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How The Antitrust Inquiry Into Google Can Result In Corporate Welfare For Competitors

There is a lot of big government and big business collaboration in the United States. Many great endeavors of the day, from artificial intelligence to infrastructure to smart cities to space commercialization, are dominated by partnerships with governments rather than free enterprise.

When that happens it can be illegal to compete against the business/government combine or franchisee.

This should not surprise; there’s obviously a lot of regulation and intervention throughout the economy. Business often wants regulation, which might not be about elevating the public good so much as about disadvantaging rivals and snagging their customers, creating artificial scarcity, or otherwise doing whatever it takes to transfer wealth rather than create it anew by laissez-faire competition.

Academic economists tried hard but never came up with a better term than rent-seeking for this phenomenon. As a policy concern rent-seeking has been studied to death, but keeps happening for some reason.

Antitrust, now 130 years old, is in my view also primarily a form of illicit government wealth transfer — corporate welfare — rather than consumer protection. There are examples galore but the latest prominent in-action iteration is the U.S. Department of Justice (DoJ) investigation into Google and its assorted alleged monopolies in advertising, search, or whatever else the enforcers zero in on. The Google case and potential other ones against big tech are particularly ominous because the House Judiciary Committee, majority Democratic, also wants to get famous by taking down big tech after its year-long inquiry.

It seems the most prominent bipartisanship in Washington is to expand government power rather than reduce it.

As a recent article in Politico reported, “DOJ and state attorneys general have asked rivals and other third parties for their views on which businesses Google GOOG +0.2% should have to sell. They have also asked whether any existing competitors should be off-limits as potential buyers."

Government asking competitors how it should apply force illustrates the naked character of the rent-seeking involved here specifically and generally. Why would self-interested competitors be asked anything. All of them should be off-limits as beneficiaries. We at least pretend that antitrust is about protecting competition and not competitors.

Note also the federal central control and industrial policy involved in the notion of government picking the winning buyers, so called. Such forced structural separations should not emerge with respect to Google, Facebook or any others. Everything about a competitor becoming the beneficiary of such targeted, compulsory economic intervention is wrong, yet accepted without embarrassment in the antitrust universe. Just for laughs why should it be another tech company and not Tractor Supply TSCO +1.3% or Dollar Tree DLTR +1.1% that gets to “”buy” Chrome (or Facebook’s Instagram). Nobody at DoJ asked my no-account friends or me if any of us wanted to buy the pieces of Google they decide to slice off.

It is absurdity on a big scale to call antitrust something that limits economic power when every instance of it enlarges government’s ambit and changes the very nature of the marketplace and stakeholder relations. A heightened perversity and distortion happens down the road if a rival that benefits from a given intervention or blocked merger finds itself in the crosshairs of some newfangled antitrust concoction.

But antitrust enforcers need not knock down a wall when they can walk through a door. The claimed purpose of antitrust is enhancing consumer welfare. Since enforcers claim to be helping consumers and to know what’s best for them, in Google’s case the DoJ could make a simple public announcement instructing consumers that they may no longer download or update their Chrome browser, and they are ordered instead to use one of the many rival offerings. Consumers would be grateful if antitrust makes sense. So one wonders why it is they might not go that route.

It has been obvious for over 100 years that one of the unstated goals of antitrust exploitation is to get forced access to the target’s voluntarily acquired customers without doing the hard work and innovation the target did to win them in the first place.

We need to work on tamping out rent seeking and the administrative state that enables all this. In “Yes, Some Companies Actually Want to Be Regulated,” Axios noted the depth of business and government anti-competitive synergy that defines our era:

“Here’s a sampling of industries—both fledgling and established—that want the government to slap some regulations on them, in some cases to provide some certainty, and in others to get rid of headaches...Drones...Autonomous vehicles...Electric Vehicles...Facial Recognition...Digital currencies...Online privacy...Financial advisers...Oil.”

That’s a big catalogue, and there’s plenty more. Large banks can use their politically bestowed status as essential facilities to overextend credit with the expectation they will be able to secure a future taxpayer bailout of losses. Other examples range from butter producers in the 1880s portraying rival margarine as unsafe and dirty to modern ones like the Solyndra solar panel boondoggle, recent farm bill subsidies, Elon Musk’s subsidy portfolio, and politicized/subsidized science generally.

The Mercatus Center’s Matthew Mitchell identified several versions of government-conferred privilege, including “tax privileges, contracting abuses, trade privileges, bailouts, and loan guarantees.”

Clearly if government offers the wealth-transfer services, people will clamor to direct the spoils of federal spending and intervention to themselves. Whim-intensive regulation like antitrust is even less disciplined than spending, so naturally will get exploited.

Innovators are supposed to transform and revolutionize under their own steam and by non-coercive means, not by extracting others’ resources and the fruits of their labor. Our fellow citizens have aspirations of their own that may not involve being forced to pay for battery research technology, the Hyperloop, a trip to Mars, and so forth. They might like Facebook, Amazon AMZN 0.0%, Apple AAPL -2.7% and Google left alone. Their undisturbed choices imply as much, since online competition is a click away and a parallel world of meatspace competition exists.

Despite its prevalence, rent-seeking remains largely unquantified as a cost of regulation, just as do most all other aspects of administrative state burdens. There are theoretical and empirical difficulties aplenty in the measurement of favor-seeking. It’s not always apparent what precisely the rents are composed of, nor what investments are made in procuring them, nor the distributions of social and economic costs, nor their status as direct or welfare costs. Costs include not just the spending and favors, but the resultant market distortions and ripple effects.

Cronyism’s effects will likely prove worse in high tech frontier sectors where entire industry structures are being upended. In normal market evolution, incumbent firms would be forced to either adapt or evaporate were it not for entrenched regulators to whom one might appeal for relief. Tomorrow’s unanticipated competitors are among the most important stakeholders in the rent-seeking game, yet in their nascent forms cannot know they are the quarry, the to-be-prevented. At least government hasn’t yet proclaimed the dorm rooms and garages that spawn so many innovations to be monopolies in need of regulation.

Oddly enough a company that escapes being quashed can later become the pursuer thanks to rent-seeking.

The sharing economy, for example—firms like Uber UBER -1.9% and Airbnb—faced backlash from representatives of the taxi and lodging business models they threatened to upend or replace. Now, though, in some instances ride-sharing services may become more like legacy taxis instead of the reverse. New rent-seeking “innovations” have emerged, such as a coalition among Uber and green pressure groups that urged cities to ban the operation of privately owned automated vehicles. 

Somewhere along the Progressive Trail, likely at its start, agencies became “partners” with those they were supposed to regulate. So economic regulation persists, with antitrust and public utility regulation having protected profits and dampened competition for well over a century in the United States. George Mason University’s Todd Zywicki aptly described the evolving complexities of “synergies” that further the interests of government alongside business, characterizing cronyism as:

“[A] system in which government, big business, and powerful interest groups ... work together to further their joint interests. Government protects and subsidizes powerful corporations and in (implicit) exchange the government uses those businesses to carry out government policies outside of the ordinary processes of government. Unlike simple models of political rent-seeking, in which businesses use government to advance their own interests in exchange for electoral support, under crony capitalism politicians and regulators use businesses to advance the interests of politicians and interest groups in a symbiotic relationship: government creates rents and then distributes them to itself and favored interests.”

The Hoover Institution’s John Cochrane similarly referred to a hybridized environment of not quite capture, and not quite cronyism, but a warped hybrid, wherein: 

“[A] handful of large, cartelized businesses…are protected from competition. But the price of protection is that the businesses support the regulator and administration politically, and does their bidding. If the government wants them to hire, or build [a] factory in [an] unprofitable place, they do it. The benefit of cooperation is a good living and a quiet life. The cost of stepping out of line is personal and business ruin, meted out frequently. That’s neither capture nor cronyism.”

The entities that emerge from heavy new government intervention into the business models of today’s social media innovators would likely fit this description well. Content regulation is one of the key areas that will be affected by government intervention, as future social networks would lack the freedoms that allowed today’s giants to attain their stature. If things break that way, today’s opponents of regulation could become tomorrow’s protectors of it. So it’s better for big to discipline big, rather than (bigger) government to discipline big, which is no discipline at all.

Both rewards and punishments get used in these pay-to-play arrangements, as described well by economist Fred McChesney. In the antitrust arena, one finds target firms later championing the same pursuits against others and it could easily happen again.

It’s a big task to unravel the rent-seeking hairball, but far more fruitful than winding up the antitrust one.

The failure to roll back much regulation that was available for easy repeal under the Congressional Review Act in the early phase of the Trump administration anecdotally indicates that large companies long since made peace with rulemakers. As a Republican staffer purportedly told The New York Times in 2017, “even the cabinet secretaries at the E.P.A. and Interior are saying these [spending] cuts aren’t going to happen. They’re going to protect their grant programs, their payments to states, their Superfunds.”

The administrative state is a rent-seeking state, and wealth creation driven by outside disruptors can get impeded. That means antitrust regulation makes us poorer. After seeking fame in big cases, antitrust enforcers at DoJ and the Federal Trade Commission can wind up as part of the private antitrust bar or honchos at the very firms they once regulated. Or esteemed professors somewhere, where they might finally be free to lament rent seeking.