STRS: Tech Critics’ Strawman Misrepresents The Tech Sector And Consumer Welfare Standard In Trade Agreements
Earlier today, several Roosevelt Institute scholars published a piece in Quartz arguing the USMCA, President Trump’s NAFTA replacement, should not have included the consumer welfare standard among its provisions because it is unequipped to deal with what the authors deem concentration problems.
But not only does the tech sector not face many of the problems the authors outline (consumers are happy, wages are increasing, employment is growing, and investment is rising) – the consumer welfare standard is to thank for many of these positive trends. Consumer welfare is the gold standard in competition policy and has been part of trade agreements since as early as 2003 (Singapore) – including it is not as “new” as the authors allege.
See more below.
The piece argues concentration is bad for consumers, workers, and businesses – but tech bucks this trend.
Today’s leading tech services are incredibly popular with consumers, providing them with high quality products at little to no cost. A recent study from economists Erik Brynjolfsson, Felix Eggers, and Avinash Gannamaneni even found American consumers would have to be paid $17,500 to forego online search engines for a year. A Springboard survey found Americans believe the tech sector will have the largest positive impact on consumers’ lives over the next decade of any industry.
A recent report from the Department of Commerce’s Bureau of Economic Analysis found “the digital economy has been a bright spot in the U.S. economy.” The tech sector grew at an average annual rate of 5.6 percent per year from 2006 to 2016, compared to 1.5 percent growth for the economy overall. From 2011 to 2016, employment in the digital economy grew by 3.7 percent per year, a full two percentage points higher than employment growth in the overall economy. Workers in the tech sector earned an average annual compensation of $114,275 in 2016, compared to economy-wide average of $66,498.
Growth in the tech sector remains incredibly robust, with 57 startups reaching unicorn status (valuation of $1B+) for the first time in 2017, actually up from 43 companies in 2016. A report from Oliver Wyman has found venture investment in the tech sector is vibrant, with deal value at historically high levels.
The piece uses a strawman argument to claim the consumer welfare standard focuses solely on prices, but countless experts have pointed out it is far more expansive.
Per University of Michigan law professor Daniel Crane, “Some Neo-Brandeisians seem to think that the consumer welfare standard is narrowly focused on price effects and hence fails to take into account other important values such as quality, variety, and innovation. That is a misunderstanding. As the 2010 Horizontal Merger Guidelines make clear, generic principles of antitrust analysis are often expressed in price terms ‘[f]or simplicity of exposition,’ but all other factors affecting consumer welfare including ‘product quality, reduced product variety, reduced service, or diminished innovation’ should also be taken into effect. If current antitrust analysis is too focused on static efficiency, there is nothing within the frame of the consumer welfare standard that prevents pushing it in the direction of dynamic efficiency or some other aspect of consumer value.”
As Matthew Lane recently wrote for Project DisCo: “Antitrust law is already doing just that – non-price theories of harm, like harm to innovation, have been used in cases and are continuing to develop. In United States v. Microsoft, the judge relied on a harm to innovation theory that Microsoft’s anticompetitive activities held up emerging technologies that might eventually threaten Microsoft’s dominance. And in In re Intel Corp., the FTC charged that Intel bullied its customers into surrendering the rights to their innovations, deterring these customers from innovating in the first place. These harm to innovation theories fit under the consumer welfare standard because consumers are worse off when they do not get to enjoy the benefits of missed innovation.”
The Quartz piece held up the European Union’s competition policies over the consumer welfare standard, but the consumer welfare standard has proven much more durable and effective in promoting competition and growth.
The United States’ competition policies have fostered an environment much more amenable to innovation and growth. 54 of the top 130 tech companies in the world are based in the United States, and seven of the top 10. Of the aforementioned 57 companies reaching unicorns status in 2017, only four hailed from Europe.
In a Senate Committee on the Judiciary hearing last year, Sen. Amy Klobuchar (D-MN) argued “we don’t need to move away from the framework of the consumer welfare standard.” Sen. Mike Lee (R-UT) pointed out that “the evolution of this [consumer welfare] standard has brought to our country some significant, one might say enormous, benefits.”