On this episode, Mark Blyth talks with Erik Peinert, an assistant professor of political science at Boston University, about his new book “Monopoly Politics: Competition and Learning and the Evolution of Policy Regimes.” In the book, Erik draws extensively on archives in the US and France to explain why, when, and how those two countries have chosen to fight monopoly power over the course of the 20th century, and explores what their stories can teach us about increasing market concentration in the US and around the world today.

Learn more about and purchase “Monopoly Politics: Competition and Learning and the Evolution of Policy Regimes”.

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MARK BLYTH: From the Rhodes Center for International Economics and Finance at Brown University, this is the Rhodes Center Podcast. I'm the director of the center and your host, Mark Blyth. Today in the studio with me, I've got Erik Peinert. He's an Assistant Professor of Political Science at Boston University, and the author of the new book, Monopoly Politics. Hi, Erik, welcome to the podcast.

ERIK PEINERT: Hi, Mark. Thanks for having me.

MARK BLYTH: So this is a project that I've known for a long time. Fess up to everyone, Erik was a PhD student here at Brown, and it's great to see the book argument of the PhD finally, out now with Oxford, Monopoly Politics-- Competition and Learning and the Evolution of Policy Regimes. It's a bit of a long subtitle, so I'm going to try and summarize it very, very quickly.

On this podcast, you've heard people come in and talk about big sweeps of history. It might be how at one point, the global macroeconomic setup favored labor, and then at other points, that favored business. It might be about how there are big shifts over 40 years from perhaps what some people call embedded liberal to more neoliberal settlements.

Erik does something similar, but also very different. What he does is he looks at how regimes of competition and monopoly, how the economy is actually structured, varies over time, independent of those big shifts and across lots of different countries. The result is a very different telling as to why the global economy and our local economies seem so different in different periods. So with all of that as preamble, Erik, how would you set it up? Give us two minutes of just overviews the whole thing.

ERIK PEINERT: Yeah. So I mean, I'd say there's been a long time recognition, and Americans listening to this will know that when you talk about things like antitrust and monopoly, everybody abstractly cares about them. But they're normally something that's part of the furniture in the background where no one cares about them.

And then every once in a while throughout history, it becomes a big giant issue. So last couple years, Lina Khan, and then 100 years ago, the Woodrow Wilson got the presidency in Nineteen Twelve with anti-monopoly being on the agenda. And so what I wanted to look at is, why does this suddenly become a political issue at times and not others?

And so what I've done with the book is explained that there's these very clear alternations in the long run, where governments tend to actually favor monopoly for long periods of time, sometimes knowingly to their citizens and sometimes not. So right now, in the last 40 years in the United States, we have Google and whatnot for a reason.

And then other periods of time, where there's actively enforcing competition between those types of firms, and the book is about why we do this. And so, for one, the core explanation is that we do one of those things for a long period of time, and it actually undermines itself. Intrinsic to doing that. If you make more and more competition over time, you're going to end up with these really unprofitable, unstable markets. Businesses go bankrupt all the time.

There's no profits, et cetera. Like, businessman's nightmare. But if you do the opposite and want to prevent that from happening by making sure that markets are stable and there's healthy profit margins, and that certain important firms are protected over time, you end up with the world we have now, where there's a bunch of really powerful firms, very well-protected from those problems of competition, but they don't need to invest anything in future growth, they charge us all too much, they control the labor markets underneath them. They control all their business partners.

And so over time end up at one of these extremes. And politics plays out in this really interesting way at an ideological level within policy circles and within the state, where the group of people who had done that for 30 years refused to admit they ever got anything wrong. And then you have, every time, this group of newcomers who forms at the fringes of policy circles, realizes that something's wrong, figures out a new way to think about it, and ends up, over time, eventually taking the reins of power and pushing policy the other way. And their proteges, 20 years later or 30 years later, create the same problems.

MARK BLYTH: So you end up with a kind of all revolutions eat their own children eventually.

ERIK PEINERT: Oh, very much so.

MARK BLYTH: OK. So let's put some flesh on those bones. You, in a sense, did encapsulate the theory there, but let's get into it a little bit. If I'm thinking about big changes and local economies, global economies, how we do things, there's a bunch of standard explanations and you discuss them in the book. It could be the result of just crises. Big crisis happens. But the timing's off. When you look at this across your cases, it doesn't line up well with crises, right?

ERIK PEINERT: Oh, for sure. I mean, and some of these changes happen in times that people felt like were crises, but the crisis didn't itself provoke any change. The Two Thousand and Eight maybe made a lot of people think differently about neoliberalism, but nothing certainly changed in this era. Obama administration kept on approving merger after merger, et cetera. FDR spent most of the Great Depression continuing to try to restrict competition because he thought price chiselers were undermining recovery. So even if it's happening in the depression or whatnot, there's no immediate recognition that this is the problem. They come around to it eventually.

MARK BLYTH: So the other kind of explanation, of course, is that, well, politicians read the tea leaves, they need to get elected. They're doing this for electoral reasons. But one of the things that you point out is often these big changes happen within one electoral cycle or within the dominance of one party.

ERIK PEINERT: Yeah. So that's actually one of the most fascinating things. Is that this genuinely was, in almost all instances, a situation of a bunch of people really changing their mind. And the book has a lot of detail on these people's private records of them very strongly believing one way or the other and then seeing the problems that way was creating.

The people who are now known as big trust busters, going back to their earlier life and see them rail against how competition was the cause of all problems in the American economy, and you then see what happened to them over the course of their career, where they realized that cartels were a real problem. They changed their mind. And then now we know them as trustbusters. But they didn't start that way.

MARK BLYTH: They didn't start that way. One of the things you point to is this notion of cognitive closure. That the reason we get stuck in these policy regimes, as you call them, which over time accumulate, if you will, kind of bugs in the software. You call it diminishing returns over time, is because policymakers, they just need to figure out one hummable tune. They need to basically get one thing that works, and then they just double down on it regardless. That's pretty much it. Right?

ERIK PEINERT: That's a great way to summarize it. So the basic idea, because some listeners may be already thinking like this sounds like a wild oversimplification of how markets work. You don't even need a passing familiarity with business to know this is an oversimplification of how markets work, but a judge doesn't want to hear about those complications. A regulator doesn't want to hear about those complications.

And so the idea is that given these circumstances, where everything's ambiguous, there's always six counterarguments each direction. You're never going to be hauled in because you got it wrong, et cetera. Every policymaker wants to have a simple way to make decisions, so that they can rely on that and not spend their sleepless nights mulling over their next thing. And I will say, I wrote most of the book before this, but I ended up going to work in policy and advocacy in this area during the Biden years.

And my interactions in that time with both regulators and policymakers, Hill staff, and then especially like litigators who'd been before judges on antitrust cases, and they will tell you immediately, 'oh, the judge is just looking for an excuse to get rid of this case'. And providing something, some simple framework like vertical mergers are always efficient and thus should be allowed, is something that they want even without thinking.

MARK BLYTH: Some decision rule simplifies everything. And also then this cognitive closure or has costs, because as you point out at the beginning of the book, when Lina Khan came in and started to revise a much more aggressive, trust-busting stance, a lot of the lawyers that had spent their careers approving mergers got really freaked out and left.

ERIK PEINERT: Yeah. So if you were reading Bloomberg or other things in the business press Twenty Twenty-One, Twenty-Two, there were lots of stories coming out about Lina Khan coming in and telling all of the FTC staff that they'd been doing their job wrong in 20 years, telling them they need to change or leave. And a lot of them did. Like a lot of senior staff went off to go, admittedly in some cases, go to big law and defend the same companies that she then went on to sue.

But it was exactly this thing that come in with a new set of ideas, a new way of doing things, and a lot of the immediate reaction was this visceral being offended at being told that you've been doing it wrong for 20 to 30 years. And that's almost irrelevant of like that response has nothing to do with the substance of her arguments or whether it's right or not.

MARK BLYTH: So this is not about just recognizing the facts. You really have to do cohort replacement. You got to shift the bodies for it to work. Right?

ERIK PEINERT: Yeah. And a certain group of people, once they've done something long enough, maybe outside of the rare person or two, for the most part, they're stuck in the way they've done things. They don't know how to do otherwise. But also it's their career on the line. They don't want to admit that they super screwed up three years ago.

MARK BLYTH: But this is also more general than just government. Let's be fair and abuse the private sector as well.

ERIK PEINERT: For sure.

MARK BLYTH: Companies get exactly the same dynamics. That once you are good at doing a certain thing, you keep doing it. And you keep doing it, and you double down on it. And then eventually, a competitor comes along, changes the game, and then you're out of work. It's just that in the governmental side, there's no competitor to coming in to tell you you're out of work.

ERIK PEINERT: Right. And actually, I mean, I can frame this in terms of what I was just saying. Is that some of the things that induce that need for cognitive closure is the lack of accountability for being wrong. Having your lunch eaten by a competitor is deep direct accountability for those sorts of failures that in government, just don't exist.

MARK BLYTH: The feedback mechanism simply isn't there.

ERIK PEINERT: It's not this one.

MARK BLYTH: All right. So let's go with the closure theory, and let's get into the history. Because the history is actually really, really interesting. I'm going to set up the first part of the New Deal, and then you tell me what the moment of failure was and what they did next, because that's a surprising bit.

So Roosevelt comes in, and somebody's going to balance the budget, puts together this thing called the brains trust. The brains trust is filled with people who think that the problem is ruinous competition.

The problem is you got all these firms, and they're all cutting prices against each other. That's impacting consumption. That's impacting wages. We're caught in a deflationary spiral. You need to put a floor under all this.

So they invent this thing called the NRA, the National Recovery Act. They basically put together lots of industrial cartels. They put floors under wages, under prices. And in Nineteen Thirty-Five, the Supreme Court, for various reasons, says you don't get to do this.

But by that point, it was becoming apparent to some of the people in that coalition that this might not be the solution, this might be the problem. What was going on?

ERIK PEINERT: Yeah. So that's pretty much exactly what happened. I don't want to dismiss everything about the NRA. The NRA is why we don't have child labor in this country anymore. There's some great things about it.

But nonetheless, that was nonetheless, and it came out of a chain of proposals to scale back or eliminate the antitrust laws that had been around for five, ten years at that point. And so the funny story-- and this happened across a number of New Deal agencies. But the research division in the NRA had these new people from the finance industry, random people from academia that they'd pulled in, who started chugging the numbers away at the theory they had is, if we raise prices, that'll mean wages can go up. And with the higher wages, workers will go and spend their money, and we'll get in a reflationary spiral.

And at one level, they chug the numbers, and the NRA actually did cause prices to go up. At one level, that should be good-- inflation in a depression. A modern mind might be questioning the wisdom of this.

But when they actually then looked at, by industry and by firm, what happened, the firms that lowered their prices most kept on the most workers. They were making the most sales. They needed the most workers, et cetera. And it was the ones that were able to keep their prices high laid off everybody.

So with that, this group of researchers-- Leon Henderson's the main one-- recognized this and started throwing around in the NRA, we need more antitrust. We need more competition, et cetera.

And then, over the next few years, after the NRA got rid of those research findings, privately among these advisors got passed around and eventually to the new guy from upstate New York who got appointed to be the Assistant Attorney General for Antitrust, who then also was immediately asked by a bunch of government procurement agencies, we have a bunch of cartels in government suppliers. What do we do about them? And out of all of that, they formulated, we need this whole antitrust thing to go. And that just built on itself as they started filing cases and realized the problem was worse than they'd imagined.

MARK BLYTH: So here's the thing, the standard, if you will, History Channel version of that period doesn't really acknowledge this. The standard story would go something like this. So the first New Deal, a.k.a. the NRA fails. And then after the '37 recession, they basically rediscover government spending in some version of Keynesian economics. So it's all in the macro and the build up to World War II. But what you're saying is actually, no beginning in '36, '37 and continuing for 10 years, there's an immense amount of trust busting.

ERIK PEINERT: Yes. And that's a common argument. And The End of Reform, Brinkley's book, makes this argument that trust busting got thrown to the wayside as soon as they discovered Keynesian demand management. But the thing is, if you go back and look at what those core group of advisors were saying, yes, they discovered government spending, but it was the same group of advisors.

They saw increasing demand and slashing prices through trust busting as just the same way to get increases in output and productivity and growth. And yeah, when they got into power at that same moment, the main person that's known for this is Thurman Arnold-- again, someone who changed his mind, got into office in Nineteen Thirty-Eight.

And in the first 60 years of the Sherman Act, the main American antitrust law, he filed 90% of the cases, or something like that, in his first four years. These were against military contractors. Like, mid-war, we were filing cases against the biggest American military contractors or allies, military contractors, et cetera, which just laid the foundation for a postwar period of policy was just systematically skeptical of corporate power and concentration.

MARK BLYTH: Let's put this in a macro context. So you come off of the Great Depression, bust. You come out of World War II into a conversion inflation period but boom time. You've got capital-starved markets in Europe and American firms to feed them.

This is the beginnings of the 30-year growth period. So to everyone who's doing this shows it works, right? I mean, it may or may not have something to do with it. But if you're doing something and things are going well, you're going to say this is part of the reason it's going well. So you're going to keep doing it, right?

ERIK PEINERT: Yeah, exactly. I mean, there was nothing happening in the Nineteen Fifties in terms of the performance of the economy that's going to make someone be like, hey, maybe we should let tons more mergers through or whatnot. That was very much against the conventional wisdom of the time. Again, it wasn't until problems showed up much later on that anyone started doubting that. Boom times, honestly.

MARK BLYTH: We'll get to basically the tips in the late '60s and the '70s. I want to get into that. The other country you do in the book is France.

ERIK PEINERT: Yes.

MARK BLYTH: Now, people don't as much about France, possibly, as they do about the United States. But this is a remarkably similar thing. Now, this is weird. Let me make this strange, as they say, because what happens in the literature is this idea that France in the Nineteen Thirties was this kind of not even fully industrialized place.

But the one thing that French always had was a big state. And that meant, after the war, the French said, OK, we've been squeezed by the new big powers. We've lost an empire. We turn to the state, and that's how we build the economy. French statism is basically the thing. You actually say that's completely wrong for the first 20 years.

ERIK PEINERT: It is a misunderstanding or oversimplification. The French state is huge. I think it's still over 50% of GDP. It was at that time, and especially because the Marshall aid funds made up a huge fraction of their budget.

But the misunderstanding that a lot of people have had, and the way it's been characterized both by historians, political science and whatnot, is that through this whole period, you describe as this dirigiste era, same golden age where the French state directed everything. They created these national champion firms out of estate policy, and that was all one concerted plan.

But when you go back, even with that gigantic state, what France was doing looked very different from that. They were saying, actually, our private sector-- this is still a capitalist economy despite being a huge state. Our private sector are a bunch of lazy business people who don't want to grow, expand, do all the things that good capitalists should do. They are not competitive enough. And we're going to use the awesome power of that state to force them to.

So France, if 60% of your GDP is the state, well, we are now the biggest buyer around, and we are going to make our suppliers get into deep price knife fights to get government contracts. And they set up a range of policies for that. They had a bunch of rules against cartels. They thought that it was great. European integration was great because now you have to fight against German firms.

And through that time, even as firms were getting larger, because there are certain industrial scale advantages with the technologies at the time, for sure, the French state just kept thinking more competition, more competition. Our business people are so lazy through the late '40s, '50s, early '60s, which just does not fit with the way we normally think about it.

MARK BLYTH: Now, it begins to change because of one of my favorite French words that you taught me, which is auto-financement, which is essentially investment from retained earnings. It's essentially what it is.

ERIK PEINERT: Yeah, more or less.

MARK BLYTH: More or less. So basically, these firms can't fund themselves because, thanks to all of these laws, they're small. They're nimble. They can't scale.

The country doesn't have any capital markets to speak of. They don't list themselves on stock exchanges. And you've basically now got a problem because you're facing off against German firms that are much bigger. And they begin to think there might be a problem with this.

ERIK PEINERT: Yeah. And it's funny because some of the things you went through were exactly what they were discussing. So some of it's scale. Some of it's they got bigger, but their big problem-- and they just kept on going to this again-- is they're not profitable enough. Even if they could get loans, which they can't, they're not profitable enough to pay them back.

The German firms were larger and more profitable, but it wasn't efficiencies of scale. The French firms had bigger plants. They just weren't making any money because the French state had made them get into price wars with each other all the time.

So they were thinking, sitting here in Nineteen Sixty-Two, demanding that all their major corporations make further and further investments. And the corporate sector is just like, we don't have any money anymore. You've spent 15 years ensuring we don't have any money.

MARK BLYTH: It all went to the consumer surplus.

ERIK PEINERT: Exactly, yeah.

MARK BLYTH: It didn't go to the producer surplus, right. So then they have to flip. So then that's when the period of the big French state build out goes on.

ERIK PEINERT: Exactly. And so I found a lot of these discussions, both in the prime minister's office and a bunch of these consultative bodies around the French Assemblée Nationale, where they're overtly talking about this crisis of investment and auto-financement. And over the last few years, the discussions start creeping in of, we need more mergers.

One of the economists in one of these is even we need to bring back monopolies and cartels. We need more profits. And then even saying we need to get rid of all of these new European competition rules that we had just demanded two years ago. We need to find a way around them because we need a more profitable private sector.

MARK BLYTH: Now, the French are able to basically make this happen because they had a unique institution at that point, the Commissariat Du Plan.

ERIK PEINERT: Yeah.

MARK BLYTH: So they've been planning for a long time, but they've been planning for trust busting, essentially. Now they're planning for consolidation. They flip in one particular plan, right?

ERIK PEINERT: Yeah. So the fifth plan, starting in Nineteen Sixty-Six, though, obviously the discussions had lasted a few years, for the first time, and none of the previous plans had said this. And there's a great section you can go look up of the fifth plan, where they just outright say, our plan is to consolidate every single industry into two to three firms, sometimes maybe just one.

MARK BLYTH: Right. So that we have scale internationally.

ERIK PEINERT: Yeah. And both between the lines and in some places explicitly, we need finances. They need money. They need profits.

MARK BLYTH: And to do that, they need to basically scale up, and they need protections.

ERIK PEINERT: They need protections. They need to scale up. And at some level, this was sometimes said in the private discussions, though, not publicly, we need some ability to raise prices on consumers.

MARK BLYTH: So let's jump back to the United States because we got to the '60s now, right?

ERIK PEINERT: Yeah.

MARK BLYTH: And the central focus, I think, of your book is very interesting because you go for a bunch of people that everyone else ignores, which is the Nixon administration, because they're the ones that begin to go, maybe this isn't the best idea. So how does that come about?

ERIK PEINERT: Yeah. So I will say that the Nixon administration is known for this, but obviously Nixon's mostly known for Watergate and certain corruption scandals, some of which touched on antitrust. There was fundamentally a bribe from ITT to drop a case from the Nixon administration. And most people know this, and they assume, oh, well, Nixon was pro-business in some general sense, and we can not think about it anymore.

But they came in both not really thinking about it and both professionalized antitrust people. They hired some aggressive enforcers, seeing good lawyers, good litigators. This is a good policy problem. There's no issue.

All of Nixon's senior political and economic staff, they have business come to complain to them about the trustbusters. And they among themselves be like, yeah, I think they're making up this problem. I think this is fine. We don't need to take this seriously. We can talk to them and listen to them.

MARK BLYTH: We can just keep going as we always have.

ERIK PEINERT: Yeah, we can keep going. And then I have the records showing that Nixon kept on thinking maybe the business people have a point, and then all his senior advisors slow walking it or basically throwing those requests into the circular file. But then in Nineteen Seventy-One, after a bunch of recommendations to reorganize the White House, they create a couple of things. The OMB comes from these recommendations, too.

But the New Council on International Economic Policy are meant to be like an NSC for economic policy. Hire this new guy, Peter G. Peterson, who, Peterson Institute, same Peterson, come in and do this. He's from the private sector, so is somewhat more familiar with the economic realities of business, but also then gathers a bunch of just figures from government records, goes into the first meeting of this and starts explaining to the cabinet about the economic position of the US.

We have a declining trade surplus. We are losing our technological lead. Western Europe and Japan are recovered from World War II. And then above all-- and others add to this-- Japan is eating our lunch. They are taking all these fancy technologies we've developed. They're re-importing them at low cost. They're taking advantage of the free trade system the US has designed and--

MARK BLYTH: Sounds like Trump.

ERIK PEINERT: I have in-class talking about these things noticed that Trump came of political age when this was the rhetoric about Japan.

MARK BLYTH: Isn't that interesting? Yeah.

ERIK PEINERT: So it's almost like it got imprinted on him.

MARK BLYTH: No, I think so, absolutely. But just parenthetically, one thing I want to put in, just to explain to the listeners-- one of the things that Erik explains is that the way that antitrust worked internationally was not just with these guys going after foreign subsidiaries in the US, et cetera. When US firms invented a piece of tech, they had to give it away. The patent protection simply weren't there, right?

ERIK PEINERT: Well, so you could have a patent, but there was a requirement. And especially if you were an influential, technologically leading-edge firm, you needed to license that tech to someone else for pretty cheap. Sometimes that had good reasons. Like , IBM, for example, had to license out a bunch of its important stuff.

But this also meant that when Bell Labs invented the transistor, they had to license it to everyone for $25,000 or something. So Sony takes that, goes runs away, makes the first transistor radio. And that happened across technological areas. And so reports over this era-- Peterson and well after are just pointing out, like, we invented all of this stuff, and we have to give it away to these foreign competitors. You can make it for cheaper.

MARK BLYTH: Right. So what's the response to the Peterson?

ERIK PEINERT: So Peterson has an ax to grind both against the industrial policies in Japan, but he also gets appointed to be the Commerce Secretary and walks out of this area. But he left an imprint in the White House of all these advisors who then go, reinvigorate this antitrust review group they've had. And Nixon keeps pressing on it after Peterson really changed his mind about this.

And they put together all these proposals to reform antitrust law that start looking very familiar to what we have now as policy. Some of those advisors then were appointed to the FTC and whatnot. And Nixon-- and some of this. I can't tell you exactly why, but all of his judicial appointments before this moment were of a certain normal post-war attitude. Every single judicial appointment after this with the very same people who gutted antitrust law over the 10 to 15 years can be much more deferential to business.

MARK BLYTH: This is The Other Chicago School. Very quickly tell us about The Other Chicago School.

ERIK PEINERT: So for dorks who think about antitrust, The Other Chicago School is a group of antitrust lawyers and academics. Mostly, Robert Bork is the person associated with this, who spent the Nineteen Fifties and Sixties on the lunatic fringe of academia saying that all these antitrust policies are bad because they're prohibiting efficient business practices. We should allow firms to vertically integrate. We should allow them to control their competitors and set certain terms.

Mergers aren't nearly as harmful as we think. Cartels are actually very unstable. In some level, if monopolies ever exist, they'll solve themselves over time. We don't need to worry about this.

And the Nixon administration started taking some of their ideas without even talking to them in looser form. But then over the Nineteen Seventies, those ideas in a context where tons of Rust Belt cities start to form, major bankruptcies of manufacturers, layoffs, US trade balance declining, US technological lead very obviously falling behind, these arguments that we are being too aggressive against our leading companies start to sound like they make a lot more sense.

MARK BLYTH: And you've now got a bench, if you pardon the legal pun, of people that you can draw on to staff, the bureaucracy.

ERIK PEINERT: Exactly. The bureaucracy and the judiciary. Yeah, exactly.

MARK BLYTH: It becomes really important. Now, this, fortunately doesn't actually gain momentum because Nixon blows up. Then we get Ford and then Carter. So quickly what happens in these two administrations?

ERIK PEINERT: So Ford's pretty short, like, obviously wasn't in office very long.

MARK BLYTH: It was a skateboard's length of a politician's career, if I remember correctly.

ERIK PEINERT: If that. But the funny thing-- and again, in the antitrust world, this is sometimes forgotten-- got in office. Inflation was 14%, 15%, or whatnot when he got into office in August of '74. Immediately puts together these huge group of economic experts to how do we address inflation?

And on that list is we need stronger criminal penalties against cartels. We need to deregulate everything to be more competitive. We need to be harsher on antitrust. So the last big enhancements to antitrust law were signed by Ford because he doubled down, committed on this as an approach, despite being a Republican and despite-- the vice president's always sidelined in the White House. They never show up to anything until the president either resigns or dies. So the revelations of the Nixon administration hadn't really made it to him or any of the staff he picked.

Carter comes in after that. And good Democratic left-wing anti-corporate is like, antitrust is good. The problem at the same time is that there's still all of these other economic problems going on. Staff up a new bureaucracy. Presidential administrations are fundamentally just like bureaucracies you slap on top of the federal government. It's not an individual person.

And some of those people appoints very committed good trustbusters to the antitrust agency, but then appoints a bunch of other people to these technology offices who start immediately grabbing up the same pile of reports about wait, we have to give all our technology away for free. This is ridiculous. And the US has tons of technologies they're not using, and they don't have anything to do with them.

So the Carter administration's sort of caught in this inaction between these two factions of one group recognizing a problem, one group trying to push for more. And in the background, the judiciary is already starting to buy these Chicago arguments. And the Carter administration somehow doesn't even notice as the Chicago School arguments start winning in court.

MARK BLYTH: So then we get to the Reagan administration, which actually you also point out, contains a lot of refugees from the Nixon administration who happen to think this way.

ERIK PEINERT: Yeah. And sometimes very explicitly. A bunch of refugees from the Nixon administration, but then also these Chicago schoolers. So I will say, one of the things I'm known for at this point in this world is Richard Posner and George Stigler, two of the main Chicago School people, wrote a memo to Martin Anderson, a refugee from those conversations from Nixon, about here is how you got antitrust law without changing a law at all.

You can do it just by administrative fiat from the White House. And it was like, you need to revise the merger guidelines. You need to stop enforcement against vertical practices. And it goes down the list that even warns them, you're going to--

MARK BLYTH: Its a to-do list.

ERIK PEINERT: It's a to-do list. And they're even saying you're going to get yelled at by Congress. All of these things happened-- new merger guidelines, in Nineteen Eighty-Two. Bill Baxter, a Chicago schooler, comes in the Department of Justice, immediately stops filing a bunch of antitrust cases, gets into fights in Congress about why he's doing that, saying existing good on the books antitrust law is nonsense. And so they just, by enforcement discretion, stop enforcing the laws as they exist.

MARK BLYTH: So this has two big effects. The first one is you can now start to think about big American corporations again that scale up and buy their supply chains and do the whole lot. You've also got this eventually, the globalization of this corporate structure. And that's when that whole intellectual property becomes very, very important internationally, because far from giving it away, they ended up becoming really restrictive. This was part of the tightening up, right?

ERIK PEINERT: Exactly. So like the lessons they learned came exactly out of the problems that the various people had identified over the previous 10 or 15 years. So first, on the merger front, the '80s are well-know as a merger frenzy. Like, finance first came back in this, and a lot of that was shepherding through M&A deals.

But then, at the other level, exactly recognizing that we have to give our technology away, intellectual property rights tighten up again. But these problems were very tied in their eyes. There was multiple antitrust review committees, et cetera. But this great set of documents with labels like antitrust and intellectual property rights reform as a way to address international competitiveness.

And the list was basically just you'd go down these memos. It was like, let American firms get bigger. Stop forcing them to license their tech to others, make the intellectual property rights much more reliable. So they reform the federal courts to make patents more reliable.

And then, the result that comes out of this by the '90s is they start going back to the GATT, the General Agreement on Tariffs and Trade. And along with a lot of their corporate allies being like, we are done removing tariffs. They're mostly gone. We want to make IP protection a facet of trade policy. Instead of just having free trade, we're going to have you get access to American markets and whatnot so long as you don't take our technology or use it.

MARK BLYTH: Or we licensed it to you much, much more expansively.

ERIK PEINERT: Yeah, exactly, which suits the same purpose. Now, we don't even need to build the factory ourselves. We can just charge the foreign company an arm and a leg to license the tech. And so out of this comes when the World Trade Organization is created in Nineteen Ninety-Four, attached to it is the TRIPS agreement, Trade-Related Aspects of Intellectual Property Rights. Lots of people have written on this before, but just global mass expansion and depth of global minimum requirements for intellectual property protection, which genuinely had not existed before.

MARK BLYTH: And pretty much all of which was American?

ERIK PEINERT: Yes. There were some pharma IP was across western Europe and Japan as well, but America was still very much the technological leader.

MARK BLYTH: So let's go back to France.

ERIK PEINERT: Yes.

MARK BLYTH: We're just bumping around.

ERIK PEINERT: Yeah, exactly.

MARK BLYTH: So the French basically the half the fifth plan. They build a bunch of really big companies. It kind of works for a while, right? And then what happens?

ERIK PEINERT: Yeah. So they scale up. They get these firms. The profitability problem certainly goes away to a certain degree. And then, exactly with the point that crisis doesn't even explain these things, they very quickly run into the crises of the Nineteen Seventies. Everybody has inflation. Everybody has more trade competition as everybody's recovered from World War II.

And every time-- it's almost without fail, every time a new president or prime minister comes in, they have a new term that they redub the National Champions Consolidation Policy as. And they just double down on we're going to get bigger. We're going to get even bigger through some new term that substantively doesn't actually change what they mean. And they do that through most of the Nineteen Seventies.

And then the big thing that happens is in Nineteen Eighty, the socialists under Francois Mitterrand, win an election for the first time ever, essentially, which freaks out all the center right parties because suddenly literal socialists are in charge. And the literal socialists have had in their policy plans, we are going to nationalize every company. And so all these national champions are then--

MARK BLYTH: But which isn't that hard, but there's only half a dozen or eight of them now because they've consolidated so much.

ERIK PEINERT: Right. But they buy them for full sticker price. That's an aside, very expensive for the state. But they nationalize all these companies, which put aside who owns them.

They also double down on the exact same thing. We need to protect them. We need to make sure they're profitable-- very weird thing for a left-wing government to do in the abstract. But they're basically just saying, state ownership of the means of production. We still want it to be a monopoly.

And along with a lot of the things that the Mitterrand era is known for, along with capital controls and international finance, this policy starts falling apart. A bunch of little research projects around the Ministry of Industry, Ministry of Finance starts realizing, wait a minute, these monopolies are surviving, right now, at least, by price gouging the average French consumer, which OK, that was the plan, so whatever, and then dumping at a loss their excess capacity on foreign markets.

And by the time they get to Nineteen Eighty-Two, Nineteen Eighty-Three, they're actually not succeeding very well anymore. They're dependent on this government support. So along with this, some of the policymakers from the Ministry of Industry, as the French budget at this point starts falling apart, and Mitterrand switches direction about social spending, move from the Ministry of Industry over the Ministry of the Economy, where the competition regulator, who is very defanged at that point, existed, and started thinking, we need to get rid of these national champions. We need to force them to compete. We need to completely deregulate all these price controls, which had been abused in a variety of ways by most major French companies. And it was exactly those people who, five years earlier, had been writing the checks to these national champions firms to get them to scale up even more who was pushing for them to get broken up, or to even let them less-efficient ones fail.

MARK BLYTH: And just as the Nineteen Fifties European legislation was imported by the French to help them be more competitive, similar thing happened with the EU in the Nineties.

ERIK PEINERT: Yeah. So the EU exists now because of the single Europe app in Nineteen Eighty-Six. And you go and read the literature about European competition policy-- and there's a very common sense that Mitterrand gave up on the social spending. But really all the competition policy and single market stuff came about because of the Single Market Act.

And through an interview or two, as well as the archival record from that time, no. Domestically, the Mitterrand government, or at least the bureaucrats at this level in the Ministry of Finance, had already been saying we need an anti-merger law. We need a normal competition policy.

And it was only after they'd made those shifts, generally, that France was willing to sign the Single Europe act. And along with the Irish-- I forget which minister at the EU level this was who proposed an anti merger law at the EU level. The French were one of the first governments to be like yes, we to do that.

MARK BLYTH: Yes, we'll have this. We'll have this.

ERIK PEINERT: Exactly.

MARK BLYTH: So they end up backing the competition space--

ERIK PEINERT: Yes, exactly.

MARK BLYTH: --at the same time as the Americans end up in the national champion space.

ERIK PEINERT: Yeah. So while we see these things going on, America's in the middle of their giant anti-merger frenzy in the Nineteen Sixties. And France is saying we need to consolidate everything. We're back in the Eighties where the Chicago schoolers are winning and saying, we need bigger firms. And the French at that moment are saying, no--

MARK BLYTH: No, we need to break it all up.

ERIK PEINERT: --break it all up, exactly. And even to the point where French business, complaining about these new competition policies would bring things written by Bork and the other Chicago schoolers to say, look, even the Americans think this is stupid. And they were just waved off by the Ministry of Finance.

MARK BLYTH: So let's do something unfair in closing. I want you to update the book in the following way-- you can take the Bork standard, which basically says, as long as consumer surplus is enhanced, I don't care the size of firm.

And you can look at the graphs of some economists that look at Walmart and say, yeah, actually, this kind of works because their actual profit rates are really small. They do on volume. There's a whole question to be had about the Walmartification of retail, whatever, destroying small towns, et cetera.

But in terms of giving consumers value for money, these guys may be quasi monopolists, but it totally works, right? It becomes harder when you get to tech firms, and it gets really hard when we get to giant AI firms. So tell me how your story about competition monopoly feeds into where we are now.

ERIK PEINERT: Great, three things I love talking about. So on the first of those, I will say this theory doesn't explain everything. And Walmart and big retailers look a little bit different than this theory would necessarily imply. Because yeah, if you're talking about the story of what brings low prices to consumer, big value retailers do it, but they do it by being monopsonist.

So the thing behind Walmart and, less so, Amazon-- but I'll get into that in a second-- that people don't realize is their real power and their ability to give you the low price is they are 60% of the market that is buying the things they then sell to you, which means they can squeeze down to the last drop of blood everyone they're supplying from.

And so at one level, that's somewhat where the low prices you get when you go to Walmart. But that also means that comes with a host of anti-competitive harms up the supply chain to all of their suppliers, to the other stores they're competing with who get higher prices as a result of Walmart's buying power. So there are actually harms when you think about something like Walmart even as a consumer.

And then you get to tech. And tech's a weird one because almost all of the big tech, the FAANG firms, or whatever acronym they're going by now, they've each created a market unto themselves. And each of them looks very different.

So I'm just going to use Amazon as an example to relate it to the previous thing because people think Amazon gives us all low prices. What's the problem? There's no competition issue because the prices aren't going up.

But the case against Amazon-- and this is shocking to people when they hear this-- that Lina Khan filed from the FTC hinged on them doing the exact opposite in a way that the rest of us don't see. Amazon makes most of their money off of Amazon Prime. Put aside Amazon Cloud for now.

They do this by having third-party retailers on their site sell through Amazon and get into the Amazon warehousing, and then they're dependent on logistics of Amazon. Amazon takes somewhere between 40% and 50% of every single sale from those. So they are just taking a huge cut.

And then on top of that, Amazon used to explicitly state this in all their contracts-- and now it's more informal-- you, if you are in Amazon Prime, you can't sell your stuff for cheaper anywhere else. And so Amazon has an army of bots crawling the web to surveil all of their third-party retailers to make sure that none of them are discounting anything anywhere else while taking a 50% cut of sales.

MARK BLYTH: Wow.

ERIK PEINERT: And m they do this because they can't put it in the contract anymore. They got in trouble with California. But now they just do it by punishing them. If they find someone discounting, suddenly, you don't show up in the search results. So it actually looks a lot like these monopoly problems. You just need to be familiar with the market to know what happens.

AI, I will say-- I am fascinated by the topic-- they're getting to the same scale of problem, but it's also a new form of problem. It's, in three years, one company that nobody used to heard of now has a weekly interaction with something like 20% of the human population. It's a scale of power that nobody's thought about before. But I'm not quite ready to say that this is a traditional monopoly power, particularly because they are so far from profitable, and there aren't that many signs that they're going to be anytime soon.

MARK BLYTH: Well, so let me suggest something in closing and see what you think of this. So the big bet for the AI firms in the US is each of them wants to be an Amazon-type monopoly. And there's a winner-takes-all dynamic between them. And they're all based upon these very, very big models, et cetera, and scaling and so on and so forth, and hyperscaling and proprietary models.

But then, the competition side is China. They've got these distillation models that are basically Unix. It's open source. They give it away. If you're anywhere else in the world outside the United States, and you have to build an AI platform, you're going to use the Chinese tech because it's cheap and free. Is it a case that basically we've got another one whereby we're still stuck in the consolidation and monopoly phase? And China is basically coming along with competition tools and disintermediating that?

ERIK PEINERT: At some level, yes. And there's an easy way to tell that story, and I think there's certainly some truth to that, where the American AI models come out of the Silicon Valley business models that are based on winner-take-all to eventually get a monopoly. And China is causing a problem for everybody across the board and certainly with that.

I will say Amazon just looks very different from what tech has normally done. Big tech got to power with a business model that doesn't cost anything in investment. Setting up Facebook, you just need to set up, program the website, pay for some server space, and then get rid of everybody else, and then you're the social network for at least a period of time until Instagram threatens you, and then you buy them. Great, you can maintain your monopoly that way.

AI is expensive, deeply expensive. Upfront costs are outrageous, as well as just the constant inference costs. And it's commodifiable. People don't think about this that much because everybody's racing for the top. But does anybody really care that much about whether they're using Claude or ChatGPT? At some level, they're kind of interchangeable in terms of what an LLM gives you.

And you know who's really good at producing expensive but commodifiable outputs is China. And they do this with everything. If there is a thing that we make that you can replicate in some way, they're going to find a way to do it cheaper. And so I would say, at a substantive level, putting aside the arguments from the book, there's just a fundamental mismatch between the culture of Silicon Valley and American business and the monopolized policy setup that they've been inculcated in, and the world reality that we're now facing.

MARK BLYTH: Which is one of much, much more dynamic competition.

ERIK PEINERT: In this context, yes, for sure.

MARK BLYTH: Excellent. Everyone, it's a great book, Monopoly Politics. Go buy it. Go read it. Go learn from it. Erik, thank you for coming on the pod.

ERIK PEINERT: Thanks for having me.

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MARK BLYTH: This episode was produced by Dan Richards and Juliana Merullo. I'm Mark Blythe. If you enjoyed this episode of The Rhodes Center Podcast, leave us a rating on Apple, Spotify, or wherever you listen to podcasts. It really helps others find us. And if you haven't subscribed to the show, please do that, too. We'll be back soon with another episode of The Rhodes Center Podcast. Thanks for listening.

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