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.

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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