Making ends meet as a church organist isn’t easy. Perusing the positions advertised on the website of the American Guild of Organists (AGO) reveals that most require a bachelor’s degree in music, and often a master’s. Yet only a few congregations take in enough from their collection plate to pay their organists a living wage. Most either rely on volunteers or offer a salary of about $20,000 a year, even for an organist who doubles as a choir director, as many do.
So the AGO came up with some ideas it thought would help its nearly 15,000 members earn a living. First, it distributed a recommended uniform salary scale for organists, adjusted by local cost of living. Second, a few years ago, it revised its code of ethics to discourage organists from trying to undercut each other on cost. The new rules urged guild members against applying to a position already held by another member, and provided that an outside organist playing a church gig would have to get the incumbent’s permission, and pay them their usual fee.
The moves ultimately had little effect on the guild members’ income, but there was another consequence. When the Federal Trade Commission (FTC) got wind of how the organists had become organized, it leapt to action, charging last year that they were conspiring to restrict competition. The agency ordered the AGO to destroy all copies of its salary guide and “to eliminate rules that restrict its members from competing for opportunities to perform.”
The organists protested. One, from Illinois, wrote to the FTC that all they were trying to do was “protect the extremely tenuous professional existence of organists in the U.S., most of whom don’t earn a living wage.” Another, from Pennsylvania, argued that the FTC’s order “impinges on the Constitutional right to freedom of association and impairs the ability of a class of musicians to raise mutual standards and support themselves in a risky career choice.” Organists also objected to being ordered to share their workspaces and instruments with strangers.
Moreover, their “collusion,” the organists pointed out, didn’t exactly corner the market. If a couple wanted to get hitched at, say, St. Luke’s, they might have to use that church’s organist for the ceremony or pay a higher fee to have someone else play the gig. And of course the couple remained free to get married at, say, St. Matthew’s or St. Paul’s, using a different organist. In the annals of corporate price fixing and market manipulation, the organist cartel didn’t rank. “A voluntary mutual agreement between Guild members to not poach on other members’ places of employment without financial recompense is not the sort of thing that should come under government scrutiny or regulation,” wrote the organist from Pennsylvania.
Yet the AGO felt forced to capitulate and signed a consent decree. “Our legal counsel advises us that if we attempt to litigate this matter in Federal Court, we will most surely lose after spending tens of thousands if not hundreds of thousands of dollars in legal fees,” wrote executive director James Thomashower in a letter to his members. “The AGO’s position simply cannot be sustained in a court of law in light of other cases and legal precedents. Moreover, losing in court could entail fines and further penalties for the organization and possibly for its elected leaders as well.”
The FTC’s crackdown on church organists is not an isolated case. In recent years the agency has gone after members of many other occupations, either by threatening them with lawsuits or by prevailing on state and local government officials to deny them collective bargaining rights. Recent targets have included ice skating instructors, animal breeders, and music teachers. Others over the years have included public defenders, doctors and dentists in private practice, home health aides, and truck and Uber drivers who tried to organize. In each instance, the FTC has declared that if such workers cooperate with each other to improve their negotiating position in the marketplace, they are guilty of a conspiracy to restrain trade.
The FTC has taken a particularly hard line on workers who press for occupational licensing laws. An estimated 25 to 30 percent of the U.S. workforce is employed in occupations that require some kind of license, ranging from doctors and lawyers to barbers, electricians, public school teachers, and taxi and truck drivers. Occupational licensing laws can obviously help protect the public from incompetents and shady operators, but they also have long served another important purpose. By limiting market entry, licensing strengthens the bargaining position of producers who otherwise would have little market power. For workers who lack a college or advanced degree, licensing also provides a way to earn a credential that adds to their ability to negotiate for a decent income and better working conditions. As unions fade away and labor markets in more and more sectors are dominated by just a few large employers, occupational licensing has become the main means by which many blue- and pink-collar workers gain or hold on to a marginally middle-class living.
Yet the FTC has repeatedly challenged members of trades who have sought to use licensing to secure their market position, arguing that this form of collective action is simply “rent seeking” by special interest groups. Of course, by the same reasoning, laws that guarantee workers the right to form unions and bargain collectively are equally illegitimate, since they too allow workers to increase their income through policies that increase their negotiating power in labor markets. And indeed, attacking occupational licensing has become a staple of passionately anti-union Republicans like Wisconsin Governor Scott Walker.
Meanwhile, even as the FTC trains its fire on the organist cartel and occupational licensing requirements, it is ignoring a form of rent seeking that really does wreak havoc in the economy: corporate mergers. Decades of lax enforcement by the FTC and other federal antitrust regulators have led to levels of corporate monopoly not seen since the Gilded Age. Vertically integrated super-firms—from agribusinesses to airlines to giant tech platforms like Facebook and Google—have little need to conspire with their competitors, because they have so few competitors left. And where there is still any need to collude, well, it’s a lot easier to fix prices and wage scales when you only have to conspire with two or three rivals.
American competition policy is, in short, upside down and inside out. Regulators and courts perversely foster ever-lower levels of competition among ever-larger corporations, allowing them to reap greater profits and share less of them with workers. At the same time, they outlaw forms of cooperation among workers, small business owners, and professionals that have historically served vital economic and social purposes. The effects of this imbalance will only get worse as more and more of us struggle in an increasingly deregulated, de-unionized, monopolized economy that forces contingent workers into tournaments of ruinous competition with one another.
But that doesn’t have to be our future. Americans have faced similar challenges in the past, and used a shrewd mix of competition policies to fix them.
When populists and progressive reformers pushed the Sherman Antitrust Act through Congress in 1890, their purpose wasn’t to go after colluding church organists—nor workers, independent proprietors, contractors, or farmers. Their purpose was to take down colluding plutocrats.
Senator John Sherman stated that the “single object” of the bill was to deal with “combinations that affect injuriously the industrial liberty of citizens,” meaning combinations of capital, not of labor. Another of the bill’s architects, Senator George Hoar, stated that “as legislators we may constitutionally, properly, and wisely allow laborers to make associations, combinations, contracts, agreements for the sake of maintaining and advancing their wages.” This was necessary, said Hoar, to maintain a proper balance of power in negotiations with “large corporations who are themselves but an association or combination or aggregation of capital on the other side.”
Yet the final bill passed without an explicit antitrust exemption for labor, and before long a conservative Supreme Court was able to turn the Sherman Act into a powerful weapon that capitalists used to attack workers. Almost before the ink was dry, the Sherman Act became the legal justification for shutting down a general strike in New Orleans. By 1897, the majority of Sherman cases had targeted labor “monopolies” (that is, unions) rather than capital.
Meanwhile, conservative judges interpreted the Sherman Act in a way that weakened its power to combat concentrations of corporate power. Even in the landmark 1911 case that broke up John D. Rockefeller’s Standard Oil, the Court didn’t find that the corporation was too big, but rather that it was engaging in specific abusive practices. “The Trusts Have Won,” lamented the populist crusader William Jennings Bryan. The narrow ruling, said Bryan, was as outrageous as if a judge had interpreted a statute against murder “on the theory that the legislature meant undue murder.”
Populists pointed out that corporations are themselves legally sanctioned forms of market collusion. By investing in a single entity, the capitalists who control a corporation’s stock avoid competing with one another and engage in collective actions, such as pooling information and coordinating prices and wages. Why, then, should it be categorically illegal for individual citizens engaged in selling their labor, or their small-scale productions, or their crops, to achieve the same ends? Why is one form of coordination called a corporation and the other a criminal cartel?
Reformers finally made a big step toward fixing these flaws with the passage of the Clayton Act, which Woodrow Wilson signed into law in 1914. The act stated in plain English that labor unions and farmer co-ops should not “be construed to be illegal combinations or conspiracies in restraint of trade, under the antitrust laws.” In the case of wage workers, Congress went a whole step further by stating that for the purposes of U.S. competition law, “[t]he labor of a human being is not a commodity or article of commerce.” Just to make sure that reactionary judges wouldn’t undo their handiwork, reformers persuaded Congress the same year to create the Federal Trade Commission and to give it explicit statutory power to bust up corporate monopolies.
Over the next several decades, courts and legislators still struggled with the question of how the law should treat corporations, individual workers, farmers, and independent businesses. But by fits and starts a coherent and highly successful strategy emerged for balancing regulation of market concentration and collusion.
To understand how this strategy worked, think of a control panel with three dials.
The first dial regulated the amount of corporate concentration. After the mid-1930s, policymakers turned this dial up high, causing the federal regulators to become more aggressive in prosecuting actual or incipient corporate monopolies. By the 1960s, antitrust regulators struck down one merger on the grounds that it would have led to a single company controlling a mere 5 percent of American retail shoe sales. In cases where economies of scale or network effects made bigness inherently more efficient, such as in railroads, telecommunications, or electrical utilities, policymakers tolerated corporate monopolies but made them subject to strict regulation by agencies like the Interstate Commerce Commission or various state public utility commissions.
The second dial regulated collective action by employees. After the Clayton Act, wage and salary workers became subject to their own separate labor laws, apart from freelancers, independent contractors, and other kinds of self-employed workers. A prime example of how labor law enforced that distinction is the Wagner Act of 1935, which gave private-sector employees, and not self-employed workers, the explicit right not only to organize into labor unions but also to engage in collective bargaining without fear of antitrust prosecution. Over the next two generations, this second dial would sometimes get turned down a bit, but overall it remained at a setting that strongly favored collective action by employees into the 1980s.
The third dial regulated collective action among independent enterprises, including self-employed workers, family farmers, and sole proprietors. The fights that farmers waged to form cooperatives, and that small proprietors and professionals fought to form trade associations, are only poorly remembered today. But securing the right to associate played a major role in structuring the U.S. economy throughout much of the twentieth century.
An early formalization of this right was the Capper-Volstead Act of 1922, which granted farmers, who then still made up a significant share of the U.S. population, the explicit right to organize into cooperatives. Co-ops allowed dairy farmers, for instance, to coordinate the production of milk and vertically integrate into other dairy products in order to gain greater bargaining power with giant corporate food processors and distributors. Capper-Volstead made clear to the courts that when farmers cooperated, it wasn’t an illegal cartel; it was an economically and socially beneficial form of enterprise. Though most of these farmer co-ops have today been effectively captured by large financial interests, the Capper-Volstead Act is still on the books and could be reformed to serve its original purpose. (See also “How Rural America Got Milked,” in our January/February 2018 issue.)
The third dial also regulated cooperative behavior among self-employed professionals, like doctors, and among independent proprietors, like store owners and artisans. In her new book, American Fair Trade, Harvard Business School professor Laura Phillips Sawyer chronicles the populists and progressive leaders who fought for these rights of association under the banner of what were once known as “fair trade” laws. These leaders included Edna Gleason, who in the 1920s became the sole owner of three drug stores in Stockton, California, after her husband died. Gleason would go on to become known as the “mother of fair trade” after she organized independent pharmacists throughout California into a trade association and then secured a California law that allowed retailers and manufacturers to cooperate in enforcing minimum prices for brand-name drugs and other consumer products. The effect of this cooperation was to prevent the emergence of mega chain stores selling at below cost to drive out smaller rivals, as Walmart would later do. Fair trade laws also helped keep retail locally owned and competition focused on factors such as customer service and selection.
Among the prime theoreticians of the fair trade movement was Louis Brandeis, “the People’s Lawyer” and longtime Supreme Court justice. In his legal briefs and court decisions, Brandeis famously attacked the “curse of bigness” and advocated for aggressive prosecution of corporate monopolies. But he also, as Brandeis biographer Gerald Berk chronicles, consistently championed the social and economic value of having a broad field of smaller competitors engaging in cooperative forms of capitalism.
One of the benefits of cooperation among competitors, Brandeis noted, was the ability to set standards. The experience of buying shoes is improved, for example, when shoemakers cooperate in using a common measure of shoe sizes. Similarly, it’s all for the better when electrical device makers cooperate so that their products don’t each require a different-sized socket. Brandeis also pointed to how cooperation among competitors could lead to progressive improvements in quality. Humans live longer, healthier lives when knowledge of “best practices” in medicine is widely shared among competing doctors and dentists rather than regarded as a trade secret.
Brandeis’s case for cooperative capitalism also included the observation that producers are more likely to avoid wasteful over- or underproduction when they share market data. Producers can’t make informed decisions about what to produce and how much to charge unless they can know what is selling and at what price. Moreover, if only the biggest players have enough market information to make smart decisions, it will tend to lead to monopoly. Thus the pooling of market information by trade associations can be essential to making competitive markets efficient and sustainable.
Even outright price fixing can sometimes provide broad benefits, Brandeis observed. When producers and retailers agree to enforce minimum prices, competition no longer centers on who can drive out rivals by selling below cost for the longest. Nor does competition focus on who can cut wages, benefits, product standards, and customer service the most (think of ever-shrinking airline seats and “basic economy”). Instead, competition shifts to metrics other than cheapness: who can provide customers with the most innovation, highest quality, and best service.
Under the influence of Brandeis’s thinking, the Federal Trade Commission in the 1920s actively encouraged trade associations to participate in government-sponsored conferences in which they shared market data, set common standards, and compared notes on best practices. Though it is largely forgotten today, most Democrats and Republicans agreed in this era that government should work closely with trade associations and labor unions to manage the terms of market competition. Indeed, one of the great proponents of such practices was Herbert Hoover. He even coined a word for it: “associationalism.”
During his early presidency, Franklin D. Roosevelt took Hoover’s cooperative model to an entirely new level by signing the National Industrial Recovery Act of 1933. In a fireside chat, FDR explained that NIRA was “partnership in planning” in which “organized private industry” and organized labor would develop codes of fair competition on an industry-by-industry basis. Under NIRA, businesses that followed the codes could exhibit official signs reading “We do our part.” Corporations that “did their part” were exempt from antitrust prosecutions.
Unfortunately, this experiment in cooperative capitalism quickly foundered as the business councils it relied on became dominated by the largest and best organized corporations and adopted codes that hurt the competitive position of smaller businesses. Moreover, in 1935, the Supreme Court declared NIRA unconstitutional, finding that Congress had ceded too much authority to the executive branch. But the Court let stand what by then had become an extensive body of fair trade laws at the state level, so that the high degree of cooperation among independent businesses continued right into the 1970s.
Meanwhile, FDR responded to the Court’s invalidation of NIRA by turning up the dial on antitrust enforcement. Starting in Roosevelt’s second term and lasting into the early 1980s, the federal government took a new hard line on preventing and breaking up corporate monopolies. Examples include actions that disrupted the vertical integration of Hollywood studios and movie theater chains, deconcentrated central industries like aluminum and petrochemicals, and forced major technology companies like AT&T to share their patents with start-ups that became the pioneers of Silicon Valley.
The result was a huge economic, social, and political success. Through a set of policies that shrewdly checked corporate concentration while also encouraging beneficial forms of cooperation among smaller-sized competitors, the U.S. created a balanced political economy that brought with it record levels of technological and organizational innovation, a rapid expansion of the middle class, and a narrowing of income inequality to levels not seen before or since. Yet by the end of the 1970s this distinctly American system of managed competition was under sustained ideological attack that would lead to its near demise.
The attack came on two main fronts.
The first was led by a coterie of highly influential libertarian economists, many of them associated with the University of Chicago, who waged a coordinated campaign against the government’s use of antitrust law to prevent or break up corporate monopolies. These economists presented themselves as social scientists, but they typically made little use of empirical data. Rather, they built their reputations by arguing that government policy should be based on simple mathematical models of how perfectly rational actors would behave in perfectly competitive markets. And these models revealed, the economists said, that there was little reason to worry about corporations gaining too much market power. Monopolies that tried to abuse their position by raising prices or cutting services would inevitably be disrupted by new competitors.
Of course, in the real world, markets are not perfectly competitive. Without government playing referee, they tend to get cornered and monopolized, and market players who don’t know that tend to get slaughtered. Nonetheless, the Chicago school of antitrust would have enormous influence in persuading policymakers to turn the first dial—the one regulating corporate concentration—back down almost to zero.
The other main line of attack came from the “public choice” school of economics associated with the University of Virginia and, later, George Mason University. These economists, led by Gordon Tullock and James Buchanan, developed the concept of “rent seeking” and initially applied it in defensible ways. They noted, for example, that when a government grants a monopoly to a private firm it creates a windfall of monopoly profits, or “rents.” Similarly, they were surely right to say that when a corporation hires more lobbyists than, say, engineers, it may well be making society worse off.
Yet the public choice school soon used the concept of rent seeking to attack virtually any form of cooperation among market players, especially smaller ones. Thus, unions became cast as rent-seeking institutions equivalent to corporate cartels. Members of any trade—taxi drivers, health care workers, nursery school teachers—who benefited from a government policy that might allow them to negotiate for a larger piece of the pie became cast as colluding, anticompetitive rent seekers who made the rest of us poorer.
Tullock, Buchanan, and their acolytes were conservatives. But before long, some liberals took up their approach. Initially, liberals used the rent-seeking frame to attack government regulation that favored entrenched corporate incumbents. Longtime readers of this magazine may recall how many of its authors—including this one—once celebrated the work of the late Mancur Olson, particularly his 1982 book, The Rise and Decline of Nations. (See, for instance, my “From Calhoun to Sister Boom Boom: The Dubious Legacy of Interest Group Politics,” in our June 1983 issue.) Olson’s work showed how the logic of collective action often made it more rational for special interests to seek a bigger slice of an existing pie through lobbying than to cooperate in creating a larger pie.
That reasoning resonated among the then-rising generation of “New Democrats” for two main reasons. One was that giant regulatory agencies like the now-defunct Civil Aeronautics Board still had real power over much of the economy and often seemed to be using it on behalf of the industries they were supposed to be regulating. Thus it was the likes of Jimmy Carter, Ralph Nader, and Ted Kennedy who led the charge for deregulating the airline industry in the late 1970s. They had become convinced that because CAB limited the entry of new carriers, it was creating “rents” that enriched established airlines at the cost of consumers.
Another reason the rent-seeking frame resonated with many liberals in this era was their growing alarm over the behavior of certain professions. By the 1980s, the incomes of lawyers and doctors were rising particularly sharply. At the same time, the basic social contract that had long required lawyers and doctors to put the interests of their clients or patients above their own seemed to be breaking down. In response, many on the left, including not only New Democrat liberals but also radical social critics like Ivan Illich, began to question why these professions should be allowed to continue operating what increasingly looked like self-regulating, self-dealing guilds.
Some of these critiques remain valid today. Self-dealing by medical specialists, for example, remains a large reason why American health care costs so much. Yet over the last forty years, far larger trends have completely reordered our political economy in ways that place such concerns in an entirely new context.
These trends include massive privatization, deregulation, de-unionization, and rising monopolization—all contributing to the extreme concentration of wealth in the top 1 percent and diminishing prospects for just about everyone else, including many professionals. Even many doctors now face an uncertain future as large corporate hospital chains buy out more and more of their practices and monopolistic health insurers cut their reimbursement rates. Given these epochal changes, it would seem hard to argue today that preventing “rent seeking” by working-class Americans, or even by professionals, should be the focus of America’s competition policies. And yet in recent years this analysis has actually been gaining strength in many liberal quarters.
For example, Jason Furman, formerly chairman of Obama’s Council of Economic Advisers, has offered the formulation that “[l]obbying for preferential regulation (such as licensing requirements) is one classic example of rent-seeking.” This theme is echoed by the Brookings Institution, which stated flatly in a recent white paper that “rents for licensed workers come at the expense of both consumers—who pay higher prices—and unlicensed workers.” In their new book, The Captured Economy, the libertarian/liberal duo of Brink Lindsey and Steven Teles (both of whom are dear friends of this magazine) take a similar line, condemning occupational licensing as rent seeking that hurts the poor by raising prices. “Even if it works as well as it can,” they conclude, “occupational licensing is thus regressive in its distributional consequences.”
Many liberals now join libertarians in using the concept of rent seeking to explain America’s growing regional inequality. Why is it that so few working- and middle-class Americans can afford to move to or remain in cities like San Francisco or New York? The answer, says a chorus of liberal writers, is zoning. “The mechanism by which zoning creates rents is straightforward,” observed Furman and fellow Obama administration economist Peter Orszag in a 2015 white paper. “By constricting the supply of housing,” they argued, “zoning and land use restrictions can potentially discourage low-income families from moving to high-mobility areas—effectively relegating them to lower-mobility areas, reinforcing inequality.”
It’s no doubt true that some communities engage in exclusionary zoning. But what this analysis leaves out is the far greater role of corporate monopoly rents in driving up the cost of housing in elite cities beyond the reach of ordinary folks. Corporate concentration fuels an ever-growing concentration of ever-richer elites in cities where monopoly firms are headquartered. Not only do these elites bid up the price of real estate, but the very same trend toward monopoly leaves most workers with flat or falling income as fewer and fewer employers compete for their services. Given these and other structural causes of inequality, why does the conversation in liberal circles so often focus on blaming middle-class homeowners for resisting changes in zoning laws that threaten their home equity, which for most is their largest, and often only, real asset?
Lurking beneath these mental frames is an assumption that cooperative behavior among weaker market players necessarily “distorts” some idealized “free market” result. Yet liberals, especially, should be wary of borrowing such a dubious concept as “free markets” from libertarians. Markets cannot exist without rules that regulate their terms of competition any more than sports can exist without specific rules of play. (Try enjoying a game of football in which everyone decides for themselves how many people are on a team, whether it’s tackle or touch, and how you keep score.) Accordingly, it makes no more sense to say that some markets reflect natural or perfect competition, and others degenerative rent seeking, than it does to say that footfall offers perfect competition while baseball is a market distortion. What matters about markets is whether their rules lead to fair, open, and sustainable competition, as opposed to unsporting rule by oligarchs.
Here is another problem with the rent-seeking frame. It assumes that when middle- or working-class people manage to actually collect a rent, it must come at the expense of poorer people. But is that really true?
Take occupational licensing for hair braiders, often cited by well-meaning liberal/libertarian types as the epitome of Robinhood-in-reverse rent seeking. Assume, for argument’s sake, that there is no public health reason why hair braiders need to be licensed. If braiders nonetheless increase their income by persuading their fellow citizens to go along with a licensing requirement, does this make the poor worse off?
If you’re tempted to answer yes, first pause to note that by the same logic, if the hair braiders became employees of a corporation, formed a union, and managed to raise their income through collective bargaining, this, too, would make the poor worse off. People who think this way—who apply a positive mental framework to labor unions, and another, negative one to organizing by independent producers and workers—need to scrutinize how their minds have been captured by a libertarian ruse. In the real word, neither the poor nor society as a whole is worse off just because workers and small producers may cooperate. In many sectors the only real alternative to unions, occupational licensing, and other forms of managed competition is ruinous competition that drives down income to the point that no one can make a decent living. Who wants lower prices if it means even lower wages?
Examples of this phenomenon can be seen in trades like truck driving. Because of the repeal of regulations that once created far higher barriers to entry in trucking, ruinous competition today leaves drivers working far longer hours, for far less money, than they did in 1980, when the market rules changed. So severe is this race to the bottom that despite an extreme shortage of truck drivers, “market forces” do not respond by raising compensation for truckers. It’s hard to argue that this has benefited the poor. In today’s economy, with its soaring returns to capital and flat and falling returns to labor, more and more of us are truckers now.
So what does all this mean practically? We need to get the three main dials of competition policy back in balance. That means turning the dial controlling corporate concentration back up to where it was during the 1950s and ’60s, paying particular attention to the new and dangerous big tech platform monopolies like Google, Facebook, and Amazon. It also means turning back the dial controlling the ability of employees to organize to where it was set in mid-century America, rather than further abridging the negotiating power of labor unions, as the Supreme Court did recently in its Janus v. AFSCME decision. And it means setting the third dial so we are no longer harassing church organists with threats of antitrust suits, but are instead restoring the lost rights of all independent producers to cooperate in counterbalance against concentrated corporate power. These are the settings in competition policy that once created broad avenues of upward mobility, economic liberty, and mass prosperity. It’s time to set them back where they belong.