The FTC moves toward a command economy

By Mark Jamison

Federal Trade Commission (FTC) Chair Lina Khan released a memo on September 22 outlining her vision and priorities for the agency. The memo provides a roadmap for the agency to play a central role in the Joe Biden administration’s plan to centrally command the American economy, a strategy articulated in his July executive order and reflected in major Democrat-led legislation moving through Congress.

Government-driven economies rarely go very far and often result in greater economic disparities. So expect to see regulations that crush many Americans’ dreams of starting successful businesses, working for world-leading tech companies, or simply using the best tech services the world can offer.

FTC Chair Lina Khan testifies during a Senate Commerce, Science, and Transportation Committee hearing on Capitol Hill in Washington, DC, April 21, 2021, via Reuters

Holding command over an economy is apparently an unquestioned dream for the political left, including some in the Biden administration. As The Economist explained in a recent article — reviewed by AEI’s Claude Barfield here and here — members of the “illiberal left” seek to impose the economic and social outcomes they deem just and want control of businesses because they distrust “rigged” marketplaces for products and ideas. By extension, the illiberal left also seeks to control Big Tech because its platforms are major marketplaces for e-commerce and communications.

If the memo’s roadmap is followed, there isn’t much in the US economy that the FTC won’t oversee. Khan’s vision is for an agency that prescribes outcomes and processes for the economy. Her memo says the agency will deliver “a fair and thriving economy” for “consumers, workers, and honest businesses.” By this, she means the FTC will make businesses smaller and shape “the distribution of power and opportunities across our economy.”

This sounds like a Brandeisian vision, but the rationale is different. Luis Brandeis believed large businesses were illegitimate because they were inherently inefficient. Khan’s memo allows that businesses may succeed on their merits but views success as corrupting because it “enable[s] unlawful conduct,” creates “supply chain fragility,” and generates “power asymmetries” that “harm workers and independent businesses,” making them and others “unable to negotiate freely.”

How will the FTC achieve these desired outcomes? Expect the agency to closely supervise a host of business practices, declaring some to be “unfair” and “targeting” them “before they become widely adopted.” The agency will be proactive in “anticipating problems” and will “tackle [them] at their inception,” focusing its “resources on the most significant actors.” Business success will be viewed with suspicion and discouraged.

Khan’s memo also describes an intention to engage in ex ante regulation, which is how sector regulators direct regulated companies’ conduct. Conversely, competition authorities like the FTC typically engage in ex post regulation, which addresses problems as they arise. Ex post regulation is appropriate for competition authorities partly because whether conduct is procompetitive or anticompetitive depends on context. The “rule of reason” is typically invoked to make this determination, meaning actions are judged relative to their circumstances. However, the FTC recently discarded its 2015 commitment to rule of reason.

Indicating a move toward ex ante regulation, the memo characterizes the FTC’s past enforcement strategy as “whack-a-mole,” since it addressed anticompetitive conduct as it arose. Going forward, Khan wants to address “structural incentives that enable unlawful conduct — be it certain conflicts of interest, business models, or structural dominance.” This means the FTC will pass judgement on which product lines a business offers and on corporate structure and governance. As former FTC Commissioner Maureen Ohlhausen explained, such a move will have damaging consequences: In using ex ante regulation, the FTC would oversimplify complex and rapidly changing business situations, in effect dismembering businesses so they conform to regulations rather than bend to customer needs.

On the bright side, the memo values helping traditionally marginalized groups. I heartily agree with this aim, having spent years working with developing countries on their regulatory systems. But Khan gets the diagnoses and prescriptions wrong. She wrongly believes people struggle economically because of a lack of regulations propping marginalized individuals up or holding others back. In reality, economic liberty protected by rule of law is the best system for enabling people to escape unfavorable circumstances.

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