This January, the Federal Trade Commission (FTC) proposed a significant new rule to effectively ban all non-compete agreements—agreements that employers impose on their workers prohibiting them from working for a competing company. For those in the antimonopoly movement, this is an essential step to regain democratic control over the marketplace and to make the economy work for workers as opposed to large corporations. Non-competes lower wages. They make it harder to start new companies or for smaller competitors to recruit talent. Following years of advocacy, FTC review, an executive order calling for their curtailment, and a compilation of the overwhelming economic evidence against non-competes, the FTC is banning non-competes as an unfair method of competition, with the ban expected to take effect after a “public comment” period.
In response, big business has mobilized to fight the rule, taking personal aim at Chair Lina Khan and the current leadership of the FTC, accusing them of violating the Commission’s administrative rules, going beyond the FTC’s authority, and abusing the merger review process. If you are to believe one departing FTC Commissioner, Khan is relying on “dishonesty and subterfuge to pursue her agenda.” What’s really going on here? And why is the rarely exciting FTC suddenly at the center of nationwide controversy?
First, some context. We are living in an era of monopoly. Markets for so many of the things you need—whether it be the internet, food, medicines, air travel, hospitals, or eyeglasses—are controlled by an increasingly small number of firms. Intuition confirms this. Voluminous economic research confirms this. Banning non-competes, while important on its own terms, is just one prong of a movement to fix an economy that’s far out of balance and in which an extraordinary amount of power is held by a small number of private corporations. Runaway monopolization is precisely what antitrust agencies like the FTC are designed to stop, whether by taking Big Tech firms to court for monopolistic practices or blocking bad mergers. But that work has been neglected for the past 40 years. And the rise of the antimonopoly movement today is a much needed, if belated, response to a serious problem.
American antimonopoly policies originated in the populist and progressive eras of the late 19th and early 20th century. As a set of rules to govern markets, they straightforwardly prohibited many unfair business practices in an effort to stop the consolidation of private power—and were supported by a robust legal tradition that developed over the course of a century. Price fixing? Couldn’t do it. Have a monopoly? Not allowed. Predatory pricing, where you sell at a loss to unfairly put a competitor out of business? Nope. Mergers that might harm competition? Prohibited with simple rules of thumb. Restrictions on the distributors you do business with? Verboten. Even when there were disagreements among judges or enforcers, these tended to be disputes over the substance of which business practices were or were not permitted within a broad antitrust framework.
Then, in the 1970s and 1980s, antitrust policy significantly shifted, initially inspired by the business-friendly and radically conservative “Chicago School of Antitrust,” which was most associated with Robert Bork but composed of a loose network of scholars centered on the University of Chicago. This group felt that, as Chicago professors Richard Posner and George Stigler wrote to Ronald Reagan’s transition team in 1980, “Many hallowed principles of antitrust are silly.” They thought that antitrust should allow all but the largest mergers between direct competitors. Others in this group felt that there were great risks of over-enforcing the antitrust laws, because consumers would be deprived of the benefits of “combinations that increased efficiency.” The philosophy of the Chicago School was, plainly, an ideology of monopoly.
Yet, with some rare exceptions—for instance, the memo to Reagan’s transition team—the result has not been a system that overtly defends monopoly power. Rather, the Chicago School’s monopoly-friendly ideology embedded itself in a new regime focused on testing conditions, qualifications, and carve-outs which, taken together, rendered ineffective the plain language of the antitrust laws, leading to the feeble approach to antimonopoly policy we have today. The clear rules that once steered antitrust policy to deconcentrate economic power are now layered with a complex web of enforcement and procedural hurdles that make that mandate nearly impossible.
Some detail is needed to show what this looks like. For example, let’s say a businessperson is being pushed out of the market because of another company’s lawbreaking. For the law to come into effect, it’s insufficient for the businessperson to show that they were harmed; they need to show also that the abstract notion of competition was harmed (referred to as an “antitrust injury”). Then, most cases are decided through a “burden shifting framework,” where a plaintiff needs to show that the violator’s actions had a substantial anticompetitive effect, after which the violator gets to provide a “procompetitive rationale” for their behavior, and after that the plaintiff needs to show that the “procompetitive efficiencies” they provided were achievable in a less anticompetitive way. Or, say consumers had to pay more because of price fixing or a monopoly. Well, unless they directly bought something from the violator, courts have ruled they might not have any right to be compensated, lest the violator have to pay “multiple recovery” to both consumers and whatever business they directly sold it to.
Sound confusing? It is. All of these procedures have the net effect of protecting practices that—per the older body of antitrust jurisprudence—should simply be prohibited. If you want to stop someone from engaging in predatory pricing and putting you out of business, you need to show that they would hypothetically be able to recover their losses by raising prices later once you are out of business. If you want to stop a supplier from unfairly giving your competitors lower prices than you, you need to prove that you lost the business of specific customers, not just that they broke the law. And on it goes.
These procedural barriers do correspond to important questions—how we should decide whether someone broke the law, what needs to be proven, and what sorts of business strategies should be allowed—and some of these qualifications make sense on their own terms. But the accumulation of these hurdles has gotten to the point where cases even against blatant price-fixing can’t get to trial anymore, as in a case against chip manufacturers dismissed last year. Not because price fixing has become legal; it is still very much not. Rather, where large companies are raising prices in obvious lockstep, from the outset you need to, as a 2007 Supreme Court case decided, “rule out the possibility that the defendants were acting independently”—a very high burden of proof.
These are not innocuous business practices. Congress long ago decided that many of them are unfair or deceptive. They are the main methods by which would-be monopolists attempt to control markets or to raise prices to rip off consumers. And some of them—price-fixing by large companies, or outright monopoly—are inconsistent with any sort of competitive market economy. However, this high bar of procedural requirements has made the process of breaking a monopoly opaque, confusing, and easy to manipulate. And monopoly has flourished in this procedural helplessness.
Which brings us back to January’s proposed ban on non-compete agreements from the FTC, now under new leadership and looking to reverse the economic consolidation brought on by a generation of weak law enforcement. The opposition to the non-competes ban by the business community has very little to stand on when it comes to policy substance. Again, the economic evidence against non-competes is overwhelming and they are wildly unpopular among Americans of all backgrounds. Instead, opponents are questioning the FTC’s authority to make such a rule or are advocating tailoring the rule to only ban the most problematic non-competes, allowing for non-competes where there is a risk of employee “free riding” on the employer’s investment in training them. Such extra tests and requirements, if implemented, could well have the effect of rendering the rule toothless.
For many opposing the new antimonopoly push, that’s the point. The straightforward task of governing in this sphere has been long neglected, and this lacuna has allowed for the consolidation of most industries into oligopolies or near-monopolies. As the antimonopoly movement expands in response to these problems—by revising merger guidelines, blocking more harmful acquisitions, or seeking to break up Big Tech monopolies—the focus on procedure is a key part of the playbook to oppose the movement. A generation of business elites are accustomed to being able to game this elitist system of antitrust procedural rules, and a generation of antitrust professionals are accustomed to self-imposed constraints on enforcement authority. Both groups are outraged at the notion that new regulators are looking for ways to do their job and return to the hallowed American antimonopoly tradition.
Erik Peinert is a political economist and the Research Manager at the American Economic Liberties Project.
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#1 Yes non-compete clauses benefit monopolies and hurt employees -- very rich employees, the super-stars. Don't waste your time on them.
#2 There's a myth that "busting monopolies" is the answer to monopoly capitalism because ... Teddy Roosevelt! That's just wrong. After breaking up Standard Oil (actually it was Taft that did the job for him) a few years later he concluded --That didn't work; all the pieces are colluding tacitly and making just as much, maybe more.
#3 Around that time we learned from the electric industry that monopolies have a good side (wait, I'll get to how Teddy fixed the bad side). There were sometimes 4 power companies building power lines down the same street. This made a dangerous expensive mess. Now you notice, this is Never the case. We make sure to have monopoly power companies at least for delivering power.
#4 But monopolies are still a problem and fixing that was TR's big accomplishment that you don't hear about because it doesn't sound as cool as busting the big banks (which he didn't). His answer was to regulate them, and he put in place the apparatus needed to collect the info to regulate them. That's still going strong (I forget, but is it the FTC?)
#5 Maybe you like socialism. Why? Because that has the efficiency of monopoly plus complete regulation. Now I'm not advocating that. But my point is Monopolies can (not always) have huge efficiencies. So we regulate electricity, water, most road building, etc.
#6 Regulation can be done very badly, and it's tricky, but don't forget it. That's what TR was most proud of doing, Not Busting Monopolies
This is not wrong, but it is basically an ad hominem attack, and not appropriate for Persuasion. Teddy, did have a big ego and crave attention. But he was also an unusually decent and dedicated human being, which is opposite to Trump.