What happens if the American Innovation and Choice Online Act becomes law? Highlights from an expert panel discussion

What happens if the American Innovation and Choice Online Act becomes law? Highlights from an expert panel discussion

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.

Clockwise from top left: Mark Jamison, Jeffrey Eisenach, Jennifer Huddleston, and Michael Mandel at the February 22, 2022 AEI web event, “What happens if the American Innovation and Choice Online Act becomes law?”

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.

Courtesy: (AEI.org)

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