During the election, Donald Trump took everyone by surprise when he came out swinging against consolidated economic power. He whacked AT&T’s merger with Time Warner calling it “too much concentration of power in the hands of too few.” Of Comcast’s acquisition of NBC, Trump declared, “Deals like this destroy democracy.” Trump went after Amazon, calling it a “huge antitrust problem” and asserting that Jeff Bezos, its founder, had purchased The Washington Post to protect the company and its “monopolistic tendencies.” Trump targeted the pharmaceutical industry saying, “Pharma has a lot of lobbies, a lot of lobbyists, a lot of power.”
Almost Rooseveltian in some of his rhetoric, Trump seemed, at the time, to have tapped into something. Not only did he appear to demonstrate an acute awareness of economic concentration, but he made clear that his Administration would be a bulwark against such dominance; what Trump had called the “the power structure I’m fighting.”
And yet, a week before taking the oath of office, the then-President-elect met with the heads of three large companies with pending antitrust cases before the U.S. Department of Justice. The first meeting was with the CEO of AT&T, the very company he had singled out during the campaign. The telecom giant is looking to merge with Time Warner in a massive $85 billion deal that could upend the media industry with notable ramifications for the current balance of power between consumers, content creators, and cable providers. That was followed by a meeting with the heads of Monsanto, America’s largest seed and chemical company, and Bayer, the German chemical and drug behemoth, two companies also set to merge shortly. If permitted, the merger will significantly consolidate the seed and chemical market, potentially resulting in higher prices, less innovation, and less choice.
In a stark departure from Trump’s earlier rhetoric, here was the President-elect, just two months out from his election, greeting the heads of the very interests he had just denounced. Inevitably these meetings invite questions. Was Trump going wobbly on antitrust? Or more troubling still, was Trump improperly intervening in a law enforcement process? With growing evidence that America may in fact have a serious antitrust problem, knowing the answers to these questions has arguably never been more important.
When Trump spoke on the campaign trail about “power structure,” he was likely speaking in part to the fact that, over the past thirty years, corporations have been growing larger and more dominant. For example, a March 2016 analysis by The Economist of 900 U.S. industries found that not only were a majority of sectors more concentrated, but the market shares of the top four firms in each industry grew roughly by a quarter, from 26 percent in 1997 to 32 percent in 2012. But it’s not just larger market share. Corporate profits have reached historic highs and among the top firms in certain high-performing sectors, like pharmaceuticals and tech, returns on invested capital have been extraordinary and nonstop.
While higher corporate profits may seem to indicate a thriving economy, this current trend toward consolidation doesn’t seem to be benefiting all Americans. A recent Federal Reserve paper looked at the effect of mergers on a swath of manufacturing firms across the country. Over a period of eight years, researchers found that mergers not only have little effect on a firm’s productivity, but also lead to higher prices. This is consistent with other recent empirical work that has shown that sufficient concentration of industry can usher in higher consumer prices. Taken together, such evidence begins to challenge long-held claims regarding efficiencies and other gains from consolidation. Instead, from health care to pharmaceuticals, consumers are getting the short end of the stick.
Even more worryingly, recent industry consolidation may be related to deeper and broader shifts in the American economy itself. Economists have begun to associate rising market concentration with larger trends, including rising inequality and reduced worker bargaining power, a falling share of economic gains going to workers, reduced private sector investment, slowing innovation, and a steady but steep decline in the number of new firms entering the market. Even the industrial giant, General Electric, has rung the alarm, writing in their most recent shareholder letter that massive industry consolidation has “choked off innovation and reduced investments in a competitive workforce.”
This was not, however, lost on the Obama Administration. During the President’s final years in office, the Department of Justice and Federal Trade Commission moved aggressively to challenge the mergers of some of the largest firms in America, including the recent successful blocking of two massive health insurance mergers. In a powerful speech last September, Renata Hesse, the acting head of the Department of Justice’s Antitrust Division, reframed the debate around competition, highlighting the broad definition of fairness and opportunity that antitrust laws seek to enforce.
And it didn’t stop there. Last April, the White House released an executive order calling on all agencies to explore ways to increase competition in the sectors they oversaw. This resulted in a concerted effort by the White House and executive branch agencies to find ways to enhance competition outside of the traditional mechanisms of merger and antitrust enforcement, including efforts on cable set-top boxes and hearing aids.
As mentioned, in his calling out of specific firms and mergers, candidate Trump, in his own way, appeared attuned to this phenomenon. But since his election, it has been another story. The ire of his statements has mellowed, if not disappeared altogether. Far from fighting this “power structure,” Trump has increasingly come to embrace it.
In early December, before his aforementioned meetings with the CEOs of AT&T, Monsanto, and Bayer, Trump invited the nation’s tech leaders—including Amazon’s Bezos—to a meeting at Trump Tower. The man who had, months earlier, challenged Amazon’s market dominance reportedly declared, “Anything we can do to help this go along, and we’re going to be there for you. You’ll call my people, you’ll call me. It doesn’t make any difference.”
Trump also met with the five largest firms in the pharmaceutical industry, a sector defined by its consolidation, aggressive patent protection, and skyrocketing prices. While Trump did mention, in passing, the need for more competition, the discussion focused primarily on reducing regulations and taxes, advantages that will surely benefit the most dominant firms, not challenge their market power. Following the meeting, pharmaceutical stocks rose.
President Trump’s personnel decisions are equally worrying in this respect. Trump’s picks to lead those agencies with important mandates when it comes to competition have a history of support for lax antitrust laws. Take Ajit Pai, Trump’s choice to lead the Federal Communications Commission. Pai is notable for his activism against network neutrality, a hard fought totem for what twenty-first century competition policy should look like. Moreover, Pai is “sympathetic” to the supposed need for greater consolidation in telecom and cable and reportedly isn’t planning on conducting any review of the recent megamerger between AT&T and Time Warner. For a presidential candidate who called the merger of these two companies, “an example of the power structure I’m fighting,” these hires alone make one believe the new Administration was simply all talk on competition. Similarly, it is hard to imagine Trump’s closest staffers, with decades in business—particularly in banking and private equity—and a cabinet with a combined wealth that exceeds one-third of American households, challenging the status quo of deal-making and concentration in this country.
Moreover, other policies of Trump’s may only add further fuel to the merger fire. Analysis by The New York Times shows that Trump’s proposal to tax currently un-taxed profits held oversees at a lower rate is far more likely to further juice acquisitions than create jobs. Similarly, his deregulatory agenda is widely viewed as another espresso shot for Wall Street deal-making. As one Wall Street industry analyst explained, the expectations is “a prolonged period of M&A activity given the more benign regulatory outlook.”
This myriad of tensions, when considered at once—the convenings, personnel choices, and policies—seems to represent a sharp swing away from earlier campaign promises, toward a more traditional and increasingly permissive approach to antitrust. Such an approach evidently represents yet another betrayal of Trump’s campaign promises. Nonetheless, it would still be largely in line with past conservative administrations, and thus not all that surprising.
A second and more pessimistic interpretation, however, is not that Trump is going soft on antitrust, but instead is leveraging this power to make deals.
In February, The Wall Street Journal reported that Jared Kushner, senior advisor to President Trump, met with an executive of Time Warner, which owns CNN, to discuss “deep concerns about CNN’s news coverage.” The article noted the “special intrigue” around discussions that consider the pending merger of Time Warner with AT&T. Not all that different from Trump’s earlier gatherings with the CEOs of Monsanto, Bayer, and AT&T, such aggressive involvement in what is, ostensibly, a law enforcement matter would mark a wholesale departure from what has long been a bipartisan practice of independent antitrust enforcement. Yet it would also be largely in line with Trump’s actions since taking office.
Referred to by former Obama staffer Brian Deese as “coercive capitalism,” Trump has used the presidency to bully, cajole, and ultimately deal directly with business—think, for example, of Carrier, Nordstrom, and Boeing. In a similar—albeit dramatically escalated—way, Trump may be using the merger process to improperly deal with individual businesses. Naturally, this evokes questions about the possibility of quid pro quo relationships between those firms and the presidency. More than that, it prompts suspicion about the legitimacy of the outcome and even the antitrust law itself. Far from benefiting the American people, this type of action is almost certain to inordinately reward the largest and most powerful firms with the resources and networks to deal directly with the White House.
Needless to say, the need to play ball with the President doesn’t seem lost on corporate leaders. Reporting has suggested that the head of Softbank, the Japanese conglomerate that owns Sprint, continues to be interested in a merger with T-Mobile. That may partially explain the CEO’s efforts to cozy up to the President by planning to invest a reported $50 billion in U.S. production over the next four years. Separately, Monsanto and Bayer followed their meeting with Trump by promising to increase investment and jobs.
America increasingly looks like it has a serious competition problem that doesn’t seem to be going away any time soon. Looking ahead, 2017 appears set to be yet another big year for corporate consolidation. While antitrust enforcement remains one of our strongest tools to preserve and foster competitive markets, to challenge growing private consolidation, and to ensure opportunity, choice, and affordability, reading the tea leaves should leave Americans with acute anxiety. Yes, as a candidate, Trump appeared aware of the growing concentration of economic power. But since officially taking office, his actions have signaled, at best, a decidedly more passive approach to industry mergers and, at worst, a dangerous desire to use such tools as leverage. This seems to be a serious misreading of the economic moment. Regrettably, forgotten amongst it all is who really loses. When airlines charge exorbitant prices? When there are fewer health insurance options to choose from? When the cable bill skyrockets? Who suffers when the independent enforcement of antitrust laws is brushed aside or the largest firms in America cut deals directly with the presidency?