The new Anti-Monopoly Agency, or a more steel-spined FTC, should also apply antitrust laws far more aggressively and seriously to the tech sector to prevent mergers and unwind already-completed mergers. When tech platforms merge, they don’t just create a bigger company. Mergers allow a company to collect and combine data from different platforms. For example, when Facebook bought WhatsApp and Instagram, it significantly expanded the amount of data under its control and prevented the emergence of two full-scale rivals to the social network. The acquisitions made Facebook even more dominant than it had been. Google’s purchase of Nest means that it has access to data on when people are at home and in what rooms, and its purchase of DoubleClick, which ran the platform for online advertising, enabled Google to dominate online advertising by integrating brokers, dealers, and the exchange on which they bought and sold ad space.
In some cases, data and the merger problem also work in tandem. If a platform like Google or Amazon uses search or sales data to identify companies that are starting to gain traction, it might purchase them before they even threaten to become competitors. This problem has gotten so bad that venture capitalists now speak of a “kill zone” that exists around these big-tech platforms; they refuse to invest in start-ups in this zone because there is no chance of success. The result, once again, is the further accumulation of power and the erosion of a competitive, dynamic economy.22
In addition to regulating and breaking up tech platforms, we must end the business model of surveillance. Many big tech companies conduct widespread surveillance of individuals in order to develop personalized profiles of people to offer targeted advertising and direct individuals toward specific products. This mass collection of personal data threatens individual privacy from corporate and government intrusion, increases the risks of hacks and identity theft, and enables companies and governments to engage in population control, behavior modification, and psychological experimentation. Companies (and the government) can now identify how often someone goes to church, whether they look at pornography, whether they have a physical or mental illness, and whether they are gay or straight. They can direct people toward specific emotions, products, or political candidates. The risks to security range from hackers seeking financial information to foreign governments rigging elections. And unless individuals want to move to a remote wilderness, there is no choice but to offer up their data—and even there, Google Earth captures images from above.
As we have already seen, when perfected, these technologies lead to digital authoritarianism, in which the fusion of tech and government enables population and behavior control. Given the risks from the mass collection of data, it is astonishing that there aren’t comprehensive regulations on how companies should store, protect, and use personal data. Instead, we have a neoliberal notice-and-consent regime that is toothless because people have to accept the terms and conditions and have no ability to negotiate the terms or make choices about the use of their data.
There are different ways to address the problems of surveillance capitalism. The American Prospect’s David Dayen has offered one of the simplest solutions: ban targeted advertising. Dayen identifies a variety of negative consequences of targeted advertising, from racial discrimination to scams targeting vulnerable people. The business model of personalized, targeted advertising also leads to monopolization in the tech sector because bigger companies can harvest more data and target individuals more precisely. This, in turn, further concentrates economic and political power. Targeted ads also offer few benefits—if ads were not personalized to individuals, consumers would still be able to identify products that would appeal to them. Dayen’s proposal is to “disallow all individually targeted ads.” “Nothing tied to a user’s identity,” he writes, “should be used to serve them a particular message.”23
Another option is to adopt a technology bill of rights. Under this bill of rights, consumers would have five rights: the right to use a tech product without giving up any of their personal data, the right to use a tech product without any targeted advertising, the right to use a tech product without transferring data to any third parties, the right to be free from behavioral experimentation, and the right for children to be free from all data collection, surveillance, and targeting. The tech bill of rights would fundamentally reshape power over data.
In both cases, companies would have to change their business models. But there is no reason to think they couldn’t adapt. Google would still have an incredible search product, and Facebook would still have billions of users (and that’s true even if it spins off WhatsApp and Instagram). But because both approaches change the rules on surveillance and data collection, companies would no longer be able to pursue a strategy that is deliberately designed to exploit user information for financial gain.
Reforming Finance
As applied to the financial sector, fears of the second monopoly era were ahead of their time. The financial crash of 2008 showed how central the financial sector had become to the economy, how risky and unregulated its practices were, and how big the biggest banks had gotten. Indeed, these developments were related. With neoliberal policies deregulating the sector over the last generation, finance became a bigger and bigger part of the economy—a process that scholars call “financialization.” In 1950, the American financial sector was responsible for 2.8 percent of GDP. In 2012, it was responsible for 6.6 percent. Financialization takes talent and resources away from the productive, real economy, shuffling them instead to speculation and short-term gains. It makes the economy more susceptible to economic crashes and volatility. And it also increases inequality. Some economists estimate that rising wages in the financial sector are responsible for 15–25 percent of the increase in wage inequality since 1980.24
Although the 2010 Dodd-Frank Act reformed the financial sector, it did not go nearly far enough. Coming in the waning years of the deregulatory neoliberal era, political leaders were only able to muster support for technocratic reforms, not serious structural changes to the financial system. The result is that the biggest Wall Street banks today are bigger than they were before the crash. To fundamentally change the structure and organization of the financial system, reduce risk, and enable economic democracy requires two major reforms: creating a modernized Glass-Steagall Act to break up the banks and establishing a public option for bank accounts.
Until it was formally repealed in 1999, Glass-Steagall required a separation between depository banking, investment banking, and insurance companies. In recent years, the idea of resurrecting the law has had surprising support across the political spectrum. Progressive Democrats have advocated for its reinstatement consistently since the financial crash of 2008. The 2016 Republican Party platform embraced bringing back Glass-Steagall. Former heads of Citigroup have said it was a mistake to repeal the law. And, for a short time at least, even the Trump administration seemed open to the idea of revival. Although there has been a great deal of debate over Glass-Steagall and its repeal, much of the discussion misses the core point: the idea behind the law was that different financial functions should be in different financial institutions and that these functions shouldn’t be commingled. Today, we need to break up financial institutions along functional lines.25
The core of the case for a modernized Glass-Steagall starts with asking a broad and farsighted question: How should the financial sector be structured? Breaking up financial institutions along functional lines rests on two premises. The first is the general opposition to concentrated economic and political power that is normally associated with anti-monopoly thinking. Indeed, we can think of a modern Glass-Steagall as something like a ban on mergers that create conglomerates. The purpose is to fragment power. When firms are smaller and separated by function, it is more likely there will be competition along specific business lines. Take a financial start-up that wants to enter the depository sector. It will be harder for that start-up to compete with conglomerates that can cross-subsidize business lines. Concentration isn’t
just bad for competition; it’s also bad for democracy. Too much economic power spills over into politics, giving massive firms an advantage in lobbying Congress or influencing regulators. In other words, concentration makes it more likely that government gets captured by corporate behemoths and that regulations are written to stack the deck in their favor.
The second premise is that we should break up big financial institutions by separating their functions rather than by capping their size. Of course, it is not inconsistent to support both reforms, and some proponents of modernizing Glass-Steagall do. But there are many reasons to desire a financial sector that is fractured by function specifically. Separation means government guarantees won’t cross-subsidize risky business lines—and that banks cannot leverage their market power in one sector to dominate another sector. Separation can also help reduce the risk of a business infected with bad bets taking down the entire financial system. And it will make firms smaller, even though it would still be possible for a firm to become large within a single business line. Overall, these factors make the financial system less susceptible to systemic risk.
Separation along functional lines also has a variety of legal and political benefits. It will improve the ability of regulators to monitor and regulate financial entities, indirectly making simpler regulations more viable. It also breaks up political power based on types of financial activities, meaning that lobbyists for different parts of the financial system are more likely to find themselves on opposing sides of policy questions. That should, in turn, enable policy makers to design smarter and fairer regulations.
Financial institutions themselves might also benefit from such separation. Separation along functional lines makes compliance easier for banks that have become too big to manage. With fewer divisions and complex structures, management will have an easier time preventing bad apples in the company from illegal or improper behavior. Indeed, employee culture within these institutions would likely change over time. Depository bankers, for example, could redevelop a culture of being boring, while investment bankers would remain risk takers.
Of course, there are drawbacks to reviving a Glass-Steagall-like regime. For example, monopoly-sized firms and massive conglomerates are more likely to offer one-stop shopping and can more seamlessly integrate financial practices for customers. But any effort at making public policy has trade-offs. The reality, however, is that a modernized Glass-Steagall will make the financial system less concentrated, more competitive, easier to regulate, and give it less political power.
The second transformative reform would be to institute what finance scholars Morgan Ricks, John Crawford, and Lev Menand have called “central banking for all.” Like all businesses and individuals, banks need their own bank accounts. But unlike businesses and individuals, banks get to have their accounts at the Federal Reserve. These accounts have huge benefits: higher interest rates, no minimum balances, no fees, immediate clearing between payments, and no need for deposit insurance because they are pure, sovereign, nondefaultable money. Central banking for all would make bank accounts at the Fed available to all Americans and American businesses. These FedAccounts would give people the same deal that banks currently get. Although FedAccounts would mostly be electronic, brick-and-mortar ATMs and tellers could be located at post offices around the country, which would ensure that every community had a location if individuals needed in-person assistance.26
Perhaps the most obvious benefit of FedAccounts is that it would make serious headway in bringing everyone into the financial system, regardless of wealth, race, or geography. In the old days, when people earned cash and could pay for goods and services in cash, government-backed paper money worked seamlessly. But with the popularization of checks in the mid-twentieth century, and then credit cards, debit cards, electronic payments, and other innovations, cash has increasingly fallen by the wayside. But 8.4 million American households—comprising some fourteen million adults and more than six million children—don’t have a bank account, which is essential for easily accessing these financial innovations. Another twenty-four million households have accounts but don’t fully use them. Banks charge fees and have minimum balance requirements, and a significant percentage of these people are too poor to afford these accounts. As a result, to spend their hard-earned money, these unbanked and underbanked households have to rely on check cashers, money orders, prepaid cards, and other so-called fringe banking services—all of which charge one-off fees and sometimes interest. In effect, millions of Americans pay a tax just to use the money they are entitled to simply because they are poor and because most people and businesses have moved away from cash. FedAccount would give these people a way into the financial sector. It would serve as a basic piece of the modern economic infrastructure.27
There would also be other significant benefits. For small (and big) businesses that choose to open a FedAccount, payments made by or to other account holders would clear instantly. Small business would no longer have to wait days for checks to clear, credit cards to pay out, or wire transfers to be logged and accounted. Individuals wanting to transfer money also wouldn’t have to worry about delays—payments would be instantaneous. For consumers and retailers, FedAccount would also eliminate interchange fees, like those that debit card networks charge retailers every time a consumer uses their card. So if a consumer and retailer both have FedAccounts, then the retailer won’t pay fees and can pass along some of that savings to the consumer.
More broadly, FedAccount would have major systemic benefits for the economy and the financial system. First, it would make monetary policy work better. The Fed sets monetary policy by increasing or decreasing the interest rate it gives banks on their accounts. The idea behind this approach is that banks will pass along that interest rate change to their customers, thereby increasing or decreasing the supply of money in circulation. The problem is that banks keep part of the interest changes for themselves instead of passing all of it along to consumers. The Fed’s monetary policy is thus less effective, and it is subsidizing banks. FedAccounts would end the subsidy and improve monetary policy. The second systemic benefit is that FedAccounts would make the financial system more stable. The immediate cause of major financial crashes throughout history has been financial panics—people fearing their assets were at risk and pulling them out of the financial system. Federal Deposit Insurance ended bank runs in depository banks in the 1930s. But modern banking panics still happen, now just in other sectors with names like repo, money market mutual funds, and Eurodollars. Businesses often rely on these other kinds of funds because they want to park their money in something with a decent return. FedAccounts would serve that function and lead to a shift away from these runnable assets, thereby making the financial system more secure.
Corporate Democracy
Antitrust laws break up big, powerful companies into smaller ones that are less threatening to political and economic democracy. Public utilities regulation allows for massive size and scale, but it places restrictions on the threats that come from corporate gigantism. A third strategy is to democratize the corporation itself—that is, to reshape its internal power structures by giving voice to workers. Since the New Deal, labor unions have been the primary way that workers gained voice inside corporations. But today, with labor unions under fierce attack and corporations gaining in power, reforms to both corporate governance and labor law can help achieve corporate democracy.
For much of the early American republic, corporations didn’t exist in the form that we now think of them. Corporate charters were considered a special privilege, and state legislatures issued them on a case-by-case basis when the creation of a corporation was essential to the public good—and with restrictions that the corporation not expand the scope of its activities. Many people worried, however, that legislatures were captured by wealthy and well-connected individuals and that charters were not available on fair and equal terms to everyone. Reformers in the middle of the nineteenth century therefore pushed for g
eneral incorporation laws, which allowed anyone to start a corporation as long as that person organized it according to specified criteria. Although these reformers were often hostile to corporations, their solution actually unleashed more and more corporations into the American economy. Because general incorporation laws were passed at the state level rather than the federal level, states eventually began to compete for corporate charters (and the incorporation fees that came with them). The result was a race to the bottom in which states offered less and less restrictive charters. Today, that race leads to Delaware, where two-thirds of the Fortune 500 are incorporated, in addition to some 1.2 million other companies.28
The rise of the corporation in the late nineteenth century created a second problem that cut to the heart of economic democracy. In the old world of artisans, shopkeepers, and yeoman farmers, economic democracy was largely a reality because the owners of a business also ran that business. In the new world of corporations, ownership and control were divided: the managers who ran the corporation were not the same people as the shareholders who owned it. Whatever this system was, it wasn’t an economic democracy. Some commentators, like Walter Lippmann, argued for the independence of managers who ran the business, so they could do what was in the long-term best interest of the business rather than simply in the best interest of shareholders. They would become “industrial statesmen,” the private sector counterparts to political statesmen, and they would be devoted to their craft while keeping the social good in mind. In contrast, shareholders were transient and absentee. They were nothing like actual owners and were ill-suited to corporate control.29
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