Biden’s ‘competition’ executive order poorly consolidated
Joe Biden’s recent Executive Order (EO) on competition calls for 72 federal interventions in the economy across a range of industries. It is based on a 2018 analysis (Grullon et al) which concludes that concentration has consistently increased in 75% of US industries, as demonstrated by the Herfindahl-Hirschman Index (HHI), a valuable but flawed measure. The authors claim that companies have higher profit margins because of consolidation and the subsequent ability to raise prices, not because of industrial efficiency. They suggest that lax enforcement of antitrust laws in the Bush and Obama administrations, coupled with technological transformation in large corporations, has created barriers to entry into the market.
The study brings together a large number of public and private companies over the period 1972-2014, so it is difficult to see if the premise holds true for the industries Biden targeted for the intervention, including telecommunications, rail freight. , health care and others. . Biden’s broad assertions contradict not only the strong evidence showing that industrial performance differs significantly by industry and company, but also the historical facts of telecommunications stocks, which have been essentially flat or declining over the past two decades. The consolidation of rail freight was largely a positive force after deregulation; rates have fallen by about 40 percent following the consolidation of 33 “Class I” railways into 7 today.
Consolidation in itself is not bad in itself. It is a natural part of the life cycle of an industry. Once an industry starts up and businesses grow, it goes through a period of “demobilization” in which consumer preferences emerge and inefficient businesses disappear. Sometimes companies can have good ideas but bad execution. Consolidation makes it easier to enter and exit the market, which the IB itself sees as prerequisites for competition. Consolidation is also a way to recover assets that would otherwise be wasted. Biden’s EOs do not seem to recognize these dynamics or the troublesome academic illustration that regulation and political activity explain a sufficient increase in corporate profits in recent decades (Bessen, 2016). Indeed, while Biden denounces mergers of healthcare industries (especially hospitals), he fails to mention that this trend is largely driven by Obamacare, a policy he has promoted. Companies are merging to increase their influence in contracting with government.
Despite several competing broadband technologies, increasing broadband speeds and lowering prices for end users, the Biden EO is targeting telecommunications, requiring price controls and other interventions, such as preventing owners from selecting. only one Internet service provider (ISP) for their properties and the imposition of broadband “nutrition labels”. (See analysis of Biden’s broadband policy). In fact, consolidation is what the telecommunications industry desperately needs; there are over 5,000 ISPs across the United States. Serving large rural areas with relatively few customers, most ISPs cannot scale the scale to make the necessary investment for upgrades. Notably, the policy proposed by Biden is to give video entertainment providers free access to US networks, as the biggest traffic creators who pay nothing for mid- or last-mile broadband costs and resist the efforts. aimed at creating solutions for equitable cost sharing.
Oddly enough, the order is scolding the freight rail industry, which is one of the Democrats’ signature achievements, the most successful infrastructure in the latest American Society of Civil Engineers (ASCE) newsletter, and possibly the industry. most technologically advanced and sustainable freight train in the world. The 1980 Staggers Act deregulation, passed when Democrats held both houses, is responsible for nothing less than 40 years of positive transformation: a doubling of freight shipped by rail, falling tariffs shippers pay (it would have cost them $ 70 billion more to ship the same freight by truck) and unprecedented advances in security. The seven Class 1 freight railways have invested $ 710 billion in infrastructure improvements since 1980, in addition to the approximately 600 private freight railways in the United States today. Without government requirements, rail freight transport has become “green” by acquiring fuel-efficient locomotives, a new car design that improves load, distributed power (positioning locomotives in the middle of trains) to reduce total power required for train movements, software and intelligent routing and speed, and stop-start timing systems to save engine fuel.
Shippers have never had so many solutions for distributing their goods. In addition to more than 140,000 miles of freight rail, there are 4 million miles of public roads and 164,000 miles of national highways, a combined network that grows some 6,500 miles per year. Air freight has exploded following a similar deregulation of airlines in 1980. UPS, DHL and FedEx are world leaders in a sector growing by more than 4% per year, which is expected to reach more than $ 145 billion. by 2027. Maritime transport has also increased in terms of availability, efficiency, and sustainability (another sector suspected by the OE). As shipping costs have come down and technology has improved, shippers and retailers themselves have invested in their own delivery, like Amazon Prime and Instacart. A growing industry of sophisticated logistics providers, over $ 30 billion a year, combine all of these means of transport to deliver efficient solutions to shippers.
The EO Biden might be less suspicious if his suggested interventions didn’t fit the party’s donor wishlist perfectly. In particular, net neutrality rules have been imposed by large tech companies to ensure that they pay nothing for data transmission. A group of progressive left-wing organizations want to create a government monopoly on the Internet in the same way that Ma bell controlled the telephone with the central planning of the Federal Communications Commission. Likewise, Biden’s call for “forced switching” and “revenue matching” with rail freight is the goal of a coalition of industrial shippers like Delaware-based DuPont. Previously, the Rail Customer Coalition, a mega-organization of trade associations with giants like the American Chemistry Council rebranded itself as a leader in rail freight reform with the specific purpose of lobbying the Surface Transportation Board to let it lower prices compared to what can be achieved in good faith bargaining with a railroad.
While Biden is correct on the premise that a competitive economy is important to lasting prosperity, it does not follow that the Presidency is redefining competition as a “whole-of-government” project. The executive agencies that make the offers of party donors are not competitors; it is cronyism.