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How Democrats Can Wage War on Monopolies—and Win

Elizabeth Warren and her brainchild, the Consumer Financial Protection Bureau, provide a roadmap for the left to make antitrust reform a reality.

Sasha Arutyunova//The New York Times/Redux

A little more than a decade ago, I attended an advance screening of Maxed Outa documentary about the boom market in predatory consumer-lending practices, exposed through the stories of unsuspecting victims. As the housing bubble had not yet popped, the event didn’t generate much buzz, even in a city as wonky as Washington, D.C. The audience was overrepresented by people like me and my peers: interns and junior political professionals whose antennae were constantly alert to free food and entertainment. But that night we had an additional reason to be excited: The film was followed by a Q&A with a Harvard Law School bankruptcy expert named Elizabeth Warren.

Five years later, Warren would become a Democratic senator and a household name, but her academic work, online writing, and advocacy had already placed her on a glide-path to progressive-icon status. It was natural, even at that early date, that a handful of young liberals living in the nation’s capital would want to hear what she had to say. Her presentation that evening was my first encounter with the toaster analogy, and to this day I remember being stuck by its elegance and explanatory power.

“It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house,” Warren later explained in the journal Democracy. “But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street–and the mortgage won’t even carry a disclosure of that fact to the homeowner. Similarly, it’s impossible to change the price on a toaster once it has been purchased. But long after the papers have been signed, it is possible to triple the price of the credit used to finance the purchase of that appliance, even if the customer meets all the credit terms, in full and on time. Why are consumers safe when they purchase tangible consumer products with cash, but when they sign up for routine financial products like mortgages and credit cards they are left at the mercy of their creditors?”

The essay was Warren’s attempt to lay out a solution to the toaster problem, but it also became a seedbed for the most unalloyed progressive achievement of the Obama era. When we buy toasters or microwaves or other consumer products, we take for granted that those items won’t destroy our lives, and a big reason we have such faith in them, whether we know it or not, is a federal regulatory agency called the Consumer Product Safety Commission. Financial products are subject to federal regulation as well, of course, but at the time, that authority was distributed among a number of agencies with larger remits—the Federal Reserve and the Office of the Comptroller of the Currency, for instance—many of which were caught in the grip of regulatory capture. In her Democracy article, Warren unveiled a proposal to consolidate all of that authority into a single new independent agency that would police the entire consumer credit industry, with the long-term goal of making borrowing more transparent and less risky.

Warren had identified a complex problem, distilled it into simplicity, and traced the outlines of a solution. Just three short years later, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which birthed a minor miracle of reform: the Consumer Financial Protection Bureau. As the Democratic Party seeks a way out of the wilderness, the origins and realization of the CFPB should serve as a template for progressive policymaking that serves real needs and has the political power to unify the warring factions on the left.

The most pressing ills facing our society are somewhat different today than they were in 2007, but they share a common basis in the fleecing of the working class. In the years since the financial crisis, the specter of private debt has given way to a larger conversation about inequality and the structural forces that give rise to it. Senator Bernie Sanders’s Democratic primary campaign caught fire thanks in no small part to his critique of the economy and of the politicians and oligarchs who have rigged it to enrich themselves at the expense of regular people.

His critique identified a root cause of familiar troubles: wage stagnation and skyrocketing health and education costs, against a backdrop of runaway income growth for the one percent and record corporate profits. For all the political power of the “rigged economy” diagnosis, though, the debate between him and Hillary Clinton centered principally on how aggressively to return the fruit of this corruption to the middle class. Sanders wanted to tax the oligarchs to pay for free, universal public college and Medicare for all. Hillary Clinton wanted to tax the oligarchs to pay for a debt-free college guarantee and improving the Affordable Care Act. These differences dominated the primary, overshadowing the question of how to unrig the economy.

Democratic Party primaries will almost by definition draw out disagreements over taxes and transfers, but in 2016, the primacy of fiscal issues ended up giving short shrift to less pecuniary consequences of increasing concentrations of wealth. We experience those consequences every time we travel or call up our cable provider. Business owners and their employees experience it whenever Amazon decides to expand its reach. The entire world experienced it a decade ago when the term “Too Big to Fail” entered common parlance. These are not simply problems of convenience or costs but of values and self-governance. After 2010, the words “Citizens United” became a metonym for the idea that powerful interests have captured our political system with a flood of unregulated, unsourced money.

When I attended that Q&A with Elizabeth Warren 10 years ago, I had recently completed a six month stint at the New America Foundation, where I provided research assistance to the think tank’s in-house scholars, including a writer named Barry Lynn who was, at the time, a lonely voice warning the public about the dangers of economic concentration. Back then, his work centered mainly on the monopsony power Wal-Mart exerted over its suppliers, and the broader problem of corporate behemoths creating single points of failure in global supply chains. Over time, he built that work into a 10-person program called “Open Markets” which—through platforms like the prescient liberal magazine Washington Monthly—sought to promote awareness of the consequences of monopoly and other forms of consolidated economic power.

This work couldn’t help but come into tension with the interests of New America Foundation’s corporate donors—and particularly with Google, which funded the think tank generously and is perhaps the most prominent monopolist in the world. As I was reporting this story, the New York Times broke the news that New America, bending to pressure from Google CEO Eric Schmidt, had fired Lynn and given Open Markets the boot.

The heedless and goonish way the hit went down couldn’t have better illustrated the merits of the very critique Google was trying to squelch. The monopoly problem is real. It has been identified. Its consequences are apparent. This raises two critical questions about the future of liberalism and self-governance in America. Can a new generation of reformers—like those who just left New America, and elsewhere—repeat in the realm of antitrust what Elizabeth Warren was able to accomplish so shrewdly in the realm of consumer finance? And, in so doing, can they forge a new unity in Democratic politics before the oligarchs win?

The answer to both questions is yes.

The CFPB was an accomplishment of astonishing speed. Making transformative change through the American political system is excruciating, and generally consumes lifetimes worth of man hours. Liberals labored for decades after World War II to establish a national health care system, suffering repeated failures until Obama enacted the least-disruptive—and, thus, least transformative—set of reforms that could conceivably guarantee Americans in every stage of life insurance against medical catastrophe.

The first two years of Obama’s presidency rivaled the New Deal and Great Society in their overall productivity, but also cemented a trend in liberal politics toward working within existing institutions, rather than building new ones, to make social change. This trend likely helped Obama to accomplish as much as he did, but it has also become the source of enormous tension between what you might call incrementalist and reformist wings of the Democratic Party. The reformers deride the incrementalists as sellouts and stone-hearted technocrats; the incrementalists say the reformers are demagogues peddling fool’s gold to people who don’t understand the U.S. system’s resistance to change. These arguments often reduce down to familiar points of contention over program design, how much money to spend, and what is politically possible. But the bad blood between the two camps boiled over during the Democratic primary last year, contributing to the election of Donald Trump. The recriminations of that calamity continue to this day, and feed a growing sense of dread within the Trump opposition that a man so hateful and incompetent and unpopular might nevertheless be reelected.

Sitting in plain sight amid this seemingly insoluble infighting is Warren’s brainchild, which carries none of the baggage other recent Democratic policy victories do. Obamacare is at once a source of enormous pride among liberals, and a clearly flawed half-measure. Most of the provisions of Dodd-Frank, while necessary and historic in their own rights, stopped well short of the blunter ideas financial reformers had advocated, like reinstating Glass-Steagall’s walls between banks and investment firms. The CFPB by contrast sits right on the battle line between the reformers and the technocrats. 

“The reason the consumer agency got widespread support ultimately among Democrats is because it’s tangible,” Warren told me recently. “People actually see how it works for them. How the rules on mortgages now protect them. How they have a place to go and make a complaint. The rules had always been there, but there was no real accountability in government. And that one was partly structural, but it was partly because the agencies that were supposed to be responsible for looking out for the public in fact were looking out for industry—for big banks.”

The CFPB has accomplished a lot in its brief life. A few weeks ago, The New York Times noted that in a few short years the bureau had “curtailed abusive debt collection practices, reformed mortgage lending, publicized and investigated hundreds of thousands of complaints from aggrieved customers of financial institutions, and extracted nearly $12 billion for 29 million consumers in refunds and canceled debts.” It recently promulgated a game-changing rule that, once implemented, will allow classes of consumers to sue their banks and creditors in court, prohibiting financial institutions from steering customer disputes into laughably one-sided arbitration.

Though hated by conservatives, its structure makes it nearly politically untouchable. Republicans would love to eliminate the CFPB, or weaken its authority structurally, but doing either would require them to pass a new law, and thus to overcome a Democratic filibuster. And while a new director will no doubt slow or pause the agency’s work, the structure will remain in tact for a future, less vandalous administration. Democrats should seek to replicate this seamlessness—between concept and execution and political durability—as they tackle a much larger project: saving our political economy—indeed, our entire democracy—from those whose sheer greed could destroy it.

For many months now, the idea that antitrust reform would be The Next Big Thing in Democratic politics has been generating a lot of buzz, but it seemed there wasn’t much form to the hype. Having suffered a stunning defeat, Democrats have been casting about for all sorts of new ideas and messages to shore up their mass appeal. At some level, the sudden spike in chatter about antitrust seemed driven more by the need to fill a public relations void than by a sudden epiphany about the political economy.

My suspicion, before I began reporting this story, was that beneath the rhetorical gloss and the enduring usefulness of treating giant corporations as political foils, the critics of wealth concentration would have few specific ideas in mind to address it. A decade ago, after identifying a problem, Warren set about doing the unglamorous work of outlining a solution, building a political coalition to support it, and selling it to the public at large. From even my privileged vantage point I could not see, beyond gauzy efforts to “raise awareness,” whether that kind of brass tacks work was underway today. Over the past few weeks, I’ve discovered that my suspicion was wrong. In the vacuum created by the election, the politics of antitrust reform have moved faster than substance, but the substance is far better developed than I assumed.

The question of what the government can and should do about monopolies and trusts is a very broad one, and thus, so are the inquiries, underway in think tanks and universities, that will ultimately become of interest to legislators. But the reformist critique of antitrust policy as currently structured is a lot like that old joke about dissatisfied diners complaining about terrible food coming in tiny portions.

For decades, thanks largely to the influence of Robert Bork and the Chicago school of economics, and then to regulators of both parties, antitrust law has been seldom enforced, and only on the basis of a Supreme Court-dictated “consumer welfare” standard. The government does practically nothing to stop mergers that don’t create obvious monopolies or lead to price discrimination. Reformers argue that this laissez-faire attitude toward corporate consolidation has accelerated inequality and created myriad externalities that harm basically everyone in one way or another. They also argue that even increased enforcement under the existing legal paradigm would be inadequate because the consumer welfare standard is too narrowly drawn to effectively mitigate the harms of consolidation in the modern age.

Earlier this year, in an influential Yale Law Journal article, “Amazon’s Antitrust Paradox,” a 28-year-old lawyer named Lina Khan argued that the conservative antitrust revolution amounted to bad law, and left regulators powerless to “promote a host of political economic ends” which Congress intended its antitrust laws to promote, “including our interests as workers, producers, entrepreneurs, and citizens.” By the time the antitrust debate reaches the Democratic caucuses on Capitol Hill as early as next year, it will turn on whether legislators are willing to heed the insights in Khan’s article. Should the government use its existing antitrust powers more vigorously, and should Congress broaden those powers with new law? “The thrust of the argument is that our entire framework for assessing competition is currently misguided,” Khan told me recently. “We’re trying to agitate a move away from a consumer welfare approach, which is what Chicago instituted, towards an approach that looks at a variety of factors that I would argue represents a more reality-based understanding of how competition works.”

A gold-standard antitrust reform, according to Marshall Steinbaum, a research director at the progressive Roosevelt Institute, would work in sequence to both expand the range of what the government considers anti-competitive behavior and make the enforcement of those stepped-up standards automatic. When evaluating mergers, he said, the government shouldn’t just consider the price effects and harm to consumers, “but also the ability to block out upstream competition from reaching consumers [and the] effects on the labor market—so whether there would be monopsony power, whether workers would still have the ability to move between jobs and entertain multiple job offers. The privacy of user data and its usability for purposes of price-discrimination, and entrepreneurship and small business formation and growth, would all be concerns.” He added, “What we need is, rather than a consumer-welfare standard, a competitive marketplace standard.”

But the critical piece, according to Steinbaum, Khan, and others, will be whether Democrats advocate a reversal of the government’s basic presumption that mergers are permissible, and instead require companies to show that their mergers will benefit the economy across these metrics before a merger can be approved. This would have the immediate effect of slowing consolidation, but it would also solve the administrability problem that might arise if questions about a merger’s impact on, say, labor markets were left to the government to evaluate.

Earlier this summer, Democratic leaders introduced an agenda called A Better Deal. The fact that it included a template of sorts for “Cracking Down on Corporate Monopolies” was widely interpreted among Senate Democrats as a starting pistol for the race to draft bills and white papers. Now, in much the way Warren drew up a blueprint for a consumer financial protection agency, Steinbaum intends to spend months writing a comprehensive antitrust bill, which means that, by the time Democrats are in a position to make law again, these ideas will be fleshed out and ready for legislators to pull off the shelf. Over a similar time horizon, according to multiple sources in the reform community and on Capitol Hill, many of the Democrats who are expected to run for president in 2020—including both establishment avatars like Senator Cory Booker and reformist icons like Warren—will be introducing their own legislation or otherwise positioning themselves as champions of the issue.

The effect could be to touch off a virtuous cycle of competition, like the one that emerged in the 2008 Democratic primary over issues like health care and climate policy, where aspiring party leaders vie for the mantle of change. By the time Democrats set about selecting their next presidential nominee, a seriousness about antitrust reform—not empty platitudes, but detailed commitments—will be a litmus test. If they win the election under circumstances like that, the agenda might well be unstoppable. Alternatively, it could all come to naught—or worse, drive Democrats deeper into its current cycle of recriminations.

Monopolies and oligopolies can make great bogeymen when they’re dragging passengers off of airplanes and locking them into lousy, years-long service agreements, but they can also, counterintuitively, become sympathetic figures in the public imagination. Worse for Democrats, the most obvious targets of a beefed-up antitrust regime happen to be both the most broadly popular and, not altogether coincidentally, Democratic Party donors—companies like Facebook, Google, and Amazon.

It will be in the interest of these companies to disrupt the virtuous cycle, and turn antitrust into an issue that divides, rather than unites, the party. In a lengthy statement meant to contain the fallout from firing Barry Lynn, New America Foundation CEO Anne-Marie Slaughter described his work as a progressive call to man the barricades for the next round of Democratic infighting. “Nothing we say is going to convince the many people who want to believe a David versus Goliath story of Barry Lynn versus big bad Google,” she wrote. “On the contrary, Barry’s new organization and campaign against Google is the opening salvo of one group of Democrats versus another group of Democrats in the run-up to the 2020 election.”

Unless one of the groups of Democrats she’s referring to comprises the party’s corporate donors, this reflects a serious misreading of the role antitrust is shaping up to play in 2020. If Open Markets and the Roosevelt Institute represent vanguards of pugilistic progressivism in this arena, their natural counterparts resisting antitrust reform would normally be found in Democratic establishment organs like the Obama White House and the Center for American Progress. But last year, CAP published a meaty paper called Reviving Antitrust, and the chairman of Obama’s Council of Economic Advisers, Jason Furman, spent his final years in the executive branch researching the role economic concentration and anticompetitive practices play in increasing inequality. This complementary work has emboldened the reformers and underscores the fact that influential actors in the Democratic establishment are sympathetic to their cause.  

But two years is an eternity in politics, and more than enough time for big-dollar funders to poison the good faith between antitrust reformers and the Democratic Party’s aspiring leaders. When Dodd-Frank became the law of the land in 2010, one of the people tasked with turning the CFPB from statutory text into a regulatory agency fell was Deepak Gupta, a consumer advocate and constitutional litigator who has since formed a boutique firm whose mission is to represent plaintiffs victimized by predatory practices—including ones inflicted by monopolies. When we discussed the campaign to reanimate antitrust law recently, he identified the looming conflict right away. “Is the Democratic Party a party that is prepared to go in the opposite direction of the donor class on these issues?” he asked.

Absent the election of Donald Trump, the answer to this question would almost certainly be no. Progressives scored plenty of impressive victories in the battles waged during the Obama years, but two of the most stinging defeats have something critical in common. Progressives fought to the point of nearly sinking the Affordable Care Act, to see that the law included a public insurance option, which could serve as a check against abuse in insurance markets dominated by a few major competitors. Insurance companies and hospitals, in concert with the Obama administration, killed that idea. Progressives also fought to reestablish the Glass-Steagall prohibition against single firms engaging in both commercial and investment banking. That effort also failed. It is striking that in a moment of enormous national crisis and frenzied legislative reform, the big provisions that did not survive were both ones that would have struck blows against concentrated economic power.

Keeping antitrust reform efforts on the rails will require its advocates to build a unified front of grassroots support, from consumer groups, labor groups, and small businesses alike, much as Warren did when the CFPB was still a policy journal pipe dream.

“We had a big meeting [at AFL-CIO] and invited the heads of lots of groups and I pitched the agency there,” Warren recalled. “I talked with Richard Trumka about it. I went to SEIU and talked to them about it…. Consumer finance is not the first line in their mission statement but it sure as heck affects every one of their members. And they said quickly, ‘Yes. Count on us. We’re in. We’ll help you. We’ll put our shoulders behind this.’ I went to Consumers Union. I called Jim Guest who was the head of Consumers Union and introduced myself, and said, ‘Please help.’ And Consumers Union jumped in…. I talked to Wade Henderson who was then the head of the Leadership Conference on Civil and Human Rights. I talked to the head of the NAACP and the head of La Raza. Every group I could find that had real live people for members, who were getting cheated on mortgages and credit cards and bank accounts. And we began to build.”

There are any number of talented organizers in Democratic politics who could replicate this kind of coalition-building effort on behalf of a new trust-busting regime, but several other complicated pieces have to fall into place as well. As far as I know, there is no “toaster analogy” for anti-monopoly politics, which is to say there is no rhetorical framework in place that can transform the harms of economic concentration in the public imagination from vague abstractions into obvious truths. There is also the small matter of fact that the CFPB could not have triumphed over lobbyist opposition without the tailwinds of the greatest global economic shock in nearly a century. The thought that years of effort will be in vain, absent some exogenous calamity striking at just the right moment, would normally be enough to crush the morale of anyone working on any ambitious political project.

But there is something antitrust advocates have that Warren and the financial reformers didn’t have a decade ago: the power of incumbency. Congress passed the Sherman Antitrust Act in 1890, and strengthened it with the Clayton Antitrust Act in 1914. One year before that, Congress established the Federal Trade Commission. “The laws are very vague, very open ended,” Gupta said. “Some of this relies on the courts to go along, but I can imagine a new Democratic administration taking power and focusing on the most [un]sympathetic markets—you know, airlines, cable companies.”

This was essentially what Hillary Clinton laid out as a top administrative priority last year, based largely on the assumption that a divided Congress would be gridlocked and deny her any legislative accomplishments. But it also presents the challenge facing Democrats as a somewhat false choice between pushing for new laws and repurposing existing ones. It is fairly commonplace for the executive branch to use (or threaten to use) its blunt legal powers to compel Congress into passing new, more precise laws. Obama’s ultimately aborted efforts to change immigration reform and climate change law were underwritten by an implicit threat that absent congressional action, he would act unilaterally. Antitrust reformers have a similarly powerful fallback mechanism.

“It’s not that we need new antitrust tools. It’s that we need public servants who will pick up those tools and use them,” Warren told me. “The way to make that happen is when more people identify the problem and push government to represent them, instead of corporate interests.” Establishing the CFPB’s consumer protections required structural reforms that aren’t strictly necessary with antitrust, which means outright failure is only an option if Democrats lose elections or shrink from their own powers. “The thing that makes it easier on the antitrust side [is that] the law is already there,” she continued. “There are ways to make it more effective, fine. But the laws are there. The fundamental rules have already been written. The capture by industry has been of the public servant, not of the law itself. If we get public servants who are brave and willing to use the tools that are already written into American law, we can make a big shift in this area.”

The booming interest in antitrust reform isn’t powered in the main by post-election panic or anti-Trump opportunism, but by genuine need and a growing sense that corporate interests, exploiting the protections both parties offered them, have overplayed their hand. Trump’s solicitousness of corporate America, and corporate America’s giddy receptiveness to the Trump presidency, has awaken many Democrats to the follies of hoping to forge lasting alliances with big business, and that big business will drain the extremism out of the GOP. The liberal panic that ensued after November 8 contributed only insofar as it concentrated Democratic minds on the need to embrace big ideas that are both responsive to public concerns, and politically unifying. 

But that is a critical piece.

Trump’s election has forced Democrats to evolve, and along every axis of that evolution, the case for taking monopoly capitalism head on is overwhelming. The logic is staring them squarely in the face. If Democrats decide to latch on to it—if not for the common good, then simply to make their party cohere—a real change is coming.