can move away from this idea that the market is the place where I take my bundle of cash and I buy whatever I can afford. I use my paycheck to try and influence the world and move to an idea where I’m an active participant in society and in the economy. And I’m not just a recipient of either the benefits or the harms of that competitive system.
Goldy:
I think one of the problems we’ve had in our narrative is this idea of separating the market out from the rest of society. That somehow there’s this market that is self-regulating, that there’s some sort of equilibrium that the market outside of the political system, outside of our social systems can reach if we just let it do its thing. If you want to believe that, and it’s a very enticing thing to believe because it makes everything easy. Okay, but understand that there is no market. It’s all just one big social system. And so in a sense, nations, people through their governments deciding to regulate a market, deciding to regulate companies. Well, that’s self-regulatory. That is in a sense the whole system working instead of the market by itself.
Michelle Meagher:
That’s exactly right. I think that there’s this idea that the market exists, that it’s always existed in its current form, but we create the market. It’s entirely through the law that we create these market systems. There are multiple ways that that has a feedback loop. So one is if we deregulate the market in a way that is regulation, which is choosing not to intervene.
Also if we allow the market to do its thing with all the imperfections that modern economics has really laid out pretty clearly for us, we know that power will continue to snowball and concentrate into fewer and fewer hands. That’s not just economic power. It’s also political power. Economic power can be leveraged into that political power in a way that allows those market actors to effectively shape their regulatory environment. So you get this feedback loop where we’re always one step behind. It’s actually going against our interest.
Goldy:
So if we appointed you benevolent dictator, let’s say in this case of the world, no political or fiscal constraints, what would you do to address this problem?
Michelle Meagher:
Well, I think sticking with this idea that it’s really ideology that’s the problem. That so many of the solutions flow so naturally from shifting that ideological mindset. I think I would go into all of the business schools around the world and burn up all the textbooks that talk about competition and ruthless market rivalry and stamping on your competitor and pushing them out the market. I’d get rid of all of those textbooks. I would get rid of the idea that that is what successful business looks like, that a successful business isn’t one that has fostered a community around itself, that has a nice dialogue with its suppliers and its workers, its customers.
But while there is this lonely company standing and the last one standing is the only one that has been able to achieve success. So maybe it’s more like going and being [inaudible 00:27:41] therapist and saying, “Really, is that what you want? Is this what you wanted?” Is this what any human being really wants and why, and doing something about that. So maybe we all need some collective therapy or something to get us out of thinking this way. But definitely I’d start with the thought.
Goldy:
I’m worried that Zuckerberg might answer that question, “Yes, this is exactly what I want.” I mean, at some point we have to consider the fact that he may just be a bad person.
Michelle Meagher:
Possibly, but I don’t think he will have started out that way. This is kind of what I mean, if you have all of these magazines saying how amazing it is that he’s so young and he’s so successful, and this is the narrative. That is what success presumably looks like to him because he never did what the rest of us do, which is graduate from college, go out into the world, and realize that it’s not quite what you thought it was and having to shape your identity around all of these different ways that we contribute to society. Not just, have I made a billion dollars or whatever it is.
Goldy:
Well, once again, we get back to power. Power corrupts and absolute power corrupts absolutely. So I want to thank you very much for coming on the podcast and thank you for the book. It was a great read and I highly recommend it.
Michelle Meagher:
Thank you so much.
Speaker 2:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook at Civic Action and Nick Hanauer. Follow our writing on Medium at Civic Skunk Works and peek behind the podcast scenes on Instagram at Pitchfork Economics. As always from our team at Civic Ventures, thanks for listening. See you next week.