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book spotlight: beyond technonationalism by kathryn ibata-arens

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At SASE 2019 in the New School, NYC, I served as a critic on an author-meets-critic session for Vincent de Paul Professor of Political Science Kathryn Ibata-Arens‘s latest book, Beyond Technonationalism: Biomedical Innovation and Entrepreneurship in Asia.  

Beyondtechnonationalismcover

Here, I’ll share my critic’s comments in the hopes that you will consider reading or assigning this book and perhaps bringing the author, an organizations researcher and Asia studies specialist at DePaul, in for an invigorating talk!

“Ibata-Arens’s book demonstrates impressive mastery in its coverage of how 4 countries address a pressing policy question that concerns all nation-states, especially those with shifting markets and labor pools.  With its 4 cases (Japan, China, India, and Singapore),  Beyond Technonationalism: Biomedical Innovation and Entrepreneurship in Asia covers impressive scope in explicating the organizational dimensions and national governmental policies that promote – or inhibit – innovations and entrepreneurship in markets.

The book deftly compares cases with rich contextual details about nation-states’ polices and examples of ventures that have thrived under these policies.  Throughout, the book offers cautionary stories details how innovation policies may be undercut by concurrent forces.  Corruption, in particular, can suppress innovation. Espionage also makes an appearance, with China copying’s Japan’s JR rail-line specs, but according to an anonymous Japanese official source, is considered in ill taste to openly mention in polite company. Openness to immigration and migration policies also impact national capacity to build tacit knowledge needed for entrepreneurial ventures.  Finally, as many of us in the academy are intimately familiar, demonstrating bureaucratic accountability can consume time and resources otherwise spent on productive research activities.

As always, with projects of this breadth, choices must made in what to amplify and highlight in the analysis.  Perhaps because I am a sociologist, what could be developed more – perhaps for another related project – are highlighting the consequences of what happens when nation-states and organizations permit or feed relational inequality mechanisms at the interpersonal, intra-organizational, interorganizational, and transnational levels.  When we allow companies and other organizations to, for example, amplify gender inequalities through practices that favor advantaged groups over other groups, what’s diminished, even for the advantaged groups?

Such points appear throughout the book, as sort of bon mots of surprise, described inequality most explicitly with India’s efforts to rectify its stratifying caste system with quotas and Singapore’s efforts to promote meritocracy based on talent.  The book also alludes to inequality more subtly with references to Japan’s insularity, particularly regarding immigration and migration. To a less obvious degree, inequality mechanisms are apparent in China’s reliance upon guanxi networks, which favors those who are well-connected. Here, we can see the impact of not channeling talent, whether talent is lost to outright exploitation of labor or social closure efforts that advantage some at the expense of others.

But ultimately individuals, organizations, and nations may not particularly care about how they waste individual and collective human potential.  At best, they may signal muted attention to these issues via symbolic statements; at worst, in the pursuit of multiple, competing interests such as consolidating power and resources for a few, they may enshrine and even celebrate practices that deny basic dignities to whole swathes of our communities.

Another area that warrants more highlighting are various nations’ interdependence, transnationally, with various organizations.  These include higher education organizations in the US and Europe that train students and encourage research/entrepreneurial start-ups/partnerships.  Also, nations are also dependent upon receiving countries’ policies on immigration.  This is especially apparent now with the election of publicly elected officials who promote divisions based on national origin and other categorical distinctions, dampening the types and numbers of migrants who can train in the US and elsewhere.

Finally, I wonder what else could be discerned by looking into the state, at a more granular level, as a field of departments and policies that are mostly decoupled and at odds. Particularly in China, we can see regional vs. centralized government struggles.”

During the author-meets-critics session, Ibata-Arens described how nation-states are increasingly concerned about the implications of elected officials upon immigration policy and by extension, transnational relationships necessary to innovation that could be severed if immigration policies become more restrictive.

Several other experts have weighed in on the book’s merits:

Kathryn Ibata-Arens, who has excelled in her work on the development of technology in Japan, has here extended her research to consider the development of techno-nationalism in other Asian countries as well: China, Singapore, Japan, and India. She finds that these countries now pursue techno-nationalism by linking up with international developments to keep up with the latest technology in the United States and elsewhere. The book is a creative and original analysis of the changing nature of techno-nationalism.”
—Ezra F. Vogel, Harvard University
“Ibata-Arens examines how tacit knowledge enables technology development and how business, academic, and kinship networks foster knowledge creation and transfer. The empirically rich cases treat “networked technonationalist” biotech strategies with Japanese, Chinese, Indian, and Singaporean characteristics. Essential reading for industry analysts of global bio-pharma and political economists seeking an alternative to tropes of economic liberalism and statist mercantilism.”
—Kenneth A. Oye, Professor of Political Science and Data, Systems, and Society, Massachusetts Institute of Technology
“In Beyond Technonationalism, Ibata-Arens encourages us to look beyond the Asian developmental state model, noting how the model is increasingly unsuited for first-order innovation in the biomedical sector. She situates state policies and strategies in the technonationalist framework and argues that while all economies are technonationalist to some degree, in China, India, Singapore and Japan, the processes by which the innovation-driven state has emerged differ in important ways. Beyond Technonationalism is comparative analysis at its best. That it examines some of the world’s most important economies makes it a timely and important read.”
—Joseph Wong, Ralph and Roz Halbert Professor of Innovation Munk School of Global Affairs, University of Toronto
Kathryn Ibata-Arens masterfully weaves a comparative story of how ambitious states in Asia are promoting their bio-tech industry by cleverly linking domestic efforts with global forces. Empirically rich and analytically insightful, she reveals by creatively eschewing liberalism and selectively using nationalism, states are both promoting entrepreneurship and innovation in their bio-medical industry and meeting social, health, and economic challenges as well.”
—Anthony P. D’Costa, Eminent Scholar in Global Studies and Professor of Economics, University of Alabama, Huntsville
For book excerpts, download a PDF here.  Follow the author’s twitter feed here.
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james buchanan and the stealth plan for insurance copays

I’ve been thinking about James Buchanan again in light of Jennifer Burns’ new critical review of Nancy MacLean’s Democracy in Chains. (Steve Teles and Henry Farrell both defend their own positions — and their independence from Charles Koch — one last time as well.)

I’m done talking about Democracy in Chains, but Buchanan was on my mind today. I don’t know how much direct influence he had on public policy. He hasn’t come up that much in my work, although obviously public choice arguments bolstered the case for deregulation.

Recently, though, I’ve been trying to wrap my head around health policy a little bit, in part to test whether arguments I’ve worked out looking at other social policy domains apply there as well. And here Buchanan plays an interesting — though quite indirect — role.

Health economics as a field only emerged in the 1960s. After federal health spending shot up with the 1965 passage of Medicare and Medicaid, government became increasingly interested in supporting such research.

One of the early papers that shaped that field — and indeed, the whole policy debate over universal health insurance — was Mark Pauly’s 1968 American Economic Review paper, “The Economics of Moral Hazard.”

The paper points out that individuals who are insured against all health costs are likely to seek out more care, at least of some types, than those who are not insured. Thus insurance that includes no deductible or cost-sharing is likely to result in overuse of care. The argument seems obvious now, but at the time — while familiar to insurers — it was novel in economics.

(Interestingly, in Kenneth Arrow’s comment on the paper, his counterargument to Pauly is basically, “this is why we have norms” — to prevent people from consuming more than they need: “Nonmarket controls, whether internalized as moral principles or externally imposed, are to some extent essential for efficiency.”)

Anyway, Pauly was a student of James Buchanan, and credits Buchanan with turning his attention to health policy. Pauly thought he’d do a thesis on “designing the economic framework for a government-funded voucher system for public education” (ahh, now we’re getting into MacLean territory).

But the passage of Medicare had created new pools of money for health research, and Buchanan suggested Pauly might look at health care instead.

Focused on his studies as well as his new wife, 25-year-old student Pauly was only vaguely aware and not much interested in these outside happenings until his mentor, James M. Buchanan, PhD, explained that the law creating Medicare also provided funds for academic health economics studies. He suggested that Pauly switch his thesis focus from education to health care economics and apply for a federal grant.

“Broadly speaking, I was interested in government and public policy,” Pauly remembers. “But the thing that drew me to health care economics was the money. I wish I could be more noble, but that was the reason. I got the grant and the rest is history.”

Three years later, the moral hazard paper was published. It significantly eroded the economic case for universal health insurance without meaningful cost-sharing—just the sort of plan that Ted Kennedy was then advocating—although economists like Rashi Fein would spend the next decade trying to build support for just such a plan.

Capture

The moral hazard argument also led the Office of Economic Opportunity to initiate the RAND Health Insurance Experiment, which was intended to estimate the effects of different pricing structures on healthcare consumption and outcomes.

After a decade of study and nearly $100 million in expenditures, the Health Insurance Experiment found that cost-sharing reduced the use of care without harming outcomes. (There was, of course, much debate over the results.) Employers took note: “The fraction of major companies with cost-sharing insurance plans rose from 30% to 63% in the years immediately following the publication of the experimental results.”

The next couple of decades would see repeated attempts to reform healthcare, but the principle of social insurance — of some kind of broad-based, universal coverage like Medicare — stayed on the margins of health policy conversations, replaced by a focus on cost-sharing, means-testing, and the promotion of competition.

So James Buchanan never got the education vouchers he would have liked, and that MacLean focuses on the context of Virginia’s multiyear desegregation battle. And he hardly would have been a fan of Obamacare, which gave government a sizable new role to play in healthcare. And really, whatever credit — or blame — there is should go to Pauly, not Buchanan. Buchanan was just there with advice at a critical moment.

But maybe, just a little, we can point to James Buchanan for helping to give us the healthcare system—with plenty of copays and high deductibles, and still no universal coverage—that we have today.

[With credit to Zach Griffen, who knows much more than I do about both health economics and health policy, for pointing me in the right direction.]

Written by epopp

September 18, 2018 at 8:47 pm

Posted in economics, health, policy

the PROSPER Act, the price of college, and eroding public goodwill

The current Congress is decidedly cool toward colleges and the students attending them. The House version of the tax bill that just passed eliminates the deduction on student loan interest and taxes graduate student tuition waivers as income. Both House and Senate bills tax the largest college endowments.

Now we have the PROSPER Act, introduced on Friday. The 500-plus page bill does many things. It kills the Department of Education’s ability to keep aid from going to for-profit schools with very high debt-to-income ratios, or to forgive the loans of defrauded student borrowers . It loosens the rules that keep colleges from steering students into questionable loans in exchange for parties, perks, and other kickbacks.

And it changes the student loan program dramatically, ending subsidized direct loans and replacing them with a program (Federal ONE) that looks more like current unsubsidized loans. Borrowing limits go up for undergrads and down for some grads. The terms for income-based repayment get tougher, with higher monthly payments and no forgiveness after 20 years. Public Service Loan Forgiveness, particularly important to law schools, comes to an end. (See Robert Kelchen’s blog for some highlights and his tweetstorm for a blow-by-blow read of the bill.)

To be honest, this could be worse. Although I dislike many of the provisions, given the Republican higher ed agenda there’s nothing shocking or unexpectedly punitive, like the grad tuition tax was.

Still, between the tax bill and this one, Congress has taken some sharp jabs at nonprofit higher ed. This goes along with a dramatic downward turn in Republican opinion of colleges over the last two years.Capture

Obviously, some of this is a culture war. Noah Smith highlights student protests and the politicization of the humanities and social sciences as the reason opinion has deteriorated. I think there are aspects of this that are problems, but the flames have mostly been fanned by those with a preexisting agenda. There just aren’t that many Reed Colleges out there.

I suspect colleges are also losing support, though, for another reason—one that is much less partisan. That is the cost of college.

I think colleges have ignored just how much goodwill has been burned up by the rise in college costs. For the last couple of weeks, I’ve been buried in data about tuition rates, net prices, and student loans. Although intellectually I knew how much prices risen, it was still shocking to realize how different the world of higher ed was in 1980.

The entire cost of college was $7,000 a year. For everything. At a four-year school. At a time when the value of the maximum Pell Grant was over $5,000, and the median household income was not far off from today’s. Seriously, I can’t begin to imagine.

The change has been long and gradual—the metaphorical boiling of the frog. The big rise in private tuitions took place in the 90s, but it wasn’t until after 2000 that costs at publics (both sticker price and net price—the price paid after scholarships and grant aid) increased dramatically. Unsurprisingly, student borrowing increased dramatically along with it. The Obama administration reforms, which expanded Pell Grants and improved loan repayment terms, haven’t meant lower costs for students and their families.

Picture1What I’m positing is that the rising cost of college and the accompanying reliance on student loans have eroded goodwill toward colleges in difficult-to-measure ways. On the one hand, the big drop in public opinion clearly happened in last two years, and is clearly partisan. Democrats have slightly ticked up in their assessment of college at the same time.

But I suspect that even support among Democrats may be weaker than it appears, particularly when it comes to bread-and-butter issues, rather than culture-war issues. Only a small minority (22%) of people think college is affordable, and only 40% think it provides good value for the money. And this is the case despite the growing wage gap between college grads and high school grads. Sympathy for proposals that hit colleges financially—whether that means taxing endowments, taxing tuition waivers, or anything else that looks like it will force colleges to tighten their belts—is likely to be relatively high, even among those friendly to college as an institution.

This is likely worsened by the common pricing strategy that deemphasizes the importance of sticker price and focuses on net price. But the perception, as well as the reality, of affordability matters. Today, even community college tuition ($3500 a year, on average) feels like a burden.

The point isn’t whether college is “worth it” in terms of the long-run income payoff. In a purely economic sense there’s no question it is and will continue to be. But pushing the burden of cost onto individuals and families, rather than distributing it more broadly, makes it feel unbearable, and makes people think colleges are just in it for the money. (Which sometimes they are.) I’m always surprised that my SUNY students think the mission of the university is to make money off of them.

This perception means that students and their families and the larger public will be reluctant to support higher education, whether in the form of direct funding, more financial aid, or the preservation of weird but mission-critical perks, like not taxing tuition waivers.

The PROSPER Act, should it come to fruition, will provide another test for public institutions. Federal borrowing limits for undergraduates will rise by $2,000 a year, to $7,500 for freshmen, $8,500 for sophomores, and $9,500 for juniors and seniors. If public institutions immediately default to expecting students to take out the new maximum in federal loans each year, they will continue to erode goodwill even among those not invested in the culture wars.

The sad thing is, this is a self-reinforcing cycle. Colleges, especially public institutions, may feel like they have no choice but to allow tuition to climb, then try to make up the difference for the lowest-income students. But by adopting this strategy, they undermine their very claim to public support. Letting borrowing continue to climb may solve budget problems in the short run. In the long run, it’s shooting yourself in the foot.

 

 

Written by epopp

December 4, 2017 at 3:55 pm

what nonacademics should understand about taxing graduate school

There are many bad provisions in the proposed tax legislation. This isn’t even the worst of them. But it’s the one that most directly affects my corner of the world. And, unlike the tax deduction for private jets, it’s one that can be hard for people outside of that world to understand.

That proposal is to tax tuition waivers for graduate students working as teaching or research assistants. Unlike graduate students in law or medical or business schools, graduate students in PhD programs generally do not pay tuition. Instead, a small number of PhD students are admitted each year. In exchange for working half-time as a TA or RA, they receive a tuition waiver and are also paid a stipend—a modest salary to cover their living expenses.

Right now, graduate students are taxed on the money they actually see—the $20,000 or so they get to live on. The proposal is to also tax them on the tuition the university is not charging them. At most private schools, or at out-of-state rates at most big public schools, this is in the range of $30,000 to $50,000.

I think a lot of people look at this and say hey, that’s a huge benefit. Why shouldn’t they be taxed on it? They’re getting paid to go to school, for goodness sakes! And a lot of news articles are saying they get paid $30,000 a year, which is already more than many people make. So, pretty sweet deal, right?

Here’s another way to think about it.

Imagine you are part of a pretty typical family in the United States, with a household income of $60,000. You have a kid who is smart, and works really hard, and applies to a bunch of colleges. Kid gets into Dream College. But wait! Dream College is expensive. Dream College costs $45,000 a year in tuition, plus another $20,000 for room and board. There is no way your family can pay for a college that costs more than your annual income.

But you are in luck. Dream College has looked at your smart, hardworking kid and said, We will give you a scholarship. We are going to cover $45,000 of the cost. If you can come up with the $20,000 for room and board, you can attend.

This is great, right? All those weekends of extracurriculars and SAT prep have paid off. Your kid has an amazing opportunity. And you scrimp and save and take out some loans and your family comes up with $20,000 a year so your kid can attend Dream College.

But wait. Now the government steps in. Oh, it says. Look. Dream College is giving you something worth $45,000 a year. That’s income. It should be taxed like income. You say your family makes $60,000 a year, and pays $8,000 in federal taxes? Now you make $105,000. Here’s a bill for the extra $12,000.

Geez, you say. That can’t be right. We still only make $60,000 a year. We need to somehow come up with $20,000 so our kid can live at Dream College. And now we have to pay $20,000 a year in federal taxes? Plus the $7000 in state and payroll taxes we were already paying? That only leaves us with $33,000 to live on. That’s a 45% tax rate! Plus we have to come up with another $20,000 to send to Dream College! And we’ve still got a mortgage. No Dream College for you.

This is the right analogy for thinking about how graduate tuition remission works. The large majority of students who are admitted into PhD programs receive full scholarships for tuition. The programs are very selective, and students admitted are independent young adults, who generally can’t pay $45,000 a year. Unlike students entering medical, law, or business school, many are on a path to five-figure careers, so they’re not in a position to borrow heavily. Most of them already have undergraduate loans, anyway.

The university needs them to do the work of teaching and research—the institution couldn’t run without them—so it pays them a modest amount to work half-time while they study. $30,000 is unusually high; only students in the most selective fields and wealthiest universities receive that. At the SUNY campus where I work, TAs make about $20,000 if they are in STEM and $16-18,000 if they are not. At many schools, they make even less. (Here are some examples of TA/RA salaries.)

Right now, those students are taxed on the money they actually see—the $12,000 to $32,000 they’re paid by the university. Accordingly, their tax bills are pretty low—say, $1,000 to $6,000, including state and payroll taxes, if they file as individuals.

What this change would mean is that those students’ incomes would go up dramatically, even though they wouldn’t be seeing any more money. So their tax bills would go up too—to something like $5,000 to $18,000, depending on their university. Some students would literally see their modest incomes cut in half. The worst case scenario is that you go a school with high tuition ($45,000) and moderate stipends ($20,000), in which case your tax bill as an individual would go up about $13,000. Your take-home pay has just dropped from $17,500 a year to $4,500.

What would the effects of such a change be? The very richest universities might be able to make up the difference. If it wanted to, Harvard could increase stipends by $15,000. But most schools can’t do that. Some schools might try to reclassify tuition waivers to avoid the tax hit. But there’s no straightforward way to do that.

Some students would take on more loans, and simply add another $60,000 of graduate school debt to their $40,000 of undergraduate debt before starting their modest-paying careers. But many students would make other choices. They would go into other careers, or pursue jobs that don’t require as much education. International students would be more likely to go to the UK or Europe, where similar penalties would not exist. We would lose many of the world’s brightest students, and we would disproportionately lose students of modest means, who simply couldn’t justify the additional debt to take a relatively high-risk path. The change really would be ugly.

All this would be to extract a modest amount of money—only about 150,000 graduate students receive such waivers each year—as part of a tax bill that is theoretically, though clearly not in reality, aimed at helping the middle class.

It is important for the U.S. to educate PhD students. Historically, we have had the best university system in the world. Very smart people come from all over the globe to train in U.S. graduate programs. Most of them stay, and continue to contribute to this country long after their time in graduate school.

PhD programs are the source of most fundamental scientific breakthroughs, and they educate future researchers, scholars, and teachers. And the majority of PhD students are in STEM fields. There may be specific fields producing too many PhDs, but they are not the norm, and charging all PhD students another $6,000-$11,000 (my estimate of the typical increase) would be an extremely blunt instrument for changing that.

Academia is a strange and relatively small world, and the effects of an arcane tax change are not obvious if you’re not part of it. But I hope that if you don’t think we should charge families tens of thousands of dollars in taxes if their kids are fortunate enough to get a scholarship to college, you don’t think we should charge graduate students tens of thousands of dollars to get what is basically the same thing. Doing so would basically be shooting ourselves, as a country, in the foot.

[Edited to adjust rough estimates of tax increases based on the House version of the bill, which would increase standard deductions. I am assuming payroll taxes would apply to the full amount of the tuition waiver, which is how other taxable tuition waivers are currently treated. Numbers are based on California residence and assume states would continue not to tax tuition waivers. If anyone more tax-wonky than me would like to improve these estimates, feel free.]

Written by epopp

November 18, 2017 at 5:29 pm

what problems do people think antitrust is going to solve?

Last week, I asked why antitrust is having a moment (it’s continued, on Planet Money and elsewhere), and why Democrats are using radical language to make fairly modest proposals. In this post, I’m going to ask what problems people think antitrust is going to solve, anyway.

Certainly a lot of the current concern about antitrust comes from a broad sense that corporations are too economically and politically powerful, that our economy has been restructured in ways that make ordinary people worse off, and that massive tech companies are able to use our data in ways that we have little control over. That’s political antitrust. And those are totally real issues.

But I want to explore some new questions being raised that are not exactly within the current scope of economic antitrust, but that are still kind of speaking its language—that are pushing to change the antitrust technocracy, not up-end it. To recap, as it has been construed for the last thirty-plus years, the purpose of antitrust is to promote consumer welfare, generally by trying to keep firms from being able to raise and keep prices above a competitive level. The focus is consumers, and prices.

Increasingly, though, people at least adjacent to the space of antitrust expertise are making claims about economic problems they think are being caused by lax antitrust enforcement, or that antitrust should be addressing. And those proposals are worth keeping an eye on, because as hard as it might be to change the expert consensus, it’s still more likely than a new anti-monopoly movement. (Though the two could certainly reinforce each other.) I see these new arguments as falling into basically three categories.

Market power has effects we didn’t realize

Market power is the ability to keep prices above a competitive level (i.e. above marginal cost). Once upon a time, people thought there was a fairly close relationship between how concentrated a market is—that is, how many companies control what share of the market—and how much market power firms have. Since the 1970s, there has been much less of a presumption that concentration, on its own, indicates market power. That means that there’s been less concern about whether we’ve got four airlines controlling 70% of the U.S. market, or that four carriers control 99% of the U.S. wireless market.

Increasingly, though, people are raising flags about other problems that might result from market power. One of these is labor monopsony—the idea that firms have market power, but as purchasers of labor, not sellers of products, and that this is driving wages down. The Council of Economic Advisers put out a report last fall suggesting this might be happening, and Democrats’ mention of “bargaining power for workers” implies this is part of what they’re trying to address. There are related arguments about market power in supply chains and the emergence of “winner take most” industries that also suggest links between concentration or market power and wages.

In theory, monopsony can be handled within the current legal framework, though it is rarely addressed in practice. So developing arguments about the effects of market power on workers, and a legal framework for addressing that within antitrust, is one conceivable new direction for antitrust.

Others are arguing that market power can lead firms to attach undesirable conditions to products that make them lower quality, even as price remains the same. In particular, some scholars, including Nobel Laureate Joe Stiglitz, have framed privacy as an antitrust issue: the product may be free, but consumers have no choice about how their data is used (and in the case of platforms like Facebook, no equivalent competitors). Privacy is hard to address within a framework focused purely on price. But in Europe, competition policy is increasingly tackling privacy issues, and Germany is currently investigating whether Facebook’s dominant position is forcing consumers to give up their privacy without having an alternative choice.

Market power has causes we didn’t realize

The Atlantic just featured a story with the dramatic title, “Are Index Funds Evil?” The article discusses the rise of large institutional investors—index funds, though not only index funds—and what it means that, increasingly, big chunks of competitors in a specific market are actually owned by the same few corporations. It goes on to discuss work by José Azar, Martin Schmalz, and Isabel Tecu that finds that this common ownership enhances market power, and that airline ticket prices are 3-7% higher than they would be under separate ownership.

In this story, index funds were the hook, but it just as easily could have been framed around antitrust. In a way, common ownership was the original antitrust question: the big trusts of the late 19th century were not single-firm monopolies, but competitors that had turned over ownership to a group of trustees that made unified governance decisions. And while research in this area is still new and findings tentative, legal scholars are already making the case that antitrust law can cover the anticompetitive effects of these horizontal shareholdings. If this work continues to hold up, this seems potentially transformative.

Technological change is creating new threats to competition

Finally, a fair bit of the recent chatter is basically arguing, “it’s the technology, stupid.” The dynamics of competition change as more of the economy shifts to online platforms. Because of network effects, companies like Facebook, Google, Apple, and Amazon are hard to compete with—much of their value comes from their existing user base. And because they aren’t just selling products to consumers, but connecting consumers with producers, they aren’t acquiring market power in the traditional sense. Facebook and Google are free products, after all.

But the power of network effects means that they have a tendency towards monopoly. And the fact that the four largest companies by market capitalization are platforms suggests how central platforms have become to our economy.

So we have these new companies that have become very large, and that appear monopolistic, though they also create great value for consumers. From an antitrust perspective, they don’t really appear to be a problem, because they aren’t raising prices. And the history of rapid technological change over the past 25 years, including the rise and fall of a number of once-dominant platforms, raises the question of whether even platforms behaving in anticompetitive ways pose much of a long-term threat.

Recent scholarship, though, argues that monopolistic platforms are in fact anticompetitive, that it is a problem, and that current law is poorly equipped to handle. Lina Khan’s much-circulated note in the Yale Law Journal, for example, argues that 1) platforms encourage predatory pricing—generally seen as irrational (and thus not an issue) within antitrust law—because network effects encourage pursuit of growth over profit, and 2) platforms collect data on rivals that give them an unfair competitive advantage. These sorts of issues clearly fit within the broad scope of “protecting competition,” but don’t fit easily with a consumer welfare, market power conception of antitrust.

Changing that would be a significant project, but if we have an economy that is dominated by firms whose potentially anticompetitive activity is essentially beyond the scope of antitrust, there’s not much left to antitrust. And again, the massive fine the E.U. just levied on Google—for favoring its own shopping service, consisting of companies that pay Google to be on it, over competitors in search results—suggests what this could look like. So far, the U.S. has not demonstrated much enthusiasm about expanding antitrust in this direction. But it’s not inconceivable that it could happen, and it could be done within a framework that was focused solely on competition, if not only on consumer welfare.

Again, all these challenges to the current antitrust framework are at least in the ballpark of its conversation, even if they would require pushing the law in new directions or advancing the acceptance of new economic theories. And they are not the only arguments that are in play here. For example, the question of whether inequality is facilitated by concentration or market power, or whether it has become such a central economic problem that antitrust should try to address it, have prompted enough discussion that two leading antitrust scholars have felt the need to argue that antitrust should leave inequality alone.

Unlike political antitrust, which would probably require a social movement to move it forward, these antitrust arguments have the potential to gain traction without necessarily requiring legislation or a revolution against the current antitrust regime. The 1970s shift toward Chicago-style antitrust happened, to a considerable extent, because the old economic framework seemed increasingly inadequate for explaining the world people found themselves in. As the current framework comes to seem similarly dated, this could be another moment when such change is possible.

Written by epopp

August 10, 2017 at 1:33 pm

the democrats can’t decide how radical they want to be on antitrust

The other day I wrote about the current moment in the spotlight for antitrust. (Here’s the latest along these lines from Noah Smith.) Today I’ll say something about the new Democratic proposals on antitrust and how to think about them in terms of the larger policy space.

The Democrats are basically proposing three things. First, they want to limit large mergers. Second, they want active post-merger review. Third, they want a new agency to recommend investigations into anticompetitive behavior. None of these—as long as you don’t go too far with the first—is totally out of keeping with the current antitrust regime. And by that I mean however politically unlikely these proposals may be, they don’t challenge the expert and legal consensus about the purpose of antitrust.

But the language they use certainly does. The proposal’s subhead is “Cracking Down on Corporate Monopolies and the Abuse of Economic and Political Power”. The first paragraph says that concentration “hurts wages, undermines job growth, and threatens to squeeze out small businesses, suppliers, and new, innovative competitors.” The next one states that “concentrated market power leads to concentrated political power.” This is political language, and it goes strongly against the grain of actual antitrust policy.

Economic antitrust versus political antitrust

Antitrust has always had multiple, competing purposes. The original Progressive-Era antitrust movement was partly about the power of trusts like Standard Oil to keep prices high. But it was also about more diffuse forms of power—the power of demanding favorable treatment by banks, or the power to influence Congress. That’s why the cartoons of the day show the trusts as octopuses, or as about to throw Uncle Sam overboard.

The Sherman Act (1890) and the Clayton Act (1914), the two major pieces of antitrust legislation, are pretty vague on what antitrust is trying to accomplish. The former outlaws combinations and conspiracies in restraint of trade, and monopolizing or attempt to monopolize. The latter outlaws various behaviors if their effect is “substantially to lessen competition, or to tend to create a monopoly.” The courts have always played the major role in deciding what that means.

Throughout the last century, the courts have mostly tried to address the ability of firms to raise prices above competitive levels—the economic side of antitrust. For the last forty years, they have focused specifically on maximizing consumer welfare, often (though not always) defined as allocative efficiency. Since the late 1970s, this has been pretty locked in, both through court decisions, and through strong professional consensus that makes antitrust officials very unlikely to challenge it.

Before the 1970s, though, two things were different. For one thing, the focus was more on protecting competition, and less on consumer welfare per se (the latter was assumed to follow from the former, and was thought of a little more broadly). For another, the courts sometimes took concerns into account other than keeping prices low.

The most common such concern was the fate of small business. Concern for small business motivated the Robinson-Patman Act of 1936, which prohibited anticompetitive price discrimination. It was clear in the Celler-Kefauver Act of 1950, which restricted mergers out of fear that chain stores would eliminate local competition. And the courts acknowledged it in cases like Brown Shoe (1962), which prevented a merger that would have controlled 7% of the shoe market by pointing to Congress’s concern with preserving an “economic way of life” and protecting “local control of industry” and “small business.”

Today, Brown Shoe is seen as part of the bad old days of antitrust, when it was used to protect inefficient small businesses and to pursue confused social goals. This is a strong consensus position among antitrust experts across the political spectrum. While no one thinks that low prices for consumers are the only thing worth pursuing in life, they are the appropriate goal for antitrust because they make it coherent and administrable. Since those experts’ views dominate the antitrust agencies, and have been codified into law through court decisions, they are very resistant to change.

The Democrats’ proposal: radical language, incremental proposals

So when the Democrats start talking about “the abuse of economic and political power,” the effects of concentration on small business, and limiting mergers that “reduce wages, cut jobs, [or] lower product quality,” they are doing two things. First, they are hearkening back to the original antitrust movement, with its complex mix of concerns and its fear of unadulterated corporate power.

Second, they are very much talking about political antitrust, and political antitrust is deeply challenging to the status quo. But their actual proposals are considerably tamer than the fiery language at the beginning, and are structured in a way that doesn’t push very hard on the current consensus. New merger guidelines could make some difference around the margins. Post-merger review would definitely be good, since there’s currently no enforcement of pre-merger conditions that firms agree to, and no good way to figure out which merger approvals had negative effects. I have a hard time seeing a new review agency having much effect, though, since it’s just supposed to make recommendations to other agencies. Even I don’t like bureaucracy that much.

So my read on this is that the Democrats feel like they need a new issue, and it needs to look like it helps the little guy, and they want to sound like populist firebrands. But when you get down to the nitty gritty, they aren’t really so interested in challenging the status quo. That is, basically, they’re Democrats. Still, that the language is in there at all is remarkable, and reflects a changing set of political possibilities.

Next time I’ll look at some of the problems people are suggesting antitrust can solve. Because there are a lot of them, and they’re a diverse group. Tying them together under the umbrella of “antitrust” gives an eclectic political project some nominal coherence. But is it politically practicable? And could it actually work?

Final note: If you are interested in the grand historical sweep of antitrust in capitalism, I recommend Brett Christophers’ The Great Leveler. Among other things, he totally called the emerging wave of interest before it actually happened. Sometimes the very long lens is the right one to use.

Written by epopp

August 3, 2017 at 3:04 pm

why antitrust now?

Antitrust is having a moment. A couple of years ago, with the possible exception of complaining about never-ending airline mergers, no one paid attention to antitrust debates. Today, it’s all over the place. A few months ago, it was the Economist proclaiming “America Needs a Giant Dose of Competition.” Last month it was Amazon and Whole Foods. And now antitrust has become a key plank of the new Democratic platform.

I’ve been thinking about this for a while, but this antitrust explainer written by Matt Yglesias yesterday (which is generally quite good) motivated me to put fingers to keyboard. So I’m going to break this reflection up into three parts: Why antitrust now? What does the new antitrust debate mean? And what would it take for it to succeed? Today, I’ll tackle the first.

At one level, the rise of antitrust interest is just a perfect convening of streams, in the Kingdon sense. A problem (or loose collection of problems) rises to public attention, people are already out there advocating a solution, even if so far unsuccessfully, and—the moment we’re in now—politicians have the motivation to grab that solution and turn it into policy, or at least a platform. It’s just about timing, and it’s not predictable.

At the same time, I think we can unpack a couple of different factors that help us think about “why now”. Some of this is covered in the Yglesias piece. But there are a few things I’d add, and some different angles I’d highlight. So without further ado, here are four reasons antitrust is suddenly getting attention.

1. It’s a reaction to a change in objective conditions.

There is a degree of consensus that market concentration is increasing across the economy. Even if you don’t think concentration is a problem, it wouldn’t be surprising that an increase would lead some people to challenge it, and make media more open to hearing that claim. This is probably a contributing factor. But market concentration has been increasing for a long time, and the link between concentration and exercise of power, whether market power or political power, is at best complicated. I don’t think the rise in concentration explains much of the antitrust attention.

Other phenomena are emerging that are objectively new, and raise new questions about how to govern them. Amazon now controls 43% of internet retail sales in the U.S. That’s astonishing, and at least a little alarming. But we’ve now seen several generations of various platforms (operating systems, browsers, social networks) rise to dominance and sometimes fall, mostly without a lot of antitrust attention—Microsoft, at the turn of the millennium, being the significant exception. These objective changes are a necessary but definitely not sufficient for public attention to rise.

2. New actors are organizing around this issue.

A lot of the noise around antitrust is coming from a relative handful of people. Until the Democrats came on board, it was Elizabeth Warren on the political side, and before that Zephyr Teachout, the Fordham law professor who gave Andrew Cuomo a run for his money in 2014.

On the think tank side, as Yglesias notes, it’s the Open Markets Program at New America. Fellow Lina Khan, once of the Teachout campaign, landed an NYT op-ed on Amazon and Whole Foods. Fellow Matt Stoller’s Atlantic article on antitrust, “How Democrats Killed Their Populist Soul,” got a lot of attention when it came out last fall. Barry Lynn, who runs the program, has been working on this issue for a decade.

The Roosevelt Institute is the other significant player in this space. (Here’s a good, if now difficult to read, piece from last summer explaining the history of Roosevelt.) Marshall Steinbaum and others have made the case for a range of antitrust issues on a variety of grounds, and the influence of both these organizations on the new Democratic congressional platform is clearly visible.

There’s no question that this kind of policy advocacy—talking to policymakers, writing articles and op-eds—is making a difference. But its impact has been facilitated by two other things.

3. The space of expertise is changing in unexpected ways.

Antitrust policy is a space heavily dominated by experts. Congress rarely touches antitrust issues. The public rarely pays attention. Presidents generally talk a good antitrust game, and may care more or less about appointing antitrust officials who will pursue a particular policy line. But for the most part, antitrust is dominated by the lawyers and economists who serve in the Antitrust Division and FTC, consult on antitrust cases, write academic articles, and a handful of whom become judges.

And there is bipartisan consensus among these experts that concentration isn’t generally a problem. Markets are contestable. Predatory pricing is irrational, because firms know that if they drive out competitors then jack up prices, they’ll just attract some new entrant into the market. There’s really no point. Yes, there may be a little more antitrust enforcement among Democrats than Republicans. But it’s a game played “between the 45 yard lines.” As Richard Posner said recently, “Antitrust is dead, isn’t it?”

But this space is changing in interesting ways. The change doesn’t seem to be coming from the antitrust community itself, exactly. But it’s coming from people with the academic clout to be taken seriously.

From one direction, you have people like Jason Furman and Joseph Stiglitz making arguments about labor market monopsony contributing to lower wages and arguing that economic changes require new kinds of antitrust solutions. From another, you have Luigi Zingales overseeing an effort (at the University of Chicago’s Stigler Center, no less) to advocate for stronger antitrust, calling his position “pro-market” rather than “pro-business”. Zingales’ efforts are also notable for bringing in historians, political scientists and other experts usually not privy to the antitrust policy conversation.

None of these people work primarily on antitrust issues or even industrial organization, but they have the status to be taken seriously even if they are not among the usual suspects of antitrust. Their novel arguments have the capacity to shift the expert consensus about antitrust—either mildly, as in Furman’s arguments about the importance of labor monopsony (which don’t require a radical rethinking of the current approach), or more radically, as in Zingales’s advocacy of an antitrust that takes political power seriously.

I’ll discuss these changes more in the next couple of posts, but in terms of explaining “why antitrust now,” the point is that these insider/outsider dissenters are amplifying new voices and new issues, and thus contributing to the current wave of attention.

4. The cultural moment is right for other reasons.

If there’s one belief that seems to unite Americans across the political spectrum these days, it’s that the game is rigged against the ordinary person. For the many Americans who think big business is doing at least some of the rigging, this produces a new openness to arguments about concentration and corporate control. As much as anything else, I think this explains the current interest in antitrust. People are receptive to arguments that purport to explain why they’re being screwed.

Antitrust is a protean issue. It can channel many different types of fears and at least theoretically respond to many different kinds of problems. Whether it can do so effectively, and whether antitrust is the right tool for the job, is a different question. In my next post I’ll try to unpack some of those different problems, why they’re now being linked together under the umbrella of “antitrust,” and draw on some antitrust history to think about what current efforts mean.

Written by epopp

August 1, 2017 at 1:51 pm