Mark Zuckerberg personally lost the Facebook antitrust case
I'm on a 20+ city book tour for my new novel PICKS AND SHOVELS. Catch me at NEW ZEALAND'S UNITY BOOKS in AUCKLAND on May 2, and in WELLINGTON on May 3. More tour dates (Pittsburgh, PDX, London, Manchester) here.
It's damned hard to prove an antitrust case: so often, the prosecution has to prove that the company intended to crush competition, and/or that they raised prices or reduced quality because they knew they didn't have to fear competitors.
It's a lot easier to prove what a corporation did than it is to prove why they did it. What am I, a mind-reader? But imagine for a second that the corporation in the dock is a global multinational. Now, imagine that the majority of the voting shares in that company are held by one man, who has served as the company's CEO since the day he founded it, personally calling every important shot in the company's history.
Now imagine that this founder/CEO, this accused monopolist, was an incorrigible blabbermouth, who communicated with his underlings almost exclusively in writing, and thus did he commit to immortal digital storage a stream – a torrent – of memos in which he explicitly confessed his guilt.
Ladies and gentlepersons, I give you Mark Zuckerberg, founder and CEO of Meta (nee Facebook), an accused monopolist who cannot keep his big dumb fucking mouth shut.
At long, long last, the FTC's antitrust trial against Meta is underway, and this week, Zuck himself took the stand, in agonizing sessions during which FTC lawyers brandished printouts of Zuck's own words before him, asking him to explain away his naked confessions of guilt. It did not go well for Zuck.
In a breakdown of the case for The American Prospect, editor-in-chief David Dayen opines that "The Government Has Already Won the Meta Case," having hanged Zuck on his own words:
The government is attempting to prove that Zuck bought Instagram and Whatsapp in order to extinguish competitors (and not, for example, because he thought they were good businesses that complemented Facebook's core product offerings).
This case starts by proving how Zuck felt about Insta and WA before the acquisitions. On Insta, Zuck circulated memos warning about Insta's growth trajectory:
they appear to be reaching critical mass as a place you go to share photos
and how that could turn them into a future competitor:
[Instagram could] copy what we’re doing now … I view this as a big strategic risk for us if we don’t completely own the photos space.
These are not the words of a CEO who thinks another company is making a business that complements his own – they're confessions that he is worried that they will compete with Facebook. Facebook tried to clone Insta (Remember Facebook Camera? Don't feel bad – neither does anyone else). When that failed, Zuck emailed Facebook execs, writing:
[Instagram's growth is] really scary and why we might want to consider paying a lot of money for this.
At this point, Zuck's CFO – one of the adults in the room, attempting to keep the boy king from tripping over his own dick – wrote to Zuck warning him that it was illegal to buy Insta in order to "neutralize a potential competitor."
Zuck replied that he was, indeed, solely contemplating buying Insta in order to neutralize a potential competitor. It's like this guy kept picking up his dictaphone, hitting "record," and barking, "Hey Bob, I am in receipt of your memo of the 25th, regarding the potential killing of Fred. You raise some interesting points, but I wanted to reiterate that this killing is to be a murder, and it must be as premeditated as possible. Yours very truly, Zuck."
Did Zuck buy Insta to neutralize a competitor? Sure seems like it! For one thing, Zuck cancelled all work on Facebook Camera "since we're acquiring Instagram."
But what about after the purchase. Did Zuck reduce quality and/or raise costs? Well, according to the company, it enacted an "explicit policy of not prioritizing Instagram’s growth" (a tactic called "buy or bury"). At this juncture, Zuckerberg once again put fingers to keyboard in order to create an immortal record of his intentions:
By not killing their products we prevent everyone from hating us and we make sure we don’t immediately create a hole in the market for someone else to fill.
And if someone did enter the market with a cool new gimmick (like, say, Snapchat with its disappearing messages)?
Even if some new competitors spring up, if we incorporate the social mechanics they were using, these new products won’t get much traction since we’ll already have their mechanics deployed at scale.
Remember, the Insta acquisition is only illegal if Zuck bought them to prevent competition in the marketplace (rather than, say, to make a better product). It's hard to prove why a company does anything, unless its CEO, founder, and holder of the majority of its voting stock explicitly states that his strategy is to create a system to ensure that innovating new products "won't get much traction" because he'll be able to quickly copy them.
So we have Zuck starving Insta of development except when he needs to neutralize a competitor, which is just another way of saying he set out to reduce the quality of the product after acquisition, a thing that is statutorily prohibited, but hard to prove (again, unless you confess to it in writing, herp derp).
But what about prices? Well, obviously, Insta doesn't charge its end-users in cash, but they do charge in attention. If you want to see the things you've explicitly asked for – posts from accounts you follow – you have to tolerate a certain amount of "boosted content" and ads, that is, stuff that Facebook's business customers will pay to nonconsensually cram into your eyeballs.
Did that price go up? Any Insta user knows the answer: hell yes. Instagram is such a cesspit of boosted content and ads that it's almost impossible to find stuff you actually asked to see. Indeed, when a couple of teenagers hacked together an alternative Insta client called OG App that only showed you posts from accounts you followed, it was instantly the most popular app on Google Play and Apple's App Store (and then Google and Apple killed it, at Meta's request):
But why did the price go up? Did it go up because Facebook had neutralized a competitor by purchasing it, and thus felt that it could raise prices without losing customers? Again, a hard thing to prove…unless Zuck happened to put it in writing. Which he did, as Brendan Benedict explains in Big Tech On Trial:
I think we’re badly mismanaging this right now. There’s absolutely no reason why IG ad load should be lower than FB at a time when . . . we’re having engagement issues in FB. If we were managing our company correctly, then at a minimum we’d immediately balance IG and FB ad load . . . But it’s possible we should even have a higher ad load on IG while we have this challenge so we can replace some ads with [People You May Know] on FB to turn around the issues we’re seeing.
So there you have it: Zuck bought Insta to neutralize a competitor, and after he did, he lowered its quality and raised its prices, because he knew that he was operating without significant competitors thanks to his acquisition of that key competitor. Zuck's motivations – as explained by Zuck himself – were in direct contravention of antitrust law, a thing he knew (because his execs explained it to him). That's a pretty good case.
But what about Whatsapp? How did Zuck feel about it? Well, he told his board that Whatsapp was Facebook's greatest "consumer risk," fretting that "Messenger isn’t beating WhatsApp." He blocked Whatsapp ads on Facebook, telling his team that it was "trying to build social networks and replace us." Sure, they'd lose money by turning away that business, but the "revenue is immaterial to us compared to any risk." Sure seems like Zuck saw Whatsapp as a competitor.
Meta's final line of defense in this case is that even if they did some crummy, illegal things, they still didn't manage to put together a monopoly. According to Meta's lawyers – who're billing the company more than $1m/day! – Meta is a tiny fish in a vast ocean that has many competitors, like Tiktok:
There's only one problem with this "market definition" argument, and that problem's name is Chatty Mark Zuckerberg. On the question of market definition, FTC lawyers once again raised Zuckerberg's own statements and those of his top lieutenants to show that Zuckerberg viewed his companies as "Personal Social Networks" (PSNs) and not as just generic sites full of stuff, competing with Youtube, Tiktok, and everyone else who lets users post things to the internet.
Take Instagram boss Adam Mosseri, who explained that:
Instagram will always need to focus on friends and can never exclusively be for public figures or will cease to be a social product.
And then there was Zuck's memo explaining why he offered $6b for Snapchat:
Snap Stories serves the exact same use case of sharing and consuming feeds of content that News Feed and Instagram deliver. We need to take this new dynamic seriously—both as a competitive risk and as a product opportunity to add functionality that many people clearly love and want to use daily.
And an internal strategy document that explained the competitive risks to Facebook:
Social networks have two stable equilibria: either everyone uses them, or no-one uses them. In contrast, nonsocial apps (e.g. weather apps, exercise apps) can exist [somewhere] along a continuum of adoption. The binary nature of social networks implies that there should exist a tipping point, ie some critical mass of adoption, above which a network will organically grow, and below which it will shrink.
Sure sounds like Facebook sees itself as a "social network," and not a "nonsocial app." And of course – as Dayen points out – when Tiktok (a company Meta claims as a competitor) went up for sale, Meta did not enter a bid, despite being awash in free cash flow.
In Zuckerberg's defense, he's not the only tech CEO who confesses his guilt in writing (recall that FTX planned its crimes in a groupchat called WIREFRAUD). Partly that's because these firms are run by arrogant twits, but partly it's because digital culture is a written culture, where big, dispersed teams expected to work long hours from offices all over the world as well as from their phones every hour of day and night have to rely on memos to coordinate:
When Dayen claims that "the government has won the Meta case," he doesn't mean the judge will rule in the FTC's favor (though there's a high likelihood that this will happen). Rather, he means that the case has been proven beyond any kind of reasonable doubt, in public, in a way that has historically caused other monopolists to lose their nerve, even if they won their cases. Take Microsoft and IBM – though both companies managed to draw out their cases until a new Republican administration (Reagan for IBM, GWB for Microsoft) took office and let them off the hook, both companies were profoundly transformed by the process.
IBM created the market for a generic, multivendor PC whose OS came from outside the company:
Trump being Trump, it's not inconceivable that he will attempt to intervene to get the judge to exonerate Meta. After all, Zuck did pay him a $1m bribe and then beg him to do just that:
But as Dayen writes, the ire against Meta's monopolistic conduct is thoroughly bipartisan, and if Trump was being strategic here (a very, very big "if"), he would keep his powder dry here. After all, if the judge doesn't convict Meta, Trump won't have wasted any political capital. And if Meta is convicted, Trump could solicit more bribes and favors at the "remedy" stage, when a court will decide how to punish Meta, which could be anything from a fine to a breakup order, to a nothingburger of vague orders to clean up its act.
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
With president bone spurs asleep at the switch or playing golf, all kinds of nutty provisions got snuck into the bill.
With the president asleep at the switch, all kinds of nutty provisions got snuck into the bill.
Incentivizing SNAP Fraud
As the Prospect has reported, one of the ways Republicans cut the Supplemental Nutrition Assistance Program (SNAP) is by forcing states, which have a vastly smaller capacity to tax and borrow, to shoulder more of the program’s cost. But in the Senate, Lisa Murkowski got a two-year exemption from cost-sharing for states with an erroneous payment rate of above 13.3 percent. That includes her home state of Alaska, which has the highest payment error rate in the nation. It was a giveaway for Murkowski in particular. But to comply with budget reconciliation rules, this exemption extends to the states with the ten highest error rates. This is literally incentivizing states to increase waste and fraud in the program. Indeed, in all seriousness, liberal states would be wise to make their SNAP program as sloppy as possible right now.
The Mass Shooter Subsidy
One of the vanishingly few American gun regulations that still exists is a tax on silencers, which has existed for almost 100 years, and sits at $200—or did until now. Republicans wouldn’t stand for this intolerable burden on America’s large population of hardworking mass shooters, and so they repealed it. They also wanted to remove a requirement that silencers be registered, but that was ruled out of order by the Senate parliamentarian. Still, killing the silencer tax is egregious. Anyone on their way to a workplace or schoolyard to do their part to maintain America’s number one record of gun massacres could already get a fully automatic “bump fire” rifle (thanks to the Supreme Court), but now you won’t even hear them coming.
The Spaceport Sweetener
For some reason, Section 70309 of Trump’s bill would allow municipalities to issue tax-exempt bonds to build spaceports, as is currently the case for airports. Digging around, we couldn’t see any explanation of why this was included except that a company called Space Florida wants it. Perhaps Martians contacted RFK Jr. and told him they need a place to disembark.
No Tax on Oil Drillers
If you listen to Donald Trump’s speeches (good luck to you), you hear a lot about certain modest elements of this bill: no tax on tips, no tax on overtime, no tax on Social Security. That last one is not in the bill at all—there’s a temporary increase in the standard deduction for people over the age of 65 that is not tied to Social Security at all—but Trump always leaves one of these “no tax” items out: the provision for no tax on oil drillers. As the Prospect has reported, the bill includes an exemption for domestic oil and gas companies from the corporate alternative minimum tax, as long as they have “intangible drilling and development costs.” This is something oil companies lobbied insistently for, and it was inserted by Republican Sen. James Lankford (R-OK); most of the firms that will benefit represent his home state of Oklahoma.
Handouts for Chinese Steel Companies
As we have previously detailed, Trump’s bill not only gets rid of almost all of President Biden’s climate program, it also provides vast subsidies to coal producers. At least four million acres of federal land will be opened up to coal leasing, and the royalty rate will be cut from 12.5 percent to 8 percent. Incentivizing coal—the worst fossil fuel for the climate and also particulate pollution—in any way is bad, but Republicans are also literally subsidizing foreign steel companies in places like China, India, and Brazil, by making metallurgical coal eligible for “critical mineral” subsidies through 2030. This coal, which is used in blast furnaces to create steel, is mostly exported to poorer countries with fewer air pollution regulations. Sure enough, the coal doesn’t even have to be used domestically to get the subsidy.
The Garden of Heroes
Republicans constantly go on about how the country is broke and we cannot possibly afford to provide people with basic health care or food assistance. Yet in the same bill that includes the largest cuts to Medicaid and SNAP in American history, there is a $40 million appropriation to the National Endowment for the Humanities to requisition statues for a “Garden of Heroes” in Washington, D.C., something that Kim Jong Un would even be embarrassed to unveil.
A Tax on Gambling Winnings
Republicans changed the tax rules around gambling to limit the amount of losses that could be deducted to just 90 percent. So if you go to Vegas and win $10,000 one day, then lose $10,000 the next, you are still on the hook for $1,000 in winnings. You could end up owing tax even if you lost money.
Now, in our view there is entirely too much gambling in American society, particularly sports. (Thanks once more to the Supreme Court!) But this is a nonsensical way to go about stopping problem gambling. What is needed above all is to get gambling out of smartphones. Companies like DraftKings are manufacturing gambling addicts at an industrial scale with a constant drip of notifications carefully tuned to get you to bet and keep betting as much as possible (ideally, until you run through your entire life savings).
This law wouldn’t do anything about that problem, while seriously punishing the tiny minority of pro gamblers who actually make money playing in poker tournaments and such.
Unlimited SALT
A major point of contention in the legislation was the state and local tax (SALT) deduction. Some Republicans wanted to increase a cap placed on how much state and local taxes people could write off on their federal returns. In the end, that cap was raised from $10,000 to $40,000 for the next five years. However, Republicans vowed they would limit the ability for people with pass-through income, like law partners or hedge fund managers, to take unlimited SALT deductions. The House and Senate wrote new rules to close this loophole. And then, at the last minute, they dropped them. So now rich people have yet another legal tax avoidance scheme, worth between $35 and $40 billion over the next decade. At least somebody gets a break in this legislation.
Tax Breaks for Puerto Rican Rum
One of the more ridiculous traditions in Congress in the recent past was continuing to advance temporary tax cuts in an annual “tax extender” package that had all kinds of pork in it: tax breaks for thoroughbred racehorses, NASCAR racetracks, and Puerto Rican rum shipments. When Congress made some of the anchors of these tax extenders, namely the tax incentive for research and development, permanent, the idea of these other tax extenders carrying along lost its luster, and many were dropped. Lobbyists still have to get paid, however, and liquor distributors in territories like Puerto Rico and the U.S. Virgin Islands managed to secure their tax rebate, which will cost about $2 billion.
More Chipmaker Subsidies?
During his State of the Union address this year, Trump said that he wants to get rid of the CHIPS Act—which subsidizes domestic semiconductor manufacturers—adding, “Your CHIPS Act is a horrible, horrible thing. We give hundreds of billions of dollars. It doesn’t mean anything.” But this bill actually increases CHIPS subsidies by about 40 percent. What?
This might possibly end up being a net benefit, insofar as it doesn’t strangle the infant American chipmaking industry in the crib. We’re just baffled that it’s in there. As we’ll see, Trump probably doesn’t even know about it.
Did everyone notice the second bullet point above?
They're going to go after VETERANS.
Why?
Because the federal employee workforce is approximately 30% veterans, and they do not care about the service of the people who SERVED the US people whether it's in the US government or the US military.
This is what the people who voted for Trump wanted.
More plane crashes. No food safety. No environmental protections. No veterans' benefits or healthcare.
And the list goes on and on.
Everyone is going to be paying more for everything because Trump wants to put tariffs on EVERYTHING!
Oh, and invading Panama & MEXICO (!!!) is on the list and probably Greenland after that.
New $484B Relief Bill Lacks Funds for Food Aid, Rent Relief, US Postal Service, Election Protection
As the House passes a new $484 Billion coronavirus relief bill, Congressmember Alexandria Ocasio-Cortez is the sole Democrat to vote no, saying it falls far short, failing to protect those at greatest health risk, including essential frontline workers, and could let millions go hungry. We get response from The American Prospect’s David Dayen.
{D-Q Reflection}. ‘Obama-Era Liberalism and the US Housing Crisis’
Copyright @Ian Bell
Will history classify the Obama administration as a genuinely reformist, social liberal one, or did it make little, real attempt to break with the post Reagan regime of neo-liberalism? What do l mean by social liberal? l mean a government focused on enabling citizens to achieve a ‘social liberal’ equality of opportunity through actively enhancing access to key means of participation such as education, income support, healthcare and housing; ie policies indebted to the government activism of the New Deal-influenced era from the 1930s to the 1970s.
Cornel West, the influential US intellectual, has formed a ‘strong’, negative view upfront:
“The age of Obama was the last gasp of neoliberalism. Despite some progressive words and symbolic gestures, Obama chose to ignore Wall Street crimes, reject bailouts for homeowners, oversee growing inequality and facilitate war crimes like US drones killing innocent civilians abroad” (The Guardian, 17 Nov 2016).
West’s view challenges us to think hard about past, present and future issues. My purpose here is narrow: to highlight some recent evidence from investigative journalism that begins the long historical process of forming a view on the Obama years in the context of specific policy areas.
Any answer to my opening question needs to be sensitive to the severe institutional constraints on this administration in a context where Congress (and congressional districting) was largely controlled by state-level Republican politicians as well as the immediate politico-economic demand in 2008 to heave the economy as out of crisis. Similarly, the porousness of ‘weak’ US state institutions to private money and influence, and increased legal enablement for this, needs to be taken into account. This ensured direct, and not merely structural, dependence on dominant business interests and their power.
Any answer needs also to distinguish between the public ‘declaratory’ policies of the administration, and the actual operational policies pursued. Further, any answer needs to be policy-specific; ie specific to an area like financial regulation or healthcare and the like.
I want to focus briefly on housing policy in the US in the light of an important piece of investigative journalism by David Dayen published at ‘The Intercept’ site, 28 December 2015. <https://theintercept.com/2015/12/28/obama-program-hurt-homeowners-and-helped-big-banks-now-its-dead/>
Dayen’s discussion focuses on, potentially, a key Obama era program aimed at assisting homeowners avoid foreclosure, ie the Home Affordable Modification Program or HAMP. Given that over six million US families lost their homes to foreclosure in the period between early 2009 and late 2015, this would be a prime site for activist government to assist the working class and slow deteriorating inequality. It offered the prospect of real, mass relief to those whom private housing markets failed the most. The President himself stressed this when announcing the program in February 2009.
Significantly, Dayen concludes that the program was deeply defective. He notes that less than one million households got ongoing assistance, and a third of those subsequently re-defaulted anyway because of inadequate loan modifications. Importantly, Dayen concludes also that the program failed because of administration objectives and mode of design, not Congressional obstruction.
In relation to objectives, Dayen reports that the then Treasury Secretary saw the program as primarily supporting the restabilisation of financial institutions, rather than householders: “It allowed banks to spread out eventual disclosures and absorb them more slowly, protecting bank balance sheets”. In short, financial institutions were the operational priority, not the home-owning, working class.
In terms of design, the program gave the public financial assistance to private mortgage service companies – often within larger financial institutions – not homeowners. So, not only did homeowners not ‘see’ the benefits upfront, they were at the mercy of financial institutions who had the power to grant modifications but, as Dayen points out, had neither the financial incentives nor the staff capacity to deliver real relief: “HAMP became a predatory lending scheme rather than an aid program”. The delivery was private sector-centred by agents with poor institutional capacity, the wrong incentives and, arguably, involved large conflicts of interest.
In this one sub-area of housing policy, then, Dayen’s reportage suggests that the Obama administration’s declaratory policy failed to match the operational one. Its operational objectives were focused on restabilisation of financial institutions not the latter’s accountability and/or homeowner relief. Further, it appears that both the administration and the private sector lacked the capacity to build a program actually aimed at mass relief. The design reflected state administrative incapacity, and then perpetuated it by contracting-out its delivery.
This small, but sustained discussion of the policy evidence tends to support West’s broad thesis. It also makes clear some of the reasons why Trumpism emerges as hope for social reform and relief in the most marginal parts of the US home-owning, working-class gives way to disempowerment and despair.
Red Lobster was killed by private equity, not Endless Shrimp
For the rest of May, my bestselling solarpunk utopian novel THE LOST CAUSE (2023) is available as a $2.99, DRM-free ebook!
A decade ago, a hedge fund had an improbable viral comedy hit: a 294-page slide deck explaining why Olive Garden was going out of business, blaming the failure on too many breadsticks and insufficiently salted pasta-water:
Everyone loved this story. As David Dayen wrote for Salon, it let readers "mock that silly chain restaurant they remember from their childhoods in the suburbs" and laugh at "the silly hedge fund that took the time to write the world’s worst review":
But – as Dayen wrote at the time, the hedge fund that produced that slide deck, Starboard Value, was not motivated by dissatisfaction with bread-sticks. They were "activist investors" (finspeak for "rapacious assholes") with a giant stake in Darden Restaurants, Olive Garden's parent company. They wanted Darden to liquidate all of Olive Garden's real-estate holdings and declare a one-off dividend that would net investors a billion dollars, while literally yanking the floor out from beneath Olive Garden, converting it from owner to tenant, subject to rent-shocks and other nasty surprises.
They wanted to asset-strip the company, in other words ("asset strip" is what they call it in hedge-fund land; the mafia calls it a "bust-out," famous to anyone who watched the twenty-third episode of The Sopranos):
https://en.wikipedia.org/wiki/Bust_Out
Starboard didn't have enough money to force the sale, but they had recently engineered the CEO's ouster. The giant slide-deck making fun of Olive Garden's food was just a PR campaign to help it sell the bust-out by creating a narrative that they were being activists* to save this badly managed disaster of a restaurant chain.
*assholes
Starboard was bent on eviscerating Darden like a couple of entrail-maddened dogs in an elk carcass:
They had forced Darden to sell off another of its holdings, Red Lobster, to a hedge-fund called Golden Gate Capital. Golden Gate flogged all of Red Lobster's real estate holdings for $2.1 billion the same day, then pissed it all away on dividends to its shareholders, including Starboard. The new landlords, a Real Estate Investment Trust, proceeded to charge so much for rent on those buildings Red Lobster just flogged that the company's net earnings immediately dropped by half.
Dayen ends his piece with these prophetic words:
Olive Garden and Red Lobster may not be destinations for hipster Internet journalists, and they have seen revenue declines amid stagnant middle-class wages and increased competition. But they are still profitable businesses. Thousands of Americans work there. Why should they be bled dry by predatory investors in the name of “shareholder value”? What of the value of worker productivity instead of the financial engineers?
Flash forward a decade. Today, Dayen is editor-in-chief of The American Prospect, one of the best sources of news about private equity looting in the world. Writing for the Prospect, Luke Goldstein picks up Dayen's story, ten years on:
It's not pretty. Ten years of being bled out on rents and flipped from one hedge fund to another has killed Red Lobster. It just shuttered 50 restaurants and declared Chapter 11 bankruptcy. Ten years hasn't changed much; the same kind of snark that was deployed at the news of Olive Garden's imminent demise is now being hurled at Red Lobster.
Instead of dunking on free bread-sticks, Red Lobster's grave-dancers are jeering at "Endless Shrimp," a promotional deal that works exactly how it sounds like it would work. Endless Shrimp cost the chain $11m.
Which raises a question: why did Red Lobster make this money-losing offer? Are they just good-hearted slobs? Can't they do math?
Or, you know, was it another hedge-fund, bust-out scam?
Here's a hint. The supplier who provided Red Lobster with all that shrimp is Thai Union. Thai Union also owns Red Lobster. They bought the chain from Golden Gate Capital, last seen in 2014, holding a flash-sale on all of Red Lobster's buildings, pocketing billions, and cutting Red Lobster's earnings in half.
Red Lobster rose to success – 700 restaurants nationwide at its peak – by combining no-frills dining with powerful buying power, which it used to force discounts from seafood suppliers. In response, the seafood industry consolidated through a wave of mergers, turning into a cozy cartel that could resist the buyer power of Red Lobster and other major customers.
This was facilitated by conservation efforts that limited the total volume of biomass that fishers were allowed to extract, and allocated quotas to existing companies and individual fishermen. The costs of complying with this "catch management" system were high, punishingly so for small independents, bearably so for large conglomerates.
Competition from overseas fisheries drove consolidation further, as countries in the global south were blocked from implementing their own conservation efforts. US fisheries merged further, seeking economies of scale that would let them compete, largely by shafting fishermen and other suppliers. Today's Alaskan crab fishery is dominated by a four-company cartel; in the Pacific Northwest, most fish goes through a single intermediary, Pacific Seafood.
These dominant actors entered into illegal collusive arrangements with one another to rig their markets and further immiserate their suppliers, who filed antitrust suits accusing the companies of operating a monopsony (a market with a powerful buyer, akin to a monopoly, which is a market with a powerful seller):
Golden Gate bought Red Lobster in the midst of these fish wars, promising to right its ship. As Goldstein points out, that's the same promise they made when they bought Payless shoes, just before they destroyed the company and flogged it off to Alden Capital, the hedge fund that bought and destroyed dozens of America's most beloved newspapers:
Under Golden Gate's management, Red Lobster saw its staffing levels slashed, so diners endured longer wait times to be seated and served. Then, in 2020, they sold the company to Thai Union, the company's largest supplier (a transaction Goldstein likens to a Walmart buyout of Procter and Gamble).
Thai Union continued to bleed Red Lobster, imposing more cuts and loading it up with more debts financed by yet another private equity giant, Fortress Investment Group. That brings us to today, with Thai Union having moved a gigantic amount of its own product through a failing, debt-loaded subsidiary, even as it lobbies for deregulation of American fisheries, which would let it and its lobbying partners drain American waters of the last of its depleted fish stocks.
Dayen's 2020 must-read book Monopolized describes the way that monopolies proliferate, using the US health care industry as a case-study:
After deregulation allowed the pharma sector to consolidate, it acquired pricing power of hospitals, who found themselves gouged to the edge of bankruptcy on drug prices. Hospitals then merged into regional monopolies, which allowed them to resist pharma pricing power – and gouge health insurance companies, who saw the price of routine care explode. So the insurance companies gobbled each other up, too, leaving most of us with two or fewer choices for health insurance – even as insurance prices skyrocketed, and our benefits shrank.
Today, Americans pay more for worse healthcare, which is delivered by health workers who get paid less and work under worse conditions. That's because, lacking a regulator to consolidate patients' interests, and strong unions to consolidate workers' interests, patients and workers are easy pickings for those consolidated links in the health supply-chain.
That's a pretty good model for understanding what's happened to Red Lobster: monopoly power and monopsony power begat more monopolies and monoposonies in the supply chain. Everything that hasn't consolidated is defenseless: diners, restaurant workers, fishermen, and the environment. We're all fucked.
Decent, no-frills family restaurant are good. Great, even. I'm not the world's greatest fan of chain restaurants, but I'm also comfortably middle-class and not struggling to afford to give my family a nice night out at a place with good food, friendly staff and reasonable prices. These places are easy pickings for looters because the people who patronize them have little power in our society – and because those of us with more power are easily tricked into sneering at these places' failures as a kind of comeuppance that's all that's due to tacky joints that serve the working class.
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
I’m coming to GUELPH, ONTARIO THIS FRIDAY (May 8) to deliver the Musagetes Lecture.
One of my bedrock beliefs is that capitalists really hate capitalism. They may name their beloved institutes after the likes of Adam Smith, but they ignore everything Smith had to say about the necessity of competition to keep markets from turning into monopolies:
The theory of capitalism holds that markets are a kind of distributed computer that aggregates trillions of decisions from billions of market participants in order to optimize production and distribution of goods and services, creating a "Pareto-optimal" world where no one can be made better off without making someone else worse off.
Whether or not you believe that this computer exists and functions as predicted, one indisputable fact about it is that it requires the freedom to choose in order to work. The point of market-as-computer is that it aggregates decisions, so it can only work if everyone is as free as possible to decide.
But that's not the world capitalists want. For capitalists, the point is to restrict other people's choices in order to maximize your own freedom. That's how we get economic doctrines like "revealed preferences": the idea that if a person says they want one thing, but does another thing, then you can tell what they really prefer by looking at the latter and disregarding the former. This is the kind of doctrine you can only fully embrace after sustaining the kind of highly specific neurological injury that is induced by taking an economics degree, an injury that makes you incapable of perceiving or reasoning about power. Under the doctrine of revealed preferences, someone who sells their kidney to make the rent has a revealed preference for only having one kidney:
Capitalism is supposed to run on risk: the risk of being overtaken by a competitor drives businesses to deliver better services more efficiently, thus producing a bounty for all. But capitalists really hate risk, hence the drive to monopoly: Mark Zuckerberg admitted, in writing, that he only bought Instagram so that he wouldn't have to compete with it ("It is better to buy than to compete" -M. Zuckerberg):
Capitalists hate capitalism, but they love feudalism. Feudalism is like capitalism, in that you have a ruling class that creams off the surplus generated by labor; but under feudalism, society is organized to protect rents (money you get from owning stuff) over profits (money you get from doing stuff). The beauty of rents is that they are insulated from risk: if you own a coffee shop, you're in constant danger of being put out of business by a better coffee shop. But if you own the building and your coffee shop tenant goes under, well, you've still got the building, and hey, now it's on the same hot block as the amazing new cafe that's driving its competitors out of business:
Douglas Rushkoff calls this "going meta": don't drive a taxi, rent a medallion to a taxi driver. Don't rent a medallion, start a ride-hailing app company. Don't start a ride-hailing company, invest in the company. Don't invest in the company, but options on the company's shares. Each layer of indirection takes you further from the delivery of a useful service – and insulates you further from risk:
Monopoly is to capitalism as gerrymandering is to democracy, a way to strip out any meaningful choice. Think of the two giant packaged goods companies that fill your grocery aisles: Procter & Gamble and Unilever. Practically everything on your grocer's shelves is made by a division of one of these two massive conglomerates. If you try to "vote with your wallet" by buying a low-packaging version of a product, it's going to be sold to you by the same company that sells the high-packaging version. If you switch to an artisanal brand of cookies made by a local family business, Unilever or P&G will buy that company and issue a press release declaring that they made the acquisition because they know "their customers value choice":
Gerrymandering strips your vote of any impact on political outcomes. Monopoly strips your purchases of any ability to influence economic outcomes. Wrap both of them in "revealed preferences" and you get a system that endlessly narrates its ability to deliver choice, and then blames your misery on your having chosen badly.
This is the method of the entire conservative project. As Dan Savage says: the thing that unites conservative assaults on voting, birth control, abortion and no-fault divorce is the stripping away of choice. Conservatives are trying to create a world populated by husbands you can't divorce, pregnancies you can't prevent or terminate, and politicians you can't vote out of office. Add to that Trump's assault on the National Labor Relations Board, his reversal of the FTC's ban on noncompetes, and his protection of "TRAP" agreements that force employees to pay thousands of dollars if they quit their jobs, and you get "jobs you can't quit":
Conservative strongmen like Trump and Musk exalt the value of self-determination – for themselves, at everyone else's expense. Trump's ability to stiff the contractors that built his hotels and Musk's ability to rain flaming rocket debris down on the people who live near his company town require that everyone else be stripped of protections. They get to determine their own course in life by taking away your ability to determine your own. Their right to swing their fists ends two inches past your nose:
Cheaters and bullies hate the rule of law, hence Trump's endless repetition of Nixon's mantra: "When the president does it, that means it is not illegal." But not everyone can be president, and the world is full of would-be Trumps in positions of power who would like to be able to commit crimes without fear of legal repercussions. For these people, we have something called "binding arbitration."
"Binding arbitration" is a widely used contractual term that forces you to surrender your right to sue a company that wrongs you. Instead of suing, binding arbitration forces you to take your case to an "arbitrator"; that is, a lawyer who is paid by the company that cheated you or maimed you or killed your loved one. The arbitrator decides whether their client is guilty, and, if so, how much that client owes you. The entire process is confidential and it is non-precedential, meaning that if a company rips off millions of people in the same way, each of them has to arbitrate their claims separately, and people who are successful can't share their tactical notes with the people who are next in line to plead for justice.
That makes binding arbitration another key weapon in the conservative movement's war on choice: not just jobs you can't quit and politicians you can't vote out of office, but also companies you can't sue. Binding arbitration is a creation of the Federalist Society and their champion Antonin Scalia, who authored a series of Supreme Court dissents and (ultimately) decisions that opened the door for binding arbitration everywhere:
Given the Fedsoc's role in shoving binding arbitration down every worker and shopper's throat, it's decidedly odd that they invited Ashley Keller to be their keynote debater in 2021, where he argued that "concentrated corporate power is a greater threat than government power":
https://www.youtube.com/watch?v=aY5MrHGjVT8
Keller is a powerhouse lawyer, and an avowed conservative, who has pioneered many tactics for overcoming binding arbitration clauses. He helped create "mass arbitration," bringing thousands of arbitration cases on behalf of Uber drivers who'd had their wages stolen by the company. Since Uber has to pay the arbitrators in each of those cases, they faced a much larger bill than they would face in any possible class action suit:
Mass arbitration cases spread to all kinds of large firms that used petty grifts to steal from thousands or even millions of people, like Intuit, who deceive – and rip off – millions of Americans every year with their fake Turbotax "free file" system:
Mass arbitration worked so well that Amazon actually revised its terms of service to remove binding arbitration from their terms of service, because they realized that they'd be better off facing class action suits:
Of course, the point of binding arbitration was never to create a streamlined system of justice – it was to bring about a world of no justice, where you have no right to sue. It's part of the decades-old "tort reform" movement that the business lobby has used to take away your right to sue altogether. Any time you hear about a seemingly crazy lawsuit (like the urban legends about the McDonald's "hot coffee" case), you're being propagandized for a world without legal consequences for companies that defraud you, steal from you, injure you, or kill you:
That's why companies (like Bluesky) are now trying terms of service that also ban you from mass arbitration, while retaining the right to consolidate claims into a mass arbitration case if that's advantageous to them:
But Keller keeps finding creative ways around binding arbitration. He's currently bringing thousands of arbitration claims against Google, on behalf of advertisers whom Google stole from (Google is a thrice-convicted monopolist, and they lost a case last year over their monopolization of ad-tech, where they were found to have defrauded advertisers).
He also just argued before the Supreme Court in a case against Monsanto over the company's attempt to escape liability for causing cancer in farmworkers with their Roundup pesticide:
Keller appears in the latest episode of the Organized Money podcast, for a fascinating interview about his work and outlook, and how he reconciles his work fighting corporate power with his identity as a movement conservative:
Keller's first big, important point is that (basically), capitalists hate capitalism (see above). He cites Milton Friedman, who "always said that the tort system is the best way to ensure that companies behave and follow the rules." For Keller (and Friedman) the alternative to private litigation against bad businesses is "government regulation and the alphabet soup of Washington, DC agencies [that] try and police these companies."
But, of course, the businesses that want binding arbitration and tort reform (so they can't be sued) also want to "dismantle the administrative state" (so they can't be regulated). They're the impunity movement, the "when the president does it, that means it is not illegal" movement, the "heads I win, tails you lose" movement. They're the caveat emptor movement, the "that makes me smart" movement:
They don't want efficient markets, with the ever-present threat of a better competitor putting them out of business. They want feudalism. They want to go meta. They want to have the kind of self-determination you can only achieve by taking away everyone else's self-determination.
I was very struck by Keller's claim to be engaged in an exercise that Milton Friedman identified as the best one for making markets work. One of Keller's most forceful points is that class action suits are especially important for reining in petty, recurrent grifts, the junk fees that are the hallmark of enshittification.
He quotes his old boss, the archconservative judge Richard Posner, who said "Only a lunatic or a fanatic sues for $20." But if you multiply a $20 junk fee by ten million purchases, a company can use that fact to make hundreds of millions of dollars. That's real folding money, which is why every company has figured out a way to whack you for a $20 junk fee.
There are two ways to end this racket: one is litigation, the other is regulation, and the capitalism-hating-capitalists who run the world want to kill both. That's why the business lobby smears lawyers like Keller as being "vultures." But as Matt Stoller says, "vultures look aggressive and whatnot, but when you actually get rid of vultures out of an ecosystem, all sorts of things go haywire."
I love this point. Vultures live off the disgusting, rotting crap that would otherwise pile up around us, breeding disease and emitting an unbearable stench. If plaintiff-side, no-win/no-fee lawyers are vultures, then junk fees, wage theft, and the million petty frauds they fight are the disgusting, rotting crap that vultures feed off of – and the harder we make it for our noble vulture lawyers, the more disgusting, rotting crap we have to live with, hence the unbearable stench that is all around us.
Listening to Keller was a fascinating exercise. I thoroughly disagree with him about many things – the way he characterized Section 230 of the Communications Decency Act couldn't have been more wrong – but it's quite bracing to hear a capitalist who doesn't hate capitalism defend it against the vast majority of capitalists, who hate capitalism more than any socialist ever did.
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