By Mark Jamison

On February 22, AEI hosted a web event to examine how the American Innovation and Choice Online Act (AICOA) would affect consumers, the US economy, and the future of antitrust enforcement if it became law. For the discussion, I was joined by Jeffrey Eisenach, Jennifer Huddleston, and Michael Mandel.

Below is an edited and abridged transcript of key highlights from our discussion. You can view the full event on AEI.org and read the full transcript here.

Mark Jamison: My understanding of
antitrust is that it’s for keeping firms that have market power from using that
power to harm consumers, but this legislation seems to focus on rivals rather
than consumers. Am I right in that, and is that a problem?

Jeffrey
Eisenach: I think it is a problem, and I think your characterization of the law
is correct. Ever since the 1980s when Bill Baxter became head of the Department
of Justice’s Antitrust Division and Jim Miller became chairman of the Federal
Trade Commission, the consumer welfare standard has governed the way we think about
antitrust. And what you see here with this legislation is a fundamental shift
in antitrust law.

For
example, it’s shifting the burden of proof. So, for a select group of targeted companies,
practices which are legal everywhere else in the economy become presumptively
illegal and are forbidden unless approved, as opposed to permitted unless
prohibited. In other words, antitrust law is going from the ex post enforcement
approach, which is central to contemporary antitrust, to the ex ante regulatory
approach, which characterizes regulated industries.

It seems to me that this legislation aims
to target firms based on their success and seeks to control their business
models. What are some potential ramifications if that happens?

Michael
Mandel: As Jeff was saying,
antitrust policy has traditionally focused on the consumer welfare standard. Supporters
of AICOA want to broaden that standard to include other considerations as well.
But my view is that these companies are outperforming most of the economy, so
this legislation will have a plethora of unexpected impacts.

And I
will point out that inflation in the tech e-commerce and telecom sectors has
been super low in the last couple of years while inflation has been
accelerating in other sectors. Job creation in the tech e-commerce sector has
been extremely fast as well. Tech e-commerce firms have been the biggest job
creators in the economy during the pandemic by a wide margin.

And if
you look at wages, wage growth has absolutely surged. Particularly if you look
at the warehousing industry where most e-commerce fulfillment centers are
classified, there’s been a big jump in wages over the last year for production
and nonsupervisory workers.

Then we
get to the question of investment. These are the companies that are pouring
enormous amounts of money into the US economy. Every year the Progressive
Policy Institute (PPI) estimates the amount of money that big companies are
investing in the US, and big technology companies are always at the top of the
list.

Finally,
we come to the question of global competitiveness, which is especially relevant
as the Russia-Ukraine crisis is heating up. PPI recently put out a study by a
couple of Duke University economists that looked at which companies in this
country were investing in research. It turns out, over the last 20 years, there’s
been a pullback of corporate research, except in the tech sector.

So imposing
this regulatory framework will effectively restrain these companies in ways
that will have unexpected side effects for workers, investment, and the country’s
national security.

What else should people know about the
potential impacts of this legislation on the tech economy? Not just for Big
Tech but the tech sector more broadly.

Jennifer
Huddleston:I think it’s important to
recognize that the tech sector remains very dynamic. If we were having this
conversation about 20 years ago, we would be talking about AOL and Yahoo. Today,
we’re starting to see conversations around Web 3.0 and the growth of TikTok.

So, our
best competition policy against the tech giants of today is innovation. If we’re
constantly looking for the next Google or Facebook, we may be missing these
overall changes in the tech sector. Notably, if this bill became law and if you
were declared a company covered by the bill, those declarations would cover a
company for quite a few years. And in the tech sector, what happens in five or
seven years or even a decade can dramatically change to the point that you
might not be able to keep pace and respond to consumer demands because you’re
under additional regulatory scrutiny.

Other
notable concerns that were raised by several legislators during the markup are
related to data security and data privacy. While Congress has been focusing on
breaking up Big Tech and potential antitrust reform, if you look at polling
from voters, tech ranks pretty low on their list of overall concerns. But when
it is on their list of overall concerns, they’re actually concerned about
data-security and data-privacy questions. Under this proposal, companies would
be forced to hand over user data, in some cases, to competitors because of the
interoperability requirements.

There’s
a lot of concern about the fact that this could undermine certain privacy and
security features that companies have put in. This bill would also create an
environment similar to that which led to the Cambridge Analytica scandal;
someone who appeared to have a legitimate request for data turned out to raise several
privacy concerns. Bad actors aren’t going to just request data while declaring
themselves to be bad actors.

One of the things that’s talked about
is the national security issue, and there was a recent event where Sen. Amy
Klobuchar (D-MN) and US Army Gen. Wesley Clark argued that “if we could make
these Big Tech firms smaller, our national security would improve.” They also argued
that the Department of Defense agrees with this. But I read the paper, and I
didn’t find that argument in it. What are your thoughts?

Jeffrey
Eisenach: Mark, you and I worked
together on AEI’s strategy for securing American cyberspace back in 2016, which
took a pretty forward-leaning approach to cybersecurity issues. And one of the
things that became clear from that was that preserving America’s leadership in
these high-technology sectors is very much at risk. The leaders of the American
effort on that front are not the US government per se. Instead, the government
creates the conditions under which the private sector can innovate. But, the
Chinese have a business model where it is essentially government-directed
innovation, and we need to hope our business model is superior. It has been for
a while now, so hopefully it still will be going forward.

But for us to be crippling the engines of
innovation that are creating the technologies that will preserve our
technological superiority over our national security adversaries seems unwise,
to put it diplomatically.

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