Shining a Light on Anti-Competitive Behavior (Episode 69)

Date: 4 Apr 2019 | posted in: Building Local Power, Podcast | 0 Facebooktwitterredditmail

Host Chris Mitchell is joined by ILSR Co-Directors Stacy Mitchell and John Farrell for a conversation on various anti-competitive corporate actions and state policies that might have slipped under your radar. Topics discussed include:

  • The recent AT&T and Time Warner merger. Stacy explains how the vertical merger enables AT&T and Time Warner to dominate their industry by owning the pipelines for content distribution as well as owning the content itself. The trio discuss why mergers continue to happen despite empirical evidence that prices rise instead of fall after mergers have gone through.
  • How a state’s clean energy policy could ultimately hurt its residents. The Energy Transition Act sets the stage for New Mexico to transition to 100% renewables but it includes a very damaging compromise which promises the monopoly utility company a big chunk of the profits from the transition instead of allowing local communities to reap the benefits.
  • The rise of cashless retail and how it enables credit card companies and banks to skim a lot of money ($64 billion yearly) from the U.S. economy without providing much value in return.
  • Amazon’s continuing efforts to influence government and set the rules for the market.
  • And book recommendations, of course!

As these companies become less accountable to us, they hurt their smaller rivals in the market, they raise our prices, and generally harm our democracy.

 

 

Chris Mitchell: We have an amazing Building Local Power today. We have several subjects that we’re probably going to have to cut short because they’re so interesting, and we’re so interested in them, but we’re going to try and get through all of them. We’re going to talk about AT&T and Time Warner, something that we teased you about a few months ago and never got back to. We’re going to talk about how a certain utility policy regarding renewable energy may seem like a quick win, but could be a real bad problem. Then we’re going to talk about cashless retail and some Amazon interesting moves.

We’re going to talk about all that stuff with me, Chris Mitchell, who runs the broadband program at the Institute for Local Self-Reliance, and we’ve got Stacy Mitchell from the Portland office.

Stacy Mitchell: Hey Chris, hey John.
Chris Mitchell: And we’ve got John, John Farrell, the head of the energy program.
John Farrell: Hey Chris, hey Stacy.
Chris Mitchell: We’re not going to rehash 5G, which I wanted to do, but it turns out we talked about that in Episode 57. If you’re really interested in that, that was a fun conversation Hibba and I talked about at the end of our talk. But we’re going to start off by talking about some of the mergers in telecom because there’s been a few interesting revelations lately. Stacy, I’m wondering if you maybe just want to set a little bit of background as to why you found it interesting, this AT&T attempting to purchase Time Warner, which owns CNN and HBO but is not Time Warner Cable. This is AT&T buying a company that has a lot of content. Why is that interesting from your perspective?
Stacy Mitchell: You’ve got this vertical merger where you have a company that owns a lot of pipelines for distribution by a company that has a lot of content. It raises questions about how AT&T, for example, might use control of that content to disadvantage companies that it competes with.

The merger went through. The government did, actually, interestingly, oppose it, but it was ultimately approved by a judge. That final decision, I think, came down just a few weeks ago.

Chris Mitchell: Stacy, one of the things that we always come back to when we’re talking about these issues of concentration and mergers is whether the government is making a case for stopping it on the right grounds. What am I talking about?
Stacy Mitchell: One of the things that’s gone wrong with antitrust is it’s all been built around these incredibly narrow economic models where they try to predict what will happen in the future if a merger goes through. There are these incredibly complex models that hinge on a lot of different assumptions. In this case, the government used that approach to say we’re going to see an increase in consumer cost down the road. That became very easy, I think, for proponents of the merger to argue against. Instead of arguing … the government arguing on broader structural terms about what this would mean for competition overall, they instead tried to make this narrow price argument that was … put the whole … their whole case on very flimsy footing. Indeed, they ended up losing in court.
Chris Mitchell: Right. Our models are much simpler, which is based on all of known history, which is that as these companies become less accountable to us, they screw their smaller rivals in the market, they raise our prices, and generally harm our democracy. The model’s pretty simple from our perspective. I’m simplifying it more than it is, but that’s more or less what we’re looking out for, it seems like.
Stacy Mitchell: Yeah, that’s right. There was a concept that used to be very operative in antitrust enforcement, which was this notion of market structure. The idea was you looked out there, and you didn’t try to predict what was going to happen in the future so much as you said does this look like a competitive market. Are there lots of companies? Is it easy for new companies to get started, and you made a judgment based on that. That, to me, seems like a much more effective and solid way to maintain competition, but that’s part of what we’ve really moved away from in recent decades and what a lot of people are now calling that that should come back into play.
John Farrell: Chris, what can we learn from some recent news about whether or not this kind of predictive effort by the government when it comes to mergers is actually effective or not?
Chris Mitchell: Not to rag on these well-meaning antitrust folks, but when it came down to the AT&T DirecTV merger, a merger that many of us opposed saying that it was going to give AT&T much more power to raise costs and disadvantage its rivals in the market, that merger was approved. AT&T has just raised the price of its streaming TV channel replacement package in ways that it suggested in the merger filings it would never do because it would only have an incentive to lower prices because it would have all these advantages of economies of scale by owning DirecTV as well as AT&T, and that they would generate these savings. They’d pass it along to the consumer in order to sell more products in the marketplace.

I think that was maybe three years ago. This is the second time that they’re raising prices on this product. Frankly, now that they’re going to get their hands on HBO, we’re very worried about the ability of them to deny high-quality content to others that may be fighting them in the marketplace. If I was a company marketing a channel line-up, I wouldn’t be able to put HBO in it perhaps. AT&T would say, “We’ve got all the same channels that Chris does, but we also have HBO”

I think something … I don’t know if you’ve been following this, Stacy. I know some of the people that you follow have been talking about it, but in some ways I think it’s a race as to whether or not AT&T’s terrible management destroys HBO fast enough that it’s not actually an advantage in the market anymore because it’s not producing content people feel they must have.

Stacy Mitchell: It’s really depressing because HBO has been the absolute leader in this whole revolution in great television. The reason we’re in this golden age of television, as everyone likes to say, is largely because of HBO. AT&T seems really intent on transforming it away from that and into something else. It’s just a great illustration of what we lose when everything gets rolled into these big companies that make decisions not based on any commitment to the actual industries that they’re part of, much less the people who work in those industries or the people who view that television that comes out of it.
John Farrell: Could I just roll back to that previous conversation there about Chris was mentioning the AT&T/DirecTV merger and that there was this discussion of economies of sale, of efficiencies of being large, and how this is going to benefit consumers. I guess where I keep getting hung up is that it seems that the lesson over and over again is why would they bother to pass the savings to consumers? It doesn’t seem that there’s any … just because a company is big, and just because they’re going to produce something cheaply, there’s no natural incentive to pass it along to customers. The natural incentive is to squeeze out as much profit as you can.

I guess I just keep getting confused hearing about these mergers that companies continue to talk about size as some sort of an advantage for consumers when it’s really only competition that generates the incentive for businesses to lower prices.

Chris Mitchell: One of the things that I’ve been asking people is whether or not there’s been any head explosions in DC because if your world view was premised on this idea of we’re only going to approve mergers where it’s going to lower prices, and merger after merger that gets approved raises prices, at a certain part, I would think you would have an existential crisis thinking my world view just doesn’t work. We’re doing something horribly wrong.

I get the impression that a number of people are discomforted by the empirical results that don’t fit at all with the models that they generate. I think they leave the FTC, the DOJ, which is the Federal Trade Commission, the Department of Justice, rather than trying to stick around and fight for better models, but I don’t have a real sense of what’s happening. I think it’s really easy to be cynical, and particularly when we know that the Trump Administration put its finger on the scale and said to the Department of Justice, “You must fight this. We need to stop this merger.”

Stacy, one of the things that we conjectured about last year was whether or not the Trump Administration, Department of Justice was fighting this merger for good reasons or for corrupt ones. We may not know, but the answer is either only corrupt ones or both corrupt and really because they believed it was a threat to the marketplace.

Stacy Mitchell: It is a little remarkable that this is the only place where they have stood up and taken … and fought a merger really that you can point to. Of course, they’re doing a lot of things that are helping big tech in various ways and other really dominant corporations across a bunch of industries. You do have to wonder, this doesn’t seem to be necessarily motivated by principle. That doesn’t mean that it wasn’t right to oppose the merger, that there weren’t good reasons to do that.

I think this discussion about the empirical evidence of what happens after these mergers is really important. There’s a guy, John Kwoka, who is an economist at Northeastern University, who’s actually gone back and done these detailed retrospective analyses of past mergers, what did happen? He’s found just repeatedly that the predictions that antitrust authorities made about what would happen in the future didn’t come to pass. Instead of prices going down, prices went up, and there were other anti-competitive effects.

John Farrell: I’ve got to look this guy up. Say his name one more time.
Stacy Mitchell: John Kwoka, K-W-O-K-A. He’s got a book out and a bunch of studies. It’s led to a lot of people, including some members of congress, some of the FTC commissioners, calling for the agencies to actually systematically do their own retrospective analysis. So far, they’ve been really resistant to that idea because I think they’re going to find that it forces a real reckoning internally with what they’re doing.
Chris Mitchell: There’s been a number of good articles. I think Karl Bode is always worth reading, other people who write tech dirt on this issue. The federal government, in some ways, had its hands tied behind its back by its own dumb policy because the Department of Justice wasn’t making an argument that AT&T could preference its own content in this in ways that would be deleterious to the market because the FCC, the Federal Communications Commission’s policy is that AT&T would never do things to preference its own content, that we do not need this policy called net neutrality that we’ve talked about before, which in some ways, and as we’re talking about a number of these things, it’s worth noting that these are principles that go back many hundreds of years in terms of who owns the pipes shouldn’t have a stake in what goes through it. These issues of common carriage, is the word I’m looking for.

Richard Nixon was a huge fan of this, making sure that the broadcasters didn’t own the programs in the ’70s. This is not just some modern day left versus right kind of thing. It’s, once again, the powerful against everyone, and in a number of people who are just getting a lot of money to cynically promote the interest of big tech and pretend that it’s a conservative position against a more liberal position, which is of opposing the mergers.

Stacy Mitchell: I didn’t hear anything you said because I was stuck on the fact that you said deleterious. That’s such a great word.
Chris Mitchell: As I was thinking, I was thinking sound it out. Don’t rush through this word. It’s complicated.
Stacy Mitchell: I like to know that you were also thinking about it.
Chris Mitchell: I want to jump into this issue of utility hand-outs. John, we’re going to let you speak for more than a few seconds in this segment. There’s a lot of interesting stuff in the news right now around PG&E. I just wanted to highlight that so you can maybe say a few words about it, point people to where you’ve written about it, and then we can talk about something that’s fascinating and not in the news.
John Farrell: Yeah, just very quickly, PG&E, one of the largest electric utilities in the country recently declared bankruptcy really for two reasons. One is, and the catalyst for it was climate-driven wildfires in California that have dramatically increased its costs and raised its liability among its residents and businesses of California because it looks like they mismanaged the grid essentially in terms of those wildfires being cause by their own infrastructure.

The second one is that competition is eroding them because people who have the choice in California because the government has created more competition, are choosing to move away from PG&E. The lesson there really is when folks have a choice, good things happen in the market, which means a big stuffy, stodgy utility company goes into bankruptcy. The challenge is going to be able to figure out what do you do with the grid system that it owns that still delivers energy for everybody, including the competitors? That’s where this piece that I wrote talks about this is the opportunity to have the grid as a commons.

As you mentioned before about owning the pipes versus owning the content, the electricity system for 100 years has had monopoly ownership where the owner has been the owner of both. We’re at a time … a unique time in history in the technology of the electricity system with things like rooftop solar, where we can move away from that. Check out the piece for Green Tech Media I wrote on it. But I would like to talk about a different issue that’s going on with utilities that we need to address.

Stacy Mitchell: While everybody has been seeing news about PG&E in the media and what’s happening with that, there’s been this other thing going on, particularly in New Mexico that could have just far-reaching implications that’s been much less talked about. Tell us what that’s all about, John.
John Farrell: Yeah. This is about a bill that recently passed in New Mexico, hasn’t yet been signed by the governor, but it’s passed the legislature, every indication is that it will be signed into law, called the Energy Transition Act. We’re going to see a lot more bills like this across the country. What it does is set into law a date by which utilities much provide 100% carbon-free electricity, so no more fossil fuels.

It’s hugely important. It’s been driving by the resurgence of the climate movement by communities realizing that renewable energy is cheap and affordable and a great opportunity to both do something good for the environment and for the economy.

The movement, the climate movement that has provided the political will in New Mexico and states like Minnesota or Illinois where bills like this have been considered or passed in recent years has really been focused on this broad opportunity to democratize the wealth in the energy system. You saw that in marches in New York City and across the country on climate. You hear that from climate activists across the United States and in other countries. The problem is that these bills are unfortunately going in a completely different direction

Stacy Mitchell: It sounds like a bit of a Trojan horse.
Chris Mitchell: What I hear you saying, John, is that this is a really tricky issue in that it is resulting in something that we want, but … And it’s our allies that in many ways have been pushing it through, but they’ve made a compromise that we think could be really damaging.
John Farrell: Exactly. You can check out a little bit more on the specific issue in a podcast interview I did for our local Energy Rules podcast with Mariel Nanasi who’s an advocate and organizer in New Mexico, but what she outlines is essentially the utility got paid off in this case. We have a utility company. It’s a monopoly. It’s a government-granted monopoly. It’s been the only utility provider for much of the state for over 100 years.
Chris Mitchell: Sorry, John. Can I just clarify something quickly that jumped into my head? Is this something … Is this a state decision or is it a federal decision?
John Farrell: No this is a state decision.
Chris Mitchell: So the state could actually take a monopoly power away from an electric provider?
John Farrell: Yeah. In fact, there’s a bill in Maine to do that and also discussions in California around PG&E about maybe this is the time to make it a public utility. So these monopolies were made by the state 100 years ago when there was competition. It was a wild west of an electric grid and states said “Actually this is not in the public interest. We’re better off building a single grid, not multiple wires to each home, and to capture the economies of scale that come with doing that monopoly.”
Chris Mitchell: Right. I don’t want to send us too far down that, but I think it’s always worth noting where a state can fix something versus where the state’s hands are tied by the federal government.
John Farrell: Yeah, absolutely. That is … I think this bill in New Mexico raises kind of this big warning, right? So states are where energy policy not only is happening by default because the federal government is not acting around climate, but also it’s the place where energy policy regulation has traditionally taken place in states. Many states already have renewable energy goals and standards like this, although few as aggressive as we’re seeing in recent years. What this bill does essentially is it says to the utility “You have to give us 100% carbon-free electricity by 2050, by a certain date, but in exchange, all of those dirty fossil fuel power plants you have that were uneconomic and would probably have to close down anyway, we will pay you all of the profits you were expecting from operating that plant as long as you were expecting to run it.” There’s a power plant in New Mexico that they had taken out an 85-year mortgage on. No power plant ever runs for 85 years ever, but they’re now going to collect every cent of profit that they were expecting on a 85-year mortgage which is absolutely atrocious.

Then the second thing that’s happening in this bill and in other bills — there’s one in Minnesota, for example, that’s under consideration — is that when they shut down the fossil fuel power plants in order to comply with the law, the utility now has the right of first refusal to own all of the replacement power. So whereas all of this excitement has been building in the climate movement among clean energy advocates for a couple of decades now around the opportunity to have diverse and distributed ownership of renewable energy resources, to have lots of rooftop solar and community-based solar and wind projects owned by farmers, what this bill essentially says is that’s all done. The utility monopoly we’ve had for 100 years that didn’t really make sense in an era where we don’t need a monopoly anymore is going to be cemented in law for another 30 years and throughout the entire transition to clean energy.

Chris Mitchell: Just to be clear, when you say replacement power, does that mean all new generation in its region or is that a term of art?
John Farrell: It would mean all of the power that you would need in order to replace what you are shutting down in order to comply with the law. So practically speaking given that energy electricity consumption is not rising significantly, it means all. There’s some caveats there about the fact that we are electrifying vehicles, we may start electrifying homes more, solar energy production may rise, our energy use may rise, but practically speaking, we’re giving the utility a huge, huge slice of the wealth that’s going to be created in transitioning to clean energy.
Stacy Mitchell: What do people say when you raise that argument? What are proponents who’ve been … Do they just say like “Renewable energy is so important that who cares that we’re turning over control?” What’s the response?
John Farrell: Well there’s two things here. One is that most people don’t realize this is happening. The utility’s already got a monopoly. For a lot of people, it’s not terribly controversial to consider that they should keep the monopoly. They’re not aware of the fact that it comes at a hefty price premium that New Mexico advocates estimate it could cost 50% more, for example, to have solar projects owned by the utility than by independent power producers.
Chris Mitchell: Well they do say it’s more expensive. So they’re just demonstrating that they’re correct.
John Farrell: Right. What we often here, unfortunately, is that the language of climate change and climate crisis is used against this notion that we need to fight back against utilities claiming all of the wealth that’s to be had from this and that climate activists are essentially saying “Well if this is the price we have to pay in order to lock in saving the planet, then it’s worth paying.” I think, unfortunately, what people don’t realize is we can do better. There are plenty of examples of that.
Chris Mitchell: Well let me push on that. What does it mean to do better? Aside from price, what’s the problem with the utility owning a bunch of solar panels and wind turbines?
John Farrell: There’s nothing inherently wrong with utility owning renewable energy, and in many states, they own a lot of it. That’s totally fine. The problem here is in precluding ownership by anybody else, that we’re essentially saying we’re not going to allow significant investments in community-based renewable energies where not just do we get a bunch of clean electricity, but I’m also reducing the energy bills of low-income customers or elderly folks or I’m reducing the energy bills of a city which is allowing us to lower taxes because we’re reducing the energy bills of those municipalities.

So there’s all these different ways in which clean energy can create jobs in particular places that we would get to choose if the utility is not the one owning it. So it’s really just about that core American value of choice and competition and markets as well as this opportunity to fundamentally change the fact that the people who have borne the greatest brunt of our energy system until now are those who have to live by the dirty power plants that the utility has owned and that the utility has generally not had to compensate for the health effects, for the environmental impacts, et cetera. What we’re saying unfortunately is rather than take an opportunity that we have to say to those folks “You have been trashed on for decades and we have a chance to fix that by allowing you a slice of this new clean energy economy, we’re just going to continue to dump on you by taking all of the wind and solar resources that are in your area and send all the profits to Wall Street.”

Stacy Mitchell: It’s also really striking that that control makes a difference. I mean when you’re looking at what we’ve seen about PG&E in California and the lack of maintenance that they’ve done that’s put the state at risk of fires and other hazards, I know in my state there’s a lot of concern about Central Maine Power not responding to outages very quickly and the consequences of that for people. I mean there’s a lot more at stake given the track record that these utilities have on those kinds of issues and also on stalling on renewables for as long as possible. I mean it just seems like they’ve lost their good will and to kind of trust them to own the system going forward strikes me as really risky.
John Farrell: Yeah, I think unfortunately what I would describe this largely is inertia, that people are used to the system the way it is, it’s challenging to imagine the system being different, and therefore even though we’re going through this remarkable transformation in terms of thinking about where our electricity is going to come from in the future and even though that is transformative in and off itself, I think people are not willing to see beyond the fact that this utility company is going to continue to own it. The opportunity is so big. What I want to highlight and not leave people with is this sort negative thing of “Look, the utility’s out to take it all again,” but in Virginia for example, out of Dominion Energy’s dominance, the last time there were legislative elections there, a whole caucus sprung up of legislators who committed to not taking money from the incumbent monopoly utility company so that they could focus on what is in the public interest. So we have an opportunity here. People are waking up to it.
Chris Mitchell: This is that moment in many shows in which you get an ad. Sometimes in our shows, we go on for a long time, but I’m going to keep it pretty short today, I think, or else I’ll reedit it later and you’ll never know. We want to get your feedback on how we’re doing so we created an email address, podcast@ilsr.org. If you have ideas for shows or if you think one of us should be kicked off and never return, send us a note at podcast@ilsr.org. We’ll listen to it. We’ll read it. We’ll take it seriously. We’ll debate it. We’ll improve our show hopefully.

You can also support our work with a donation. That’s essential to keeping us in good spirits and having good equipment to record podcasts and do research. So if you want to make a donation, you can go to ilsr.org/donate. We do thank everyone for supporting us. Lastly, be sure to leave a review. We haven’t had as many reviews lately as we’d like, and if you have a chance to leave a review on iTunes in particular, that’d be terrific. Now, we’re going to come back to the show, and we are going to jump into a story from Stacy that doesn’t deal with Amazon immediately. Then we’ll talk about Amazon afterwards.

I’m a person who usually carries cash around. In fact, I actually have the credit card that I use the most from my local bank. I’m very conscious of using that if I’m going to pay my credit card for a local merchant because of how the fees that the credit card companies charge can really harm local merchants’ profit margins, but I understand there’s a whole other issue with something called cashless retail. It seems to be springing up in Philadelphia if I’m right.

Stacy Mitchell: That’s right. Yeah. There are a growing number of chains and other businesses that have gone cashless. So you can’t actually pay in cash there; you have to use a credit or debit card. That’s become controversial in a number of places. So the state of New Jersey passed a law requiring all businesses to accept cash, and the city of Philadelphia did as well, a local ordinance. Now, there are a lot of other cities that are looking at similar legislation.

Most of the argument in favor of these policies has been focused on the fact that not everyone has credit cards, that there’s a large segment of the population that’s un-banked or under-banked and doesn’t have access to those forms of payment. That means there’s sort of increasingly these places that they are locked out of, but at ILSR, we have also begun to raise this other issue about cashless retail which is that it gives a handful of really large banks and the credit card companies, Visa and MasterCard, the ability to just skim a lot of money from the economy without providing much in return.

Chris Mitchell: I actually thought it was … I thought you were obligated as a merchant to take cash. I actually thought that was just part of doing business within the United States. I wasn’t alone in that belief. Several of our staff members were also surprised to learn about this.
Stacy Mitchell: Yeah, you’d sort of think “Well it’s legal tender. Can I use it anywhere?” But apparently that’s not the case. Massachusetts, I believe, has an old law on the books that does mandate that. So it may be true in some places, but by and large, it’s not true. We are seeing more businesses go cashless and indeed there’s some anticipation that this is a trend that could really take off quite rapidly partly because, especially among younger people, they already use cards a lot. There are companies like Amazon that are interested in building stores that are really cashier-less so there’s no one to take your cash anyway. So this trend really could explode, and it raises a lot of serious policy issues and in particular raises questions about “Well do we just allow these big banks to suck up essentially 2% or 3% of the entire consumer economy for doing nothing but transacting these card purchases?”
Chris Mitchell: Well I remember that there was a … There’s been a strategic effort by the card companies to make cash culturally unacceptable, commercials in which everyone’s sort of going smoothly through the lunch line and it’s going really fast and then someone’s trying to pay for cash and fumbling around and everything slows down and that’s why you should use cash. So I find it interesting that there’s a sort of cultural effort in that direction. I think one of the things that I’d heard you talk about was that there’s some merchants have moved in that direction to avoid having cash on premises. So that’s maybe one reason, I think probably a minority reason, but haven’t there also been credit card companies that have been sort of seeking out merchants to give them special deals to only deal with credit cards to really sort of supercharge this movement?
Stacy Mitchell: Yeah, I mean Visa has done this where they’ve given sort of grants or prizes to merchants worth thousands of dollars if they go cashless. So clearly, the card companies and the banks that are the primary that issue most of the cards have big stakes in this. I think some businesses decide that it’s more convenient not to deal with cash or that there are certain theft risks or whatever and those things may be legitimate, and the fact that people are un-banked I think really points to a deeper set of problems that we need to solve, that everyone needs to have access to the payment system in order to participate in the economy. So it’s not that those issues should necessarily drive this, although they’re really important, I think the question is, if this trend does continue, and in fact, it is effectively continuing even if businesses don’t go cashless just because more and more people are using cards for more transactions. So, this is a question even if you set aside the going completely cash free at some stores, is as more and more of the spending kind of runs through this part of the banking system, we’re letting essentially these monopoly banks kind of skim off important parts of the profit, and should we step in and cap those fees? That’s what Europe has done.
John Farrell: eah, I was gonna ask you about that, Stacy, because it seems you also have a sort of jurisdictional issue here. You have at the local level, an ability to make a statement about whether or not you can go cashless or not, but we have a bigger and broader problem, and also I guess I’m curious, at what level could you make a requirement about swipe fees? Because like you said, if banks are able to skim off the top here, for a transaction cost that probably is in the tenths of a percent of the cost as opposed to the two to three percent they charge, why don’t we just go ahead and say, “Sure, you can charge a swipe fee, but it has to be commensurate with the actual cost to deliver the service.”
Stacy Mitchell: I’m fairly certain that that kind of policy would have to be implemented at the federal level because these banks are operating across state lines, and the way that federal banking regulators have preempted state authority, I’m fairly certain that that would have to happen at the federal level, though I’m not 100% positive.

So at the moment, we have sort of cities stepping in because they recognize the needs of low income customers who don’t have credit cards, and are sort of in the trenches with this issue. And meanwhile, as I think we see with a lot of issues, we have this need at the federal level that’s going unaddressed, sort of forcing cities to scrambles in ways that kind of limit what their options are.

Chris Mitchell: I wanted to point out anytime that I can, when I have an opportunity to remind people about Mehrsa Baradaran and her book, How The Other Half Banks. Boy, it’s really fascinating how many people are unbanked. And I think it’s important to think about those folks and their access to the market economy. I also think it’s worth remembering that we have significant surveillance and privacy issues in the modern economy, and one of the nice things about cash is that it’s anonymous, and you don’t have people building profiles of you when you buy stuff in cash.

But that said, I think we’re done not talking about Amazon. And I’m curious-

Stacy Mitchell: You saw how I wove them in there, though.
Chris Mitchell: Oh yes, yes. We didn’t get too far away from Amazon, but Amazon does remain one of the big threats on the horizon, doing a lot of different things. And even today I was listening to a podcast from National Review, in which they were kind of belittling Amazon as a threat to the economy and how there’s so many grocery stores, and Kroger is doing better now because they’re having to respond to the threat.

So, I think there’s a lot of people who still need to learn more deeply about what’s going on here. I think, Stacy, you have a couple of interesting things that are illustrating some of the harms that we fear will get worse, and the nature of Amazon’s predatory tactics.

Stacy Mitchell: It’s interesting, one of the things that we’ve been monitoring is how much Amazon is lobbying and influencing government. And we saw this play out in the cashless ordinance in Philadelphia. Amazon lobbied quite heavily on that, and as it turns out, didn’t actually register its staff people as lobbyists, so now it’s in a bit of trouble over that. And the final ordinance as it was passed includes what appears to be a carve out for Amazon, so they may be able to open their cashless, cashierless ghost stores in Philadelphia and not have to comply with this ordinance that everybody else has to comply with.

So I mean, again, as we’ve talked about on this show, one of the big problems with Amazon and with monopoly in general is that these companies start to set the rules for us instead of the other way around, start to run government for their own ends.

I think the other thing that has been really striking in the news the last couple of weeks is sort of examples of how much Amazon sets the rules for the market, the quote, “market,” ’cause it’s really not a market anymore if a private actor decides who gets to play and who doesn’t and on what terms. So, one of the ways that this has shown up is Amazon recently did this big purge of companies off of its vendor seller system. So, companies that had been selling Amazon products, a lot of manufacturers and brands, suddenly overnight kind of got these letters that by the way we’re not reordering, and if you want to sell to us, you need to go move to this other platform. You need to use the third party seller platform, or you need to register for this other thing. Hugely disruptive to these businesses who rely on Amazon in many cases for more than half of their online sales because that’s how dominant the company is. In some cases, more, even.

And suddenly, they were completely scrambled and everything was thrown up in the air. And it’s sort of unclear exactly what Amazon’s motivations are in doing this or what the outcomes will be for different companies that are dependent on it. But just as an illustration of its power was pretty, pretty remarkable.

Chris Mitchell: I worked for a used book store previously, and they sell on Amazon, in part because they felt they had no other choice after Amazon bought the platforms that they used to use to sell books. And when talking to them, I just get a sense that they actually ran I believe three different marketplaces on Amazon, because at any given week, one of them would just be shut down arbitrarily.

And the way you’re describing this, it actually seems to me that one of the dangers here isn’t necessarily Amazon intentionally behaving in a predatory way, it’s more that the people who are making these decisions, they don’t really have much incentive to worry about the repercussions. And they might just be in a meeting and saying, “Oh, let’s try this thing out,” and not realizing that thousands of businesses have their bottom lines changed by that.

It’s almost like when you give a toddler the reins of power. I’m less interested in the motivations for what they do than the consequences that I’m deeply worried about.

Stacy Mitchell: Yeah, I mean, I think that’s right to a degree in the sense that it’s just problematic when one company has that kind of power and can either intentionally or inadvertently disrupt things for other players, and effectively through those choices pick winners and losers. I mean, you know, this is supposed to be … a market is supposed to be something that’s structured by democratic rules, like we set the terms in which markets happen, and then when you’re within those terms, you’re free to strike up deals with one another, but there’s sort of this larger set of rules.

And when you have a company that starts making those rules, you’re no longer really operating in a kind of democratic fashion, and that’s just fundamentally problematic. But I would say as a kind of long time Amazon watcher, a lot of these things do, as we watch them play out, are intentional. They do in effect build Amazon’s market power or give it more leverage over suppliers. Or there is a science behind what it is that they’re doing.

John Farrell: Stacy, so I was just curious if you could address very quickly Senator Blumenthal. U.S. Senator Blumenthal recently sent a letter to Amazon about one of the provisions in their contracts to sellers, and what were the implications of that?
Stacy Mitchell: Yeah, so Amazon has had this provision in its contract with the sellers that operate on its platform. It’s often referred to as a most favored nation contract, and it says you have to have the lowest prices on Amazon. You can’t go to another platform and have lower prices. We always have to at least match the lowest price that you’re selling your item out there for. And what that effectively means is that another … say you wanted to … say Etsy or another company wanted to come along and expand what they’re doing and create a platform that was competing with Amazon, they might do that by for example lowering the fees that they charge sellers to less than what Amazon charges, then enabling those sellers to offer their products at a lower price, and that might be a strategy for gaining customers and moving them from Amazon over.

But if Amazon has blocked that, you know, you essentially have Amazon saying, “We’re gonna keep raising our fees, and we’re gonna block you from taking advantage of lower priced platforms to offer customers a lower cost somewhere else.”

So, Senator Blumenthal raised a question about that in a letter, and ultimately Amazon has nixed the policy.

Chris Mitchell: It seems to me that one of the commonalities across all of our work at the Institute for Local Self Reliance is that as we shine a light on something that these powerful entities do not want to have it shown on, even if we can’t get a good rule, the mere act of shining the light on it can make it better.
Stacy Mitchell: Yeah, I think that’s right, and I think one of the things that needs to happen is that we need to sort of surface more of these ways that Amazon is using its market power to undermine competition and hopefully get more members of Congress raising these questions with antitrust authorities, you know, why aren’t you looking into this, this is what businesses in my district are experiencing. Those kinds of questions I think can both move the companies perhaps, but can also move the agencies and get better decisions about mergers, better rule making, to really rein these things in.
Chris Mitchell: So, a couple of quick recommendations that John and I have. Stacy’s been only working 24 hours a day, seven days a week. And Stacy also was preparing for a retreat. Stacy and John are the co-directors for the Institute for Local Self Reliance. And I have to say that the day that we took with all of our staff members, we have an incredible staff, and it’s really great. I’m just really proud to be here.

And so actually, in that vein, the recommendation I have comes from one of the best follows that I know on Twitter, which is a guy named John F. Farrell, who always seems to have just a few more followers than I do. John, you actually just tweeted out this story that I was just amazed by from Idaho Press. Boise has the largest geothermal system in the country, here’s how it works.

And it’s about this district heating system in Boise, and it’s fascinating. It dramatically lowers the cost of heating for buildings in the downtown, and the only thing I could think about as I was reading that was how I sometimes get a reaction from people, like cities building their own broadband networks? Cities can’t do important things, they can’t do complicated things. Cities are just incompetent. And this is just a reminder of all the things that cities do, often under the radar, that people don’t even appreciate, that work so well and are just kind of hidden from sight. So, we’ll have a link to this in the notes, but it’s also a reminder that cities actually do really great things, and they don’t often get appreciation for it.

John Farrell: I changed my recommendation idea while you were talking, Chris, but just wanted to say that I’m looking forward to reading Naomi Klein’s short book on Puerto Rico on the plane as I travel there for a conference, because her work previously on disaster capitalism highlights the tension between the big companies that so often try to create the rules for the market and the communities that are trying to do the best that they can. And so I think it will be a very relevant read for the discussion that I’m going to there for, looking at how you redesign the energy system in Puerto Rico to be more in service to its people.
Chris Mitchell: Thank you for joining us, Stacy and John. Thank you for letting me host one last time before people now can directly comment at how I’ll be in the background for future episodes.
Stacy Mitchell: Thanks, Chris. This has been great. Thanks for sharing the conversation.
John Farrell: Thanks, Chris. Good to talk to you, Stacy.
Lisa Gonzalez: Thank you for tuning in to this episode of Building Local Power. You can find links to what was discussed today by going to our website, ILSR.org, and clicking on the show page for this episode. That’s ILSR.org. While you’re there, you can sign up for one of our newsletters and connect with us on Facebook and Twitter.

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Hibba Meraay
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Hibba Meraay

Hibba Meraay manages communications for the Institute for Local Self-Reliance. She works closely with all of our initiatives to build community power and combat monopolies. A native New Englander, Hibba is a graduate of Boston University. Contact Hibba for media inquiries.