‘Buy land – they aren’t making it any more,’ quipped Mark Twain. It’s a maxim that would certainly serve you well in a game of Monopoly, the bestselling board game that has taught generations of children to buy up property, stack it with hotels, and charge fellow players sky-high rents for the privilege of accidentally landing there.
The game’s little-known inventor, Elizabeth Magie, would no doubt have made herself go directly to jail if she’d lived to know just how influential today’s twisted version of her game has turned out to be. Why? Because it encourages its players to celebrate exactly the opposite values to those she intended to champion.
Born in 1866, Magie was an outspoken rebel against the norms and politics of her times. She was unmarried into her 40s, independent and proud of it, and made her point with a publicity stunt. Taking out a newspaper advertisement, she offered herself as a ‘young woman American slave’ for sale to the highest bidder. Her aim, she told shocked readers, was to highlight the subordinate position of women in society. ‘We are not machines,’ she said. ‘Girls have minds, desires, hopes and ambition.’
In addition to confronting gender politics, Magie decided to take on the capitalist system of property ownership – this time not through a publicity stunt but in the form of a board game. The inspiration began with a book that her father, the anti-monopolist politician James Magie, had handed to her. In the pages of Henry George’s classic, Progressand Poverty (1879), she encountered his conviction that ‘the equal right of all men to use the land is as clear as their equal right to breathe the air – it is a right proclaimed by the fact of their existence’.
Travelling around America in the 1870s, George had witnessed persistent destitution amid growing wealth, and he believed it was largely the inequity of land ownership that bound these two forces – poverty and progress – together. So instead of following Twain by encouraging his fellow citizens to buy land, he called on the state to tax it. On what grounds? Because much of land’s value comes not from what is built on the plot but from nature’s gift of water or minerals that might lie beneath its surface, or from the communally created value of its surroundings: nearby roads and railways; a thriving economy, a safe neighbourhood; good local schools and hospitals. And he argued that the tax receipts should be invested on behalf of all.
Determined to prove the merit of George’s proposal, Magie invented and in 1904 patented what she called the Landlord’s Game. Laid out on the board as a circuit (which was a novelty at the time), it was populated with streets and landmarks for sale. The key innovation of her game, however, lay in the two sets of rules that she wrote for playing it.
Under the ‘Prosperity’ set of rules, every player gained each time someone acquired a new property (designed to reflect George’s policy of taxing the value of land), and the game was won (by all!) when the player who had started out with the least money had doubled it. Under the ‘Monopolist’ set of rules, in contrast, players got ahead by acquiring properties and collecting rent from all those who were unfortunate enough to land there – and whoever managed to bankrupt the rest emerged as the sole winner (sound a little familiar?).
The purpose of the dual sets of rules, said Magie, was for players to experience a ‘practical demonstration of the present system of land grabbing with all its usual outcomes and consequences’ and hence to understand how different approaches to property ownership can lead to vastly different social outcomes. ‘It might well have been called “The Game of Life”,’ remarked Magie, ‘as it contains all the elements of success and failure in the real world, and the object is the same as the human race in general seems to have, ie, the accumulation of wealth.’
The game was soon a hit among Left-wing intellectuals, on college campuses including the Wharton School, Harvard and Columbia, and also among Quaker communities, some of which modified the rules and redrew the board with street names from Atlantic City. Among the players of this Quaker adaptation was an unemployed man called Charles Darrow, who later sold such a modified version to the games company Parker Brothers as his own.
Once the game’s true origins came to light, Parker Brothers bought up Magie’s patent, but then re-launched the board game simply as Monopoly, and provided the eager public with just one set of rules: those that celebrate the triumph of one over all. Worse, they marketed it along with the claim that the game’s inventor was Darrow, who they said had dreamed it up in the 1930s, sold it to Parker Brothers, and become a millionaire. It was a rags-to-riches fabrication that ironically exemplified Monopoly’s implicit values: chase wealth and crush your opponents if you want to come out on top.
So next time someone invites you to join a game of Monopoly, here’s a thought. As you set out piles for the Chance and Community Chest cards, establish a third pile for Land-Value Tax, to which every property owner must contribute each time they charge rent to a fellow player. How high should that land tax be? And how should the resulting tax receipts be distributed? Such questions will no doubt lead to fiery debate around the Monopoly board – but then that is exactly what Magie had always hoped for.
Kate Raworth
This article was originally published at Aeon and has been republished under Creative Commons.
Groups against a two-tiered Internet are rallying to beat back FCC Commissioner Ajit Pai’s plan to end Net Neutrality, which will affect users’ ability to access thousands of websites. They are mobilizing with support from activists for a two-day “Break The Internet” effort to temporarily shut down websites and flood Congress with phone calls and messages. They hope to convince Congress not to allow the FCC to vote for the internet to be handed over to a handful of telecoms.
Up until this time, the Internet–the modern backbone of nearly all U.S. communications–has been free and open to anyone with a connection. This principle of open and free communications access has been guided by Title II of the Telecommunications Act of 1934. But the FCC plans to vote on Thursday, December 14, to remove the language from the rule which would in effect deregulate it and allow some Internet Service Providers to take full control of access to it. Activists say this will have a chilling effect on business websites that rely on the Internet for their transactions because it will force them to go through the big telecoms. Verizon, AT&T, Comcast, T-Mobile and Sprint would be able to create access criteria that charge different prices for faster service, limit access to sites that compete with their services or throttle data to any website at their discretion.
Groups plan to stage an occupation by camping out on the sidewalk at the FCC on December 13, the night before the vote. They also plan a massive protest there on the morning of December 13. There are other unspecified direct protest actions being planned for December 14, but activists have not released any details.
The FCC is located in a sleepy part of Washington, DC, buried behind layers on nondescript government buildings. Typically there are no protests there. But in 2014-15, this same issue was fought, and pro-Net Neutrality campaigns supported by hundreds of thousands of people pressured the Obama administration to keep the Internet free from telecom control–and won.
The concept of Net Neutrality was a wonky topic back in 2014 with few understanding what it was and what was at stake. In general, everyone took open Internet access for granted. Internet freedom groups and activists had to not only educate the public on what Net Neutrality was, they also had to get the public involved. With a few lucky political breaks and a helping hand by comedian John Oliver, they succeeded and the FCC eventually voted 3-2 to keep the Internet free and open by not changing Title II.
But in 2016, the tables turned with the election of Trump and his administration’s self-professed agenda to deregulate much of government oversight in every agency it has control of, and the FCC was no exception.
A protest for Net Neutrality outside FCC headquarters in May 2015. Photo by John Zangas
The days could be numbered for Internet freedom if Internet groups and activists can’t pull in enough bipartisan political support to save it. But they are not going down without a fight. At this point, they think they can still win against Ajit Pai and the FCC.
Pai previously worked as a lawyer for Verizon, so few were surprised when he came out against the Title II regulations. “Ajit Pai brings his Verizon lawyer viewpoint to the FCC, and when he leaves the FCC, Verizon, Comcast and other ISP’s will be his close colleagues and his retirement plan,” said Kevin Zeese of Popular Resistance.
Republicans in Congress may pay a heavy price for not supporting Net Neutrality. “The Republicans will regret that Pai took this action, as it will be a political issue that will be very costly politically,” said Zeese. Over 700,000 phone calls have been logged at the FCC over the past few months against Ajit Pai’s plan to end Internet Freedom.
If the fight to keep the Internet free and open fails, it is certain to end up in federal court. There were a number of controversial issues that plagued the FCC public comments process regarding a review of Title II during 2017. One such issue involved alleged robo calls using stolen emails to end Net Neutrality. Another issue involved the FCC resistance in providing transparency to the cause of its public comment servers going down when the comment period was at a peak in public responses.
Here's what you can do to keep the Internet open and free:
Contact your Member of Congress by writing or calling and ask them to vote for Internet Freedom (Net Neutrality) and keep the Internet free and open to everyone.
Participate in a twitter storm “Break The Internet” which will be held two days prior to the vote, starting on December 12.
One faint sound you can hear emanating from the imploding Trump White House is the whispering of senior adviser Steve Bannon in the ear of his embattled boss: Go left, old man, go left.
This advice, first reported by the leftist scribes of the Intercept and the venture capital mavens at Axios, is to raise taxes on the rich. The Intercept also reports that Bannon advocates regulating the behemoths of the new internet economy, like Facebook and Google, as public utilities.
This provocative, perhaps even progressive messaging has been drowned out by the tsunami of criticism that hit the White House over the last week about the possible firing of special counsel Robert Mueller; Trump's rant to the Boy Scouts; the Pentagon's refusal to make policy via Twitter; and the foul-mouthed (and now-departed) Anthony Scaramucci.
But as the latest waves of indignation subside, Bannon’s ideas are sure to return.
The well-sourced exclusives by Intercept reporter Ryan Grim reveal how Bannon, the former Goldman Sachs executive turned right-wing media strategist, thinks Trump should respond to his deepening predicament: by attacking the Republican establishment with populist policy proposals to energize Trump’s working-class supporters, while seeking to peel off congressional Democrats who favor redistributionist government.
According to the Intercept, Bannon is pushing for tax reform to include a new 44 percent top marginal tax rate, hitting people who earn more than $5 million a year, with the revenue paying for tax cuts for everybody who makes less. Axios reported that Bannon favors a marginal tax rate "beginning with a 4." The highest marginal tax rate is now 39.6 percent. If enacted in law, the proposal would result in the highest marginal tax rates on wealthy Americans since 1986.
Whether Trump actually favors the idea is anybody's guess. The president signaled possible support for Bannon’s proposal in an interview with the Wall Street Journal. “If there’s upward revision,” he said, “it’s going to be on high-income people."
Within the day, a Trump aide shot down the idea on Fox News.
Could It Work?
In theory, Bannon’s strategy has a certain political logic.
Democrats have long argued that the wealthiest taxpayers could pay more. Even Hillary Clinton proposed raising taxes on the wealthy in the 2016 campaign, calling for a 4 percent "fair share surcharge" on those making more than $5 million a year. And the left is taking renewed interest in antitrust laws, viewing the new monopolies as a threat to broad-based prosperity.
Because the Intercept story did not flesh out any details of Bannon's thinking, it is impossible to know if Bannon favors new regulations that would protect competing firms and the public interest, or whether he is merely advancing a lobbying scheme of telecommunication firms that object to the internet giants’ support for “net neutrality.”
The proposition seems to be that Trump could reset his presidency and revive his legislative agenda with a fresh new approach to taxes and regulation that could win support from populist Republicans and progressive Democrats.
Typically for Bannon, the strategy is more clever than realistic, raising certain obvious questions like: Is any Republican constituency in favor of more progressive taxation?
Breitbart News coverage has not been hostile, but otherwise, the Republican base seems distinctly unenthusiastic. Bannon is seeking to "punish the wealthy,” says Susan Wright at Red State. The conservative NTK network likened Bannon’s proposal to Clinton’s fair-share surcharge, a killer talking point that anti-tax Tea Party conservatives are sure to echo.
"Bannon’s proposal will surely inspire some chatter as Washington gets ready to debate tax reform," said NTK, which was created by Republican opposition research firm America Rising. "It’s unclear, though, if conservatives on Capitol Hill will be on board with a tax hike similar to one proposed by Hillary Clinton in 2016."
"Unclear" is Washington's way of saying, "virtually impossible."
The Reality
In practice, Bannon and Trump have demonstrated zero ability to guide any kind of legislation through a friendly GOP Congress, much less elicit and maintain support from hostile Democrats.
Remember Bannon’s trillion-dollar infrastructure jobs program? In November, he predicted it would be the "foundation of a new political movement." Some Democrats were actually worried about the idea. In power, Bannon delivered a proverbial nothingburger.
When Trump finally got around to scheduling “infrastructure week” five months into his presidency, he proposed the privatization of the Federal Aviation Administration, a warmed-over Republican proposal that wouldn’t create any jobs and has less appeal every day. (Last week Captain Chesley Sullenberger, the commercial airline pilot whose calm heroics over Manhattan have come to personify aviation safety, announced his opposition to Trump’s plan.)
The conservative think tanks and lobbyists of Washington are well equipped to stifle populist economic policies that they oppose. When Trump backed an import tax to stimulate domestic manufacturing and create American jobs, the combined forces of the Koch brothers and Walmart killed the idea. Trump hasn’t mentioned it since.
From a conservative point of view, Bannon’s proposals are not a plausible gambit to wrongfoot Democrats; they are a unwelcome nuisance in an already troubled process. When pressed to comment by the Daily Caller, Paul Ryan made clear he doesn’t care for Bannon’s input.
“The last thing I’m going to do is negotiate tax reform in public," Ryan said. "... Our tax writers are the ones that are going to be writing this bill. We’re working to get a consensus as a framework, so that our tax writers, Ways and Means, and Senate Finance can actually go write this legislation.”
In other words, Ryan is negotiating privately with the White House with the goal of making sure Republican lawmakers, and not Bannon, determine the substance of the administration’s tax bill. Ryan’s reference to “our tax writers” was a telling indicator that he doesn't think Bannon is on the GOP team.
With White House chief of staff Reince Priebus gone, the growing fear among congressional Republicans, according to Politico’s Tim Alberta, “is that Trump will turn against the party, waging rhetorical warfare against a straw-man GOP whom he blames for the legislative failures and swamp-stained inertia that has bedeviled his young presidency.”
Bannon’s populist daydream is less a policy proposal than a proposal for rhetorical warfare. It is not a plan to redistribute income but a weapon to bludgeon globalists. It's not a sign of populism, but the sound of the Republican civil war now underway.
Planned obsolescence has long been a consumer expense and irritation. Now brand-name profiteers are pushing a new abuse: Repair prevention. This treacherous corporate scheme does more than gouge buyers on the original purchase. Using both legal ruses and digital lockdowns, major manufacturers are quietly attempting to outlaw the natural instinct of us humanoids to fiddle with and improve the material things we own in order to charge us to fix it. Indeed, the absurdity and arrogance of their overreach is even more basic: They're out to corporatize the very idea of "owning."
Chances are you've bought an Apple iPad, Chevy Malibu, Amazon Kindle, Samsung TV, GE Frigidaire or some other brand-name consumer product equipped with a dazzling array of digital doodads. And in doing so, you unwittingly consented to the corporation's repair-prevention "gotcha" tucked into its license agreement. But in addition to deceiving and/or intimidating buyers into believing they're legally required to trek to the high-dollar Corporate Tech Genius Store for routine maintenance, powerhouse corporate marketers are increasingly forcing customers to bring all their repair business to them.
Such an attack on individual and independent fixers is unprecedented, with cabals in industry after industry asserting their ownership control far after sales. This explosive, defining issue of the people's democratic authority over corporate behavior has received little media coverage, is not on the radar of either major political party, and it is not widely understood -- even by people who rely on the repair economy. But that lack of public awareness is about to change. Consumer advocates, small businesses, farm groups, computer activists and environmentalists are coming together in a unified, bipartisan, full-throated rebellion: The "Right-to-Repair" Movement.
This challenge to the collective might of many of the richest corporations on the globe has a solid chance of succeeding because in addition to anger, this corporate overreach stirs a visceral reaction: The profiteers are not merely messing with our "stuff," but with us—our sense of ourselves as self-reliant, in-charge people.
This year, the grassroots groups got lawmakers in 12 state legislatures to introduce and begin pushing various versions of "Fair Repair" bills. This show of strength has startled the likes of Apple, Deere and IBM, flushing their policies from the shadows and leading the companies to mount public, lobbying campaigns to protect their greed.
The manufacturers' influence peddlers have killed this year's right-to-repair bills in Minnesota and Nebraska, and punted Tennessee's into the 2018 legislative session. But efforts are still alive in Illinois, Iowa, Kansas, Massachusetts, Missouri, New York, North Carolina and Wyoming. Each attempt is a terrific organizing tool to expand the coalition, raise public awareness, extend the effort into other states, and come back stronger next year.
Populist mavericks are now joyously disobeying the corporate order, teaching the rest of us how to become hands-on disrupters of the repair monopoly. One helpful group is iFixit, a jack-of-all trades wiki that demystifies technology and repair tasks. iFixit posts repair manuals for every Apple product made in the last decade. It also publishes step-by-step repair guides for thousands of products, from trucks to toasters; invites skilled people to help write open-source repair manuals; shows novices hacks like using a guitar pick as a cheap, effective tool for fixing electronics; hooks people up with local "bike kitchens" and repair collectives; and promotes the fix-it-yourself culture through such means as repair fairs, with kids joining in the fun of taking apart broken items and making them work again.
People have been fixing stuff ever since stuff was invented. Tinkering is a natural expression of the human spirit, and it is folly (not to mention insulting) for corporate executives to think that even their enormous monopoly power will be enough to crush that spirit. As awareness of this attempt by manufacturers to steal such a basic right spreads across grassroots America, so will people's understanding of the rapacious nature of the unrestrained corporate beast—and that knowledge will fuel the people's determination to rein the beast in. The corporatists' narcissistic arrogance could explode in their faces.
The United States stands out among wealthy countries in that we give drug companies patent monopolies on drugs that are essential for people’s health or lives and then allow them to charge whatever they want. Every other wealthy country has some system of price controls or negotiated prices where the government limits the extent to which drug companies can exploit the monopoly it has given them. The result is that we pay roughly twice as much for our drugs as the average for other wealthy countries. This additional cost is not associated with better care; we are just paying more for the same drugs.
This is not an issue about the free market. The free market doesn’t have patent monopolies. The monopoly power provided by a patent is a government policy to promote innovation. There are problems with patent monopolies in many areas, but nowhere is the issue worse than with prescription drugs.
Patent protected drugs are often essential for people’s health or even their lives. Allowing a drug company to have a monopoly where it can charge whatever it can force the individual, or more typically the insurer or the government, to pay makes little sense. This is like negotiating the pay of firefighters at the point where they show up at your burning house with your family inside. This would give us much worse fire service and many very wealthy firefighters.
A monopoly that allows drug companies to sell their drugs at prices that can be hundreds of times the free market price has all the problems economics predicts when governments interfere with the market. Drug companies routinely mislead doctors and the public about the safety and effectiveness of their drugs to increase sales. The cost in terms of bad health outcomes and avoidable deaths runs into the tens of billions of dollars every year.
Drug companies also spend tens of millions on campaign contributions and lobbying to get even longer and stronger patent protection. The pharmaceutical industry is one of the main forces behind the Trans-Pacific Partnership, and its demands for stronger patent protections are one of the main obstacles to reaching an agreement with the other countries.
We don’t need patent monopolies to support research. We already spend more than $30 billion a year financing research through the National Institutes of Health. Everyone, including the drug companies, agrees that this money is very productive. We could double or triple this spending and replace the patent supported research done by the drug companies. With the research costs paid upfront, most drugs would be available for the same price as a bottle of generic aspirin.
While the measures proposed by Hillary Clinton and earlier Bernie Sanders don’t go this far, they are a big step in the right direction.
The EU is expected to formally charge Google Wednesday with abusing its dominant market position in Europe, taking on the US Internet giant in one of its most high-profile anti-trust cases. Sources close to the case told AFP that EU Competition Commissioner Margrethe Vestager will submit the proposal to a European Commission meeting, seeking approval to go ahead after three failed attempts to reach a settlement with Google dating back to 2010.
European Commission spokesman Margaritas Schinas said Vestager would brief the press at midday.
Vestager leaves later Wednesday for the United States where the European Union probe into Google has become politically sensitive as the 28-nation bloc negotiates a massive trade liberalisation accord with Washington.
US critics say the EU is being selective in targeting Google and significantly, the US Free Trade Commission dropped its own probe of the company, saying it had done enough to meet complaints. If found at fault under EU anti-trust rules, a company faces a fine of up to 10 percent of its annual sales—in Google's case, $66 billion in 2014.
EU Digital Commissioner Guenther Oettinger said at the weekend the EU needed "to bring or force Internet platforms and search engines to follow our rules in Europe," adding that the decision would be made "in coming days."
If approved, Vestager would announce a formal "statement of objections" against Google, laying out the EU's case against the company and seeking a response with a view to forcing changes in the way it conducts its business.
Google accounts for about 90 percent of the EU search market.
Rivals' complaints
The Commission, which polices EU competition policy, launched an initial investigation into Google in 2010 following complaints from rivals such as Microsoft and Trip Advisor that it favoured its own companies when customers ran searches.
Vestager's predecessor, Joaquin Almunia, made three attempts to resolve the dispute but in each case intense pressure by national governments, rivals and privacy advocates scuppered the effort.
The European Commission launched its initial investigation into Google in 2010
Google head Eric Schmidt met Vestager in March after she had called for a review of the investigation when she took office late last year.
The commissioner "wants to have a fair balance of views amongst the stakeholders and on that basis she will ensure she has all the facts up to date before engaging in any further steps," a spokesman said at the time.
In an apparent effort to meet some of the EU's concerns, Google announced a major reorganisation of its European operations in February which sources said was meant to simplify the business so it could respond better to customers and policymakers.
With the issue turning into a lightning rod for critics in Europe on a wide range of issues from the EU-US trade talks to privacy, the European Parliament voted overwhelmingly in November that search engines be separated from their commercial services businesses.
In a statement ahead of the vote, the US mission to the EU noted "noted with concern" the parliament's resolution and urged that the case against Google "not be politicized."
The US media has been breathlessly reporting the spin about Uber, the new $40 billion dollar car service. This episode by Laura Flanders explores the other side, with Bhairavi Desai, co-founder and Director of the Taxi Workers Alliance.
Even by the anything-goes ethical code of the corporate jungle, Amazon.com’s alpha male, Jeff Bezos, is considered a ruthless predator by businesses that deal with him. As overlord of Amazon, by far the largest online marketer in the world (with more sales than the next nine US online retailers combined), Bezos has the monopoly power to stalk, weaken, and even kill off retail competitors—going after such giants as Barnes & Noble and Walmart and draining the lifeblood from hundreds of smaller Main Street shops. He also goes for the throats of both large and small businesses that supply the millions of products his online behemoth sells. They’re lured into Amazon by its unparalleled database of some 200 million customers, but once in, they face unrelenting pressure to lower what they charge Amazon for their products, compelled by the company to give it much better deals than other retailers can extract.
Lest you think predator is too harsh a term, consider the metaphor Bezos himself chose when explaining how to get small book publishers to cough up deep discounts as the price for getting their titles listed on the Amazon website. As related by Businessweek reporter Brad Stone, Bezos
 instructed his negotiators to stalk them “the way a cheetah would pursue a sickly gazelle.” Bezos’ PR machine tried to claim this sneering comment was just a little “Jeff joke,” but they couldn’t laugh it off, for a unit dubbed the “Gazelle Project” had
 actually been set up inside Amazon.
This top-level team focused on doing 
exactly what Bezos 
instructed: Pursue vulnerable small 
publishers and squeeze their wholesale
 prices to Amazon down to the point of no profit, thus allowing the online retailer to underprice every other book peddler. When Stone exposed Gazelle last year in his book, The Everything Store, the project was suddenly rebranded with a bloodless name—“Small Publisher Negotiation Program”—but its mission remains the same.
Today, Amazon sells a stunning 40 percent of all new books, up from 12 percent five years ago. It is even more dominant in the digital book market, which is fast catching up to the sales level of physical books and is widely perceived as the future of publishing. Electronic book sales were non-existent just seven years ago; today about a third of all books sold are e-books, and Amazon sells two-thirds of those. Of course, Amazon also owns Kindle, the largest-selling device for reading digital books.
With his market clout, deep-pocket financing, and ferocious 
price-cutting, Bezos has forced hundreds of America’s independ
ent bookstores to close and has humbled the superstore
 book chains that once preyed on the independents and dominated the market. Borders, the second-largest chain,
 succumbed to bankruptcy in 2011. Now Barnes & Noble, the largest brick-and-mortar bookstore, is stumbling. It has lost millions of dollars, closed dozens of stores, shrunk most others, and suffered the embarrassment of its own board chairman frantically dumping big chunks of Barnes & Noble stock.
Bezos’ online empire not only stands alone as the paramount bookseller, but is also the dominant price setter, the arbiter of which titles get the best access (or none) to the biggest number of buyers, the most powerful reviewer of books, the publisher of its own line of books, the keeper of an in-house stable of writers—and even the sponsor of a major book prize.
He achieved this the old-fashioned way: Brute force. While it’s true that Amazon is innovative, efficient, and focused on customer satisfaction, such factors alone did not elevate Amazon to its commanding level of market control. To reach that pinnacle, Bezos followed the path mapped by Rockefeller and other 19th-century robber barons: (1) ruthlessly exploit a vast and vulnerable low-wage workforce; (2) extract billions of dollars in government subsidies; and (3) wield every anti-competitive weapon you can find or invent to get what you want from other businesses.
What’s the matter with Main Street?
Through doing all of the above, Bezos has applied his cheetah business model to nearly everything retail. Amazon’s massive book dominion is now dwarfed by its annexation of dozens of other markets -- book sales now make up a mere seven percent of Amazon’s total business. Amazon has already captured more than a third of all online sales with a website that’s a phantasmagoric mall of unimaginable size, containing what amounts to hundreds of virtual superstores.
In the process, and with the same deeply discounted prices they used to conquer the book business, Amazon has poached millions of customers from neighborhood shops and suburban malls. The chase for cheap has been great for Amazon, but it is proving intolerably expensive for your and my hometowns. Our local businesses lose customers and have to close, local workers lose jobs, and local economies lose millions of consumer dollars that Amazon siphons into its faraway coffers. What makes that even more intolerable is that much of Amazon’s competitive advantage has been ill gotten, obtained by dirty deeds.
1. The Amazon subsidy
Bezos would not have grabbed such market dominance if government had not been subsidizing his sales with special tax breaks for 20 years. In all but a handful of states, merchants are obliged by law to collect city and state sales taxes from everyone who buys stuff from them. But Amazon, as an online merchant, has avoided adding these taxes to the price that its customers pay.
Bezos has emphatically insisted from the start that Amazon’s only facility is its headquarters in Washington state, claiming therefore that Amazon’s sales in the other 49 states are exempt from sales taxes -- even though he racks up billions of dollars in sales in those states and even though Amazon has massive warehouses in about half of them. With legalistic hocus-pocus, Bezos asserts that the warehouses are independent contractors, not part of Amazon.
In Texas, where I live, the sales tax rate is 8.15 percent, so by claiming to be exempt, Amazon gets a price subsidy of more than eight cents on every dollar of its sales—that’s more than the entire profit margin of most independent shops. The tax subsidy ranges from about four to more than 10 percent across the country, handing Bezos an advantage of several billion dollars a year that has underwritten his fast and vast expansion.
Amazon’s tax ploy has been key to its ability to undercut the prices of local retailers, forcing many of them out of business. And the tax dodge has also shortchanged our communities by eliminating billions in tax revenues that cities and states desperately need for schools, infrastructure, parks, and other public services.
During the past couple of years, 21 states have stopped playing the fool, finally requiring Amazon to collect sales taxes like its competitors do. In a study released earlier this year, the National Bureau of Economic Research analyzed retail data of five of these states and found that Amazon’s sales plummeted by nearly 10 percent after they started charging sales tax. It was saving the cost of sales tax—not any Bezos “magic”—that kept many customers buying from his online mall. Of course, that’s cold comfort to the retailers driven out of business during two decades of Amazon’s government-backed assault.
“But wait,” as they say on late-night TV infomercials, “there’s more!” Amazon’s amazing slice-and-dice tax machine not only avoids paying state taxes, but it also extracts tax money from states to expand its warehouse network. This supremely rich company says that states wanting the (low-wage, no-benefit, temporary, and dehumanizing) jobs that come with its warehouses must show Amazon the money, i.e., offer “incentive grants” or tax breaks.
In short, flimflammery and government favoritism help Amazon overwhelm honest competition and extend its monopoly reach.
2. The Amazon crush
Having overweening market power means never having to say you’re sorry -- even to your owners. Beyond taxpayer subsidies, Bezos can afford to be a voracious predator because his Wall Street investors have allowed him to keep operating without returning a profit. On paper, his revenue-generating machine has lost billions of dollars, yet his major investors, enamored with Amazon’s takeover of one consumer market after another, haven’t pulled the plug. Amazon uses their capital to buy its competitors and/or to market its own version of competitors’ products, which it then sells at a loss in order to squeeze hapless competitors out of business. That’s the very definition of predatory pricing.
Brad Stone’s book gives a chilling example of one such predation. Amazon has its own corporate espionage team called Competitive Intelligence that tracks rivals. In 2009, CIAmazon spotted a fast-rising online seller of one particular baby product: Diapers.com. A Bezos lieutenant was dispatched to inform the diaper honchos that the cheetah was going into that business, so they should just sell their firm to it. No thanks, replied the upstart.
Amazon promptly responded to the rebuff by marketing another line of diapers—with a price discount of 30 percent. It kept dropping the price even lower (plus free shipping) when the smaller firm tried to fight back. Diapers.com’s investors grew antsy, and in September 2010, the two founders of the company met with Bezos himself and surrendered. The final blow was their discovery that Bezos, in his campaign to crush them and control the market of online diaper sales, was on track to lose $100 million in just three months.
3. Showrooming
Such ruthlessness is standard operating procedure at Amazon, which exerts it against any gazelle it chooses to eliminate. This likely includes some of your town’s Main Street stores. Small retailers everywhere are experiencing an ugly practice dubbed “showrooming.”
John Crandall, owner of Old Town Bike Shop in Colorado Springs, has seen a surge of shoppers who come in, check out the bikes he sells, ask a lot of questions, try out some bikes—and leave without buying anything. Then, some days later, they’ll show up at the store with the parts for a new bike and ask Old Town to assemble it for them! These shoppers have used their smartphones in Crandall’s store to scan the barcode of a product they like and then gone online to buy it from Amazon at a discounted price—lower than Crandall’s wholesale price.
Amazon’s new smartphone, called Fire (apparently meant in the sense of “shoot to kill”), is specifically designed to make showrooming fast and easy. Amazon has even offered $5 rebates to shoppers who scan items at stores, then buy them from the online brute. This is corporate murder. After 38 years in business, Old Town is hanging on, but it’s endangered. Crandall employs 11 people, pays rent and local taxes, supports all sorts of community events, and is fully involved in Colorado Springs—a place Bezos couldn’t care less about.
4. Monopoly, for real
Producers need the marketplace, the marketplace needs products. You’d think this would be a felicitous, symbiotic relationship, but when the market grows into a virtual monopoly, the monopolist can turn on suppliers with a vengeance. Amazon has done precisely that to book publishers. While Amazon’s fight with international publishing giant Hachette has been well publicized, it's medium-sized and small publishers who are especially vulnerable. They don’t have splashy marketing budgets, so they’re largely dependent on access to the buyers coming to Amazon’s online market.
“I offered them a 30 percent discount,” the head of a small academic publishing house told the New York Times this year. “They demanded 40,” she said. After she acquiesced to that, the cheetah soon came back, demanding 45. “Where do I find that five percent?” she asks. “Amazon may be able to operate at a loss, but I’m not in a position to do that.” She can’t leave, but staying could crush her company: “I wake up every single day knowing Amazon might make new, impossible demands.”
It’s Time to Tell Amazon: No More
Rather than examine the far-reaching social destructiveness in Amazon’s business model, the Powers That Be blithely hail Bezos as an exemplary corporate leader and point to his company as a model for the New Economy. They smile cluelessly when he says it’s not Amazon killing off local businesses and turning work into
 a low-wage, roboticized nightmare— rather it’s “the future” that is producing these changes.
Bezos has gotten away with this hornswoggle up to now by endlessly reciting his mantra that EVERYTHING Amazon does is to benefit consumers by relentlessly lowering prices. But I don’t want a price that’s stained with gross worker exploitation, the crushing of local enterprise, and the creation of a corporate oligarch. It’s up to us to reject this way of business.
Stacy Mitchell, an intrepid researcher with the Institute for Local Self-Reliance, has been studying Amazon’s impact and rightly says that to avoid a sterile Amazonian future, we must force “a public conversation about their power.” Unlike Walmart, Amazon is largely invisible to most people. As Mitchell puts it: “All you really see is the website and then the FedEx guy is there.”
More people need to know what’s going on between that jazzy website and the FedEx guy, for Amazon is insidious, far more dangerous and destructive to our culture’s essential values than Walmart ever dreamed of being. Remember: price is not value. Exchanging value -- and our society’s values -- for Amazon’s low prices is a raw deal.
Something wicked has crept into American society, something that many hoped was left back in the dustbins of the 19th century. We’re talking about monopoly, the ogre that screams capitalism run amok. Monopolies, or near-monopolies, as are most common in America, rise up through a lack of competition. When one or a handful of players dominate the marketplace, get ready for higher prices, low-quality products, and crap wages for you and me.
Just a few decades ago, this destructive activity would have been illegal. But advocates for small government and faulty market theories successfully drove a complete unraveling of the regulations that used to keep these monsters at bay. The result has been disastrous. Monopolies are back, and they are bigger and nastier than ever.
You can hardly open a newspaper without reading about a monopolist making a power grab. Some monopolistic industries mess around with your daily life in an obvious way, like Big Telecom bringing you the low-grade misery of shoddy service and defective products. Others fly a bit lower under the radar, like the credit reporting monopolist Fair Isaac Corp, which can blast your financial existence in a nanosecond.
Monopolists buy politicians a dime a dozen, and they write laws to preserve their power. Yet until recently, few journalists had given this subject an in-depth look.
Enter Barry Lynn. A senior fellow at the New America Foundation, where he directs the Markets, Enterprise, and Resiliency Initiative, Lynn's influential writings on the extreme consolidation of power in the U.S. are a roadmap to a new and virulent strain of capitalism. His most recent book, Cornered: The New Monopoly Capitalism and the Economics of Destruction is a chilling look at growing consolidation in nearly every industry in America.
I spoke to Lynn about how monopolists are increasingly controlling our lives, how to identify them, and how we can fight back.
Lynn Parramore: What are some of the telltale signs of monopolies?
Barry Lynn: Well, monopoly doesn’t mean that a company controls 100 percent of the marketplace. What monopoly means is that a company has sufficient control of the market to shape the outcomes of that market to its own advantage — to shape pricing, to determine who is making deals of with whom.
So what we have in America is that there are actually very few marketplaces in which you have a single company that has complete, 100 percent control. But what you do have is many marketplaces, thousands of markets, in which you have a dominant player that really controls commerce in that activity.
A really good sign, the thing you’ll actually tend to see in a newspaper or on TV is the merger, a big deal, two companies coming together. And most of the time, the press will cover it as, well, here’s an opportunity to invest. Or here’s a company that you should be looking at in the future. But what you’re actually seeing in many cases is the creation of power or the increasing power of a particular corporation over a particular marketplace.
LP: For the average person, how do monopolies affect our lives, prevent us from getting and doing the things we need?
BL: Monopolies affect us in innumerable ways. The most obvious way, the way that people always talked about, is that monopolies usually have the power to raise the price in some activity, for some good, for some service. We see that, say, with Comcast and cable services. But monopolists also have the capacity to reduce our liberties.
As workers, one of the things you prize is an open market where you can sell your work to many potential buyers, many potential employers. If there’s a lot of consolidation nationally in your industry, or even your town, you may find yourself with really only one or two buyers for your work. That means that you have less ability to negotiate higher wages. It also means that you have less real freedom: you can’t just pick up and leave if you get a bad boss.
A third way that monopolies affect us is in terms of inequality. You know, there’s this huge discussion in the last few months about surging inequality in our society. Back in the origins of anti-monopoly law in America, the people who wrote those laws, what they aimed at was inequality because they saw monopolists as using their power to grab all of the opportunity and all of the wealth in a particular human activity, and not leave anything over for other people.
A generation ago, tens of thousands of families in America were in the business of selling groceries. Now, there are just a few companies that sell groceries in America. Like Walmart, for instance. So inequality, inequality of wealth, inequality of political power, these are other problems that derive from monopolies.
LP: Does the illusion of choice when we shop for a service or product blind us to the reality of monopolies?
BL: Absolutely. There’s a classic case with eyeglasses. You decide you’re going to go shopping for a new pair of eyeglasses, and you go into Lenscrafters. You say, I don’t like the prices here. So you go down the road to a place called Pearl Vision, you say, no, no I’m going to go to a cheaper place. So you go to Target Optical, or maybe Sears Optical, or maybe you go to Macy’s Optical. You go to Sunglass Hut. What you don’t realize, because you’re going to all these different branded stores, is that all these stores are all owned by Luxottica, an Italian eyewear Goliath.
Then you say, OK, you’ve finally learned that all these outlets are controlled by one company. So then you go to an independent boutique around the corner. Well, the fact is that a whole bunch of the brands that are on the shelves at that are store are manufactured by Luxottica, because Luxottica has become the dominant manufacturer as well as the dominant retailer. That means that they have the power, to a large degree, to control what the independent boutique does as well.
So wherever you go, you think there’s all this competition, you see all these different brands of glasses, all these different brands of retailers. And yet in the midst of the system is a single giant company manipulating everything and everyone to its own advantage.
LP: Doesn’t the presence of monopolies stand as a rebuke to the fantasy of a free market?
BL: Absolutely. Though it depends on what people believe by free market. I usually speak about open markets. What I want to see, when I look at a marketplace is: Is that market open to a newcomer?
If I want to go into the business of farming in this community, can I become an independent farmer? If I want to go into the grocery business, can I do that, is it open? If I want to bring a new variety of paint to the market, do I have a place to sell my new variety of paint? If markets are open, that’s a good thing.
What we see is that the people who have actually preached the doctrine of free markets, this last generation, when you go back and look at it historically, is that the idea of free markets really comes out of the Chicago School, the libertarian wing of academia. They were preaching free markets, but when they would preach free markets, they also preached the elimination of all regulation. But when you eliminate all regulation you end up with no markets at all, because you end up with monopolists, and monopolists are the antithesis of an open market.
LP: Libertarians like to talk about freedom. If monopolies are the antithesis of freedom, could libertarians and progressives to get together to fight them?
BL: I see the true populists on the left and the true populists on the right. I believe that those groups can absolutely come together and fight monopolists and restore democracy within our economy and within our political system. Because what they actually believe in is a distribution of power foremost. They believe in open markets, foremost. And what they’re aiming at is the distribution of power and the open and fair markets. And if you establish that, then you have real democracy. You have real liberty.
The problem with most of the libertarians—and certainly with the libertarians who are official libertarians, meaning they work with the Libertarian Party, they work with libertarian operations like the Cato Institute—is that they say we need to get rid of all regulation. We need to get rid of all government.
The true populists — what they understood is that, well, you might not want to use government to fix all your ills. You might not want to use government to fix even most of your ills. But what you do need is, you need to have government to keep yourself free. To keep markets open, to prevent the consolidation of power over markets by monopolists. If you don’t have government, then every single system will be taken over by a private monopolist, which really means private government.
LP: What’s your specific strategy for confronting this problem and what can citizens do?
BL: The easiest way to confront the problem is to do what folks did back in the 19th century and do what folks did in the 20th century, and that is to use our government to fight monopolies and to make open and competitive markets. We have a regime that was in place in the 20th century, or the heart of the 20th century, and we can now go and study, understand and update it for the 21st century, for the information era. So we have all the tools that we need, but what we don’t have is the memory of how to use those tools.
America was founded by people who were fighting monopoly. America was founded by people who were fighting for liberty. The principles of the founding are all we need to establish a society in the 21st century that protects the freedom, the sovereignty, the liberty, the dignity of every citizen in our society. But if we don’t apply those principles, we are lost. The strategy is that you have to go out and demand it.
Right now, with the fight that’s going on between Amazon and the book industry — the publishers, the book editors, book writers, authors — it’s a huge fight. It’s on the front page of the New York Times. Writers in America are just in the process of realizing that they have two choices. They can either sit back and do nothing and allow this one company to manipulate the entire marketplace, to capture complete control of this entire marketplace for books, to govern this marketplace for books in a way that serves its interest alone. Or they organize and they can fight. They are choosing to organize and fight. They took a full-page ad out in the NYT over the weekend: 909 authors came together.
That’s what you do. If you don’t like it, organize, you put some the money into the pot, and you put some time in the pot. You stop listening to the dumbass libertarian propaganda. And you go out and you fight for your government, and when you’ve got your hands on that government, you use it to break up power.
The purpose of government, the reason we founded government, is to break up dangerous concentrations of power at home and abroad. Concentrations of power that threaten our liberty as individuals at home and abroad. That is the foremost purpose of government.
Should a company be able to patent a breast cancer gene? What about a species of soybean? How about a tool for basic scientific research? Or even a patent for acquiring patents (see: Halliburton)?
Intellectual property rights are supposed to help inventors bring good things to life, but there’s increasing concern that they may be keeping us from getting the things we need.
In this wild and contested jungle of the law, which concerns things like patents and copyrights, questions about the implications of allowing limited monopolies on ideas are making headlines. Do they stifle innovation? Can they cause the public more harm than good? Trillions of dollars are at stake. Companies known as “patent trolls” are gobbling up patents, then going on lawsuit sprees and extracting fees against infringement. Corporations are using intellectual property law to squash competitors and block our access to things as vital as lifesaving drugs, to place restrictions on things as intimate as parts of the human body. Third World countries are kept from accessing essential public goods related to everything from food security to education.
Surely, the producers of new ideas should be able to profit from their creations. But furious debates over what should be protected and who should profit are calling attention to the many things that are going wrong in this area. For example, a recent front-page story in the New York Times detailed how diabetics are being held hostage in America by companies that follow Apple’s playbook to lock patients into buying expensive, patented products that quickly become obsolete. If you don’t buy the product, you don’t miss getting the new iPhone. You may die.
Intellectual property rights have come under intense scrutiny, a trend on display at a recent conference in Toronto on innovation and society, "Human After All", sponsored by the Institute for New Economist Thinking (INET) and the Centre for International Governance Innovation (CIGI), where I moderated a panel on the topic. Let’s take a look at some of the burning questions and issues in play in this debate.
1. Why do we have intellectual property rights?
The notion of giving inventors exclusive rights for a limited time goes back to the medieval era. The first patent in America was granted in 1641 to one Samuel Winslow, who came up with a new way to make salt. Patents could cover both tangible objects and also intangible stuff like methods and ideas. The U.S. Constitution has something to say about patents, namely this:
“The Congress shall have power ... To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…”
Notice the reasoning: We the People, through our representatives, grant intellectual property rights so that we can move knowledge forward — not enrich a few people at the expense of everyone else.
The question of whether ideas themselves should be protected by patents troubled some of the Founders, who saw the potential for abuse. In an 1813 letter, Thomas Jefferson observed that unlike objects, ideas inherently want to be shared: “He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.”
Intellectual property rights have expanded quite a bit since Jefferson's day. The Industrial Revolution saw brutal battles over inventions associated with things like the steam engine where the public good was often sacrificed to individual and corporate profits. In the early nineteen twenties, US patent law was revised to favor corporate interests. In 1930, the U.S. began to allow patents for living organisms with the Plant Patent Act. The Motion Picture Association of America, as it emerged, took a hard line on intellectual property and fought for broad protections. As new industries like biotechnology and nanotechnology popped up, companies and individuals sought additional protections for technology. The growth of the Internet set off a yet another wave of intellectual property rights related to patents and copyrights.
Today, what we have is a giant mess, a system plagued by bad actors and bad faith that has often become a means for corporations to smash competition and block human progress rather than advance knowledge. More time and energy is spent by companies coming up with new ways to sue each other than coming up with new ideas (think: Apple v. Samsung). The public purse is picked as taxpayer-funded investments in research are appropriated by profit-making companies. Our patent system fuels inequality by socializing the risk associated with research and discoveries while privatizing the gains. Meanwhile lawyers, as you might expect, are making out like bandits.
2. Patents have exploded since the 1980s.
If you talk to some of the bright-eyed folks in Silicon Valley, America is on an innovation roll. Since the 1980s, the number of patents sought has soared, and the pace is accelerating. Over the last two decades, businesses have increasingly used patents to sue or threaten to sue other companies to get them to pay licensing fees. 2012 was quite a year for patents: the number of court cases increased 29 percent in that year alone, according to PricewaterhouseCoopers. Costs associated with the litigation come to billions per year.
Michele Boldrin and David Levine, authors of Against Intellectual Monopoly, have noted that in a single four-year period, from 1997 to 2001, patent applications leapt by 50 percent. Meanwhile, the number of lawyers working on intellectual property in America went from 5,500 to nearly 22,000.
But are we really getting so much more creative with all these patents? Boldrin and Levine don’t think so. It appears that the number of patents has grown not because there is more innovation, but simply because the number of things that could be patented grew.
As economists William Lazonick and Oner Tulum have pointed out, changes in the law have allowed certain parties, like venture capitalists, to grow rich on patents at the expense of the public. The Bayh-Dole Act of 1980 made it easier for companies, particularly those in biotech, to profit from the results of government-backed research done in universities. Seen an ad for Botox lately? Lazonick and Tulum point out that Botox is a drug whose medical applications were developed in taxpayer-funded universities in the 1960s. In 1983, something known as the Orphan Drug Act allowed companies like Allergan, which got hold of Botox, to commercialize certain kinds of drugs that were developed for use in a small population when additional properties of the drugs were discovered. In 2013, Botox generated nearly $2 billion in revenues for Allergan, of which 54 percent were for therapeutic uses that your doctor prescribes and 46 percent were for the cosmetic uses that the company advertises.
3. Intellectual property rights can block innovation.
One of the biggest arguments in favor of robust intellectual property rights is that they are supposed to drive innovation, giving big rewards to those who come up with new ideas. But a growing list of experts, such as Boldrin and Levine, counter that this is nonsense. “Intellectual monopoly is not a cause of innovation,” they write, “but it is rather an unwelcome consequence of it.” They argue that in young, dynamic industries, intellectual monopoly doesn’t play a major role — it’s only when the ideas run out that companies become obsessed with having the government protect the old ways of doing business.
In other words, an explosion in patents could be a sign that a country is getting less innovative, not more.
Boldrin and Levine provide numerous examples in their book of how patents shut down innovation, from a steam engine patent that may have delayed the Industrial Revolution by a couple of decades to the Wright brothers American patent on the airplane which forced innovative work in the industry to move to France.
More recently, Heidi Williams examined work done in the area of human genome sequencing by the Human Genome Project (a public entity) and also by Celera (a private company). Williams concluded that Celera’s intellectual property rights claims resulted in a persistent 20-30 percent reduction in subsequent scientific research and product development.
Economist Petra Moser states that if you look at history, intellectual property laws have always had the potential to squelch progress:
"Overall, the weight of the existing historical evidence suggests that patent policies, which grant strong intellectual property rights to early generations of inventors, may discourage innovation. On the contrary, policies that encourage the diffusion of ideas and modify patent laws to facilitate entry and encourage competition may be an effective mechanism to encourage innovation.”
4. The public is getting harmed and cheated.
It’s increasingly clear that taxpayers are getting ripped off, particularly in areas like in pharmaceuticals. Through entities like the National Institutes of Health, the federal government pays for basic research that gets plundered by corporations that make tremendous profits (and then, of course, lobby to have their taxes reduced). Companies like Apple expect the U.S. government to protect their intellectual property rights all over the world, yet they assiduously avoid paying taxes. Considering the fact that iPhones, for example, would not exist without taxpayer-funded research in everything from touchscreen technology to GPS, this is especially maddening.
Battles between companies and sovereign countries are heating up. Eli Lilly and the Canadian government are gearing up for a showdown since the Canadians took away the company’s rights to two popular new drugs, one for attention-deficit disorder and another for psychotic illness. Despite the fact that countries are supposed to have the right to set their own domestic laws for rules of medicine patents, big corporations are increasingly able to get around them and effectively challenge national policy. Free trade pacts have become a prime vehicle for this. The much-debated Trans-Pacific Partnership, a free-trade pact being negotiated between North American and Asian countries and backed by President Obama, has provoked outrage because it would enhance drug company profits by protecting patents on drugs and medical procedures while blocking less expensive generic drugs. The fear is that powerful corporations will blow right past the laws of individual countries and use patents in ways that pose serious human rights questions.
5. Things don’t have to be this way.
While we certainly want to promote new ideas and to reward creativity, many feel that intellectual property laws aren’t the best way to do this. As Levine has written:
“It is a long and dangerous jump from the assertion that innovators deserve compensation for their efforts to the conclusion that patents and copyrights, that is monopoly, are the best or the only way of providing that reward.”
Several of the economists I spoke to at the INET/CIGI conference, such as Italian economist Giovanni Dosi and Nobel laureate Joseph Stiglitz, have suggested other ways of rewarding inventors, such as prizes. Stiglitz has pointed out that prizes, as opposed to patents, could help reward research that might not be commercially profitable, like developing a cure for AIDs, or other urgent global problems.
Clearly the notion of public benefit has to be vigorously defended in discussions of intellectual property rights. There are many ways the public could get a better deal. The government, for one, could claim rights to revenues for ideas and inventions that were funded with taxpayer money. Or it could force companies like Apple that benefit from such research to pay their share of taxes. So far, the government has not exercised its muscle because there is an imbalance of power between public and private sector.
We need to recognize that science and technology grow by accretion, each new creator building on the works of those who came before. Overprotection blocks exactly what it’s supposed to enhance: ideas that help us live better. The intellectual property system needs to be reevaluated so that social and economic progress aren't hampered by laws that only reward the few, and the public good becomes a top priority.
The setting was ornate, the subject esoteric, but the implications huge.
The crowd that filed last month into the wood-paneled room 226 in the Dirksen Senate Office Building included lawmakers, lobbyists, company executives, and a few mystery guests — a roster that reflected the enormity of the issue at hand: nothing less than control of the growing wireless market and the hundreds of billions of dollars that go with it.
Verizon Communications Inc. and T-Mobile USA Inc. were out in force, as were some of the most powerful lobbyists in Washington, D.C. Along with those household names was the little-known but quietly influential Jonathan Spalter.
The chairman of Mobile Future, a Washington, D.C.-based nonprofit group, sat at the witness table along with the big wireless carriers and well-known consumer advocates to tell senators how the government should auction valuable airwaves that the telecommunications companies say they need to keep up with the exploding use of smartphones and tablet computers.
Spalter told the senators that the best way to ensure a successful auction — one that would best serve customers and promote innovative technologies — is to allow all wireless companies to bid without restrictions on as many frequencies as they want.
What Spalter didn’t reveal is that Mobile Future, which describes itself as “a coalition of cutting-edge technology and communications companies and a diverse group of non-profit organizations,” is funded in part by wireless giants AT&T Inc. and Verizon, which are also advocating for an auction free of limits. The group also didn’t detail that relationship when it submitted three research papers to the Federal Communications Commission arguing against restricting how much spectrum a company can obtain in an auction.
And it didn’t disclose the fact that data from a research paper it used to create a graphic arguing against limits was commissioned by AT&T and filed with the FCC, which is writing rules for the auction. Mobile Future does list AT&T and Verizon as among its 82 members on its website.
Sally Aman, principal of Aman & Associates, the public relations firm hired by Mobile Future, said the committee “is and was fully aware of Mobile Future's membership.”
But the relationship wasn’t clear to almost anyone watching the proceedings.
Orchestration of influence
Mobile Future is just one thread in the massive influence web being deployed by AT&T and Verizon as they fight proposals advocated by their smaller competitors and the Justice Department to limit how much of the new wireless frequencies they’ll be allowed to bid on at the auction that’s scheduled for next year.
The spectrum that’s up for sale is highly coveted because it allows transmissions to travel long distances and penetrate buildings. Good spectrum is crucial for wireless companies to attract customers by delivering an ever-increasing amount of information to smartphones and computer tablets.
The competition for control of the airwaves has set off an intense lobbying fight that rivals some of the largest battles over telecommunications policies of the past. The four biggest carriers together spent $37.3 million in 2013 trying to influence lawmakers and the FCC on a host of policy issues ranging from taxes to cyber security as well as spectrum — and the auction is still more than a year away.
But the carriers led by AT&T and Verizon likely have spent at least twice as much more on behind-the-scenes influence campaigns — hiring Ivy-league academics, giving cash to think tanks, associations and universities, and employing public relations firms — all part of a synchronized effort to sway the FCC to establish rules that favor them, said James Thurber, a professor at American University who has been studying lobbying for 30 years.
“This includes all the advertising, white papers, surveys, grass-roots and top-roots activities going on,” Thurber said. “Lobbying isn’t just what the federal registered lobbyists do. It’s an orchestration of a variety of techniques and influence.”
Battling AT&T and Verizon are Sprint Corp. and T-Mobile, the third- and fourth-largest carriers whose networks and customer bases are dwarfed by their larger rivals. The two have put together their own influence campaigns, hiring teams of paid academics and building connections with consumer groups and associations. But Sprint and T-Mobile are at a disadvantage against the deeper pockets and vast network of political ties of AT&T and Verizon, according to those who track Washington lobbying efforts.
At stake is no less than who may ultimately control the public’s wireless access to the Internet, on which all kinds of data — from medical records and bank transactions to Amazon purchases and movie downloads — travel from providers to smartphones and tablets.
The sale of the newly available airwaves also will determine if the wireless market becomes one ruled by two companies or if a recent burst of competition initiated by T-Mobile will continue, said Harold Feld, a senior vice president at Public Knowledge, a consumer advocacy group in Washington that wants to limit how much spectrum each carrier can purchase in the upcoming auction.
“For wireless carriers, the stakes are enormously high,” Feld said. If the smaller companies are shut out of the auction, “it’s hard to imagine they can overcome that and compete with AT&T and Verizon over time.”
‘Stupid, arrogant, broken’
Three years ago the Justice Department blocked AT&T from buying T-Mobile, arguing “consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers.”
The government was soon proven right.
John Legere (pronounced Ledger), the trash-talking chief executive officer who took over T-Mobile in September 2012, has cut prices, eliminated two-year contracts and roaming charges, and offered to pay early termination fees for customers who switch to T-Mobile.
Wearing his iconic hot-pink T-Mobile T-shirt and black leather jacket, the maverick CEO declared his industry “stupid, arrogant, broken” in a Jan. 9 interview with Yahoo Tech at the Consumer Electronics Show in Las Vegas, and said he doesn’t much care how his competitors respond to his changes.
“I don’t give a s---,” Legere said, the expletive bleeped by Yahoo. “Ultimately, I’m deploying a set of capabilities or a way that the marketplace should behave on behalf of consumers.”
But respond they have. All three of his larger rivals — Verizon, AT&T, and Sprint — have cut prices, offered rebates and instituted less restrictive plans.
“I don’t think the people at the Department of Justice are at all surprised at the new competitive options that have emerged in the marketplace,” said Gene Kimmelman, who worked in the anti-trust division when it blocked AT&T’s purchase of T-Mobile and is now president of Public Knowledge. “This is what they hoped would occur and had strong reasons to believe could occur.”
The economic benefits to consumers may be short lived, however. To remain competitive, smaller wireless carriers such as T-Mobile will need to win a significant chunk of the newly available spectrum, or they may never be able to compete with AT&T and Verizon, which as of August 2012 controlled a combined 74 percent of the prime spectrum according to statistics released by the FCC. If left unfettered, the two giants are in a position to buy much of what’s left.
“Depending on the outcomes of the spectrum auctions, it could get a whole lot worse in terms of a handful of companies being able to tilt the field in their favor,” said Matthew Hindman, a professor at George Washington University, who researches Internet politics.
Overcrowded airwaves
Spectrum is the life blood for wireless carriers as Americans ditch their desktop computers for mobile devices.
The share of people in the United States who own a smartphone — a mobile computer that can both make calls and access the Internet — increased from 35 percent in May 2011 to 58 percent in January, according to a survey by the Pew Internet and American Life Project. The percentage of adults 18 years old and older who own a tablet computer jumped from 8 percent to 42 percent during the same period, Pew reported.
Wireless gadgets are quickly becoming the devices Americans use to run their everyday lives, from making purchases, managing finances, working, studying, listening to music or watching movies. The amount of data downloaded from the Internet using a wireless device will, for the first time, surpass the amount of online information flowing through wired connections in 2016, according to an annual report issued by Cisco Corp.
By 2017, residents in North America will download and send 2.1 petabytes of data a month, equivalent to 468,000 DVDs, according to Cisco. And wearable computers and sensors that can track and store information about an individual’s health, monitor a building’s security, measure pollutants, track a car’s performance, regulate a home’s energy consumption or perform a multitude of as-yet-unimagined tasks are expected to increase into the billions of connections by 2018, Cisco reported.
All that data will ride on radio frequencies. The growth has caused the airwaves to become overcrowded, slowing data transmissions.
“It is unlikely that wireless carriers will be able to accommodate this surging demand without additional spectrum,” the White House Council of Economic Advisers reported in 2012. “Other approaches to expanding the capacity of wireless networks … will likely be insufficient to allow capacity to keep up with demand. In short, the projected growth in data traffic can be achieved only by making more spectrum available for wireless use.”
The airwaves to be auctioned next year are some of the most valuable that will ever, in the foreseeable future, be available to wireless providers. Most of the spectrum targeted for sale is in the 600 megahertz band of frequencies — what wireless carriers call “beachfront property.”
The frequencies are currently occupied by television broadcasters. The FCC will ask them to give up their airwaves voluntarily and if they don’t, some may be moved to another part of the spectrum. The FCC plans to share the proceeds of the auction with those television stations that choose to sell their licenses.
The 600 megahertz band is the kind of airwaves that wireless companies want and need. It travels farther than frequencies above 1,000 megahertz, can penetrate buildings, navigate hilly terrain and more easily go through vegetation, all of which makes it less likely to lose a connection compared with those traveling on higher bands. It’s also cheaper to operate because it requires fewer towers.
As of August 2012, Verizon and AT&T together owned 74 percent of the low-band airwaves, according to calculations using the FCC’s most recent annual report on the competitiveness of the mobile wireless market. Sprint controlled 12 percent, and T-Mobile owned just 0.2 percent.
Most of T-Mobile’s and Sprint’s frequencies are in the higher bands. AT&T and Verizon argue that the high-band spectrum is equally good because it can carry more data, a characteristic that is desirable in urban areas where demand for wireless data is greatest.
Corporate accountants, however, put a higher value on the lower frequencies. Verizon says in its company filings that its frequencies are worth $75.7 billion, second only to the combined value of all of its plants, properties and equipment.
AT&T reports its licenses are worth $56.4 billion. Sprint owns more spectrum than any carrier but it is almost all above 1,000 megahertz. The company priced its spectrum at $41.8 billion. T-Mobile, which has about half the spectrum Verizon has, reported its wireless licenses are worth $18.1 billion.
Verizon and AT&T have used their low-band spectrum to build networks that cover much of the United States, allowing them to attract more customers. Verizon has about 119 million subscriptions, or about 35 percent of all U.S. wireless subscribers, and AT&T has 32 percent, according to the latest report by Strategy Analytics, a technology consulting firm.
Sprint and T-Mobile, whose networks are spotty by comparison, trail a distant third and fourth with 16 percent and 13 percent of the market, respectively, according to the report.
Competition or revenue?
When Congress ordered the FCC in 2012 to hold the spectrum auction, the goals were to increase the frequencies available to wireless carriers, raise money to build a nationwide emergency radio network and pay down the national debt.
The agency now is writing the auction rules to balance the need to raise money with the desire to maintain competition.
Verizon and AT&T argue that capping what they can buy will lower the price paid for the spectrum, cutting the revenue to the government, or worse, cause the auction to fail altogether.
Sprint and T-Mobile argue caps will allow them and other carriers to obtain low-band frequencies needed to compete against their two bigger rivals. The competition will lower prices and encourage the carriers to develop advanced technologies to decrease costs and improve services.
They also argue limits will encourage more bidders, because companies will believe they have a chance of submitting winning bids if AT&T and Verizon cannot bid in every market. More bidders, they argue, means more revenue for the government.
The Justice Department agrees with Sprint and T-Mobile.
In a filing with the FCC in April that drew sharp criticism from supporters of an open auction, the department’s antitrust division argued “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers.”
Lobbying war
Those opposing arguments are at the center of the lobbying war.
AT&T and Verizon operate some of the most powerful influence operations in Washington.
Source: Center for Responsive Politics
Last year AT&T doled out $15.9 million for lobbying on a range of issues, according to the Center for Responsive Politics, which tracks lobbying spending. AT&T spent the 11th largest amount of all companies that year, while Verizon ranked 18th.
T-Mobile has increased its lobbying 74 percent in the past three years since its purchase by AT&T was blocked, but at $5.2 million it remains far behind AT&T and Verizon. Sprint spent even less, $2.8 million in 2013.
The spending pays for lobbyists to visit members of Congress, or to urge them to call or write the agency. Sen. Chuck Schumer, D-N.Y., who sits on the Judiciary Committee, sent a letter Nov. 20 to FCC Chairman Tom Wheeler to urge Wheeler not to institute spectrum limits.
Schumer wrote that the caps “would simply … reduce the amount of spectrum offered for auction as well as the revenue that would be generated in return” as broadcasters would choose not to put up their frequencies for sale for fear that they wouldn’t be able to get the high price that the big carriers could offer — an argument found in FCC filings submitted by AT&T, Verizon and their hired economists.
AT&T’s and Verizon’s political action committees gave Schumer a combined $18,000 between 2009 and 2013, compared with $10,000 from Sprint and T-Mobile PACs during the same period, according to CRP.
Six Republican House lawmakers — including Fred Upton, R-Mich., chairman of the Energy and Commerce Committee, which oversees the FCC, and Greg Walden, R-Ore., chairman of the committee’s communications and technology subcommittee — wrote FCC commissioners in April in response to the Justice Department’s filing, arguing that spectrum caps “will reduce the potential revenues from the auction and possibly cause the auction to fail.”
The six authors, who also included committee members Marsha Blackburn from Tennessee, Ed Whitfield from Kentucky, Billy Long from Missouri, and Robert Latta from Ohio, received among the largest campaign contributions in Congress from AT&T’s and Verizon’s PACs for the 2012 elections — a total of $107,000 from both carriers, according to CRP.
T-Mobile’s and Sprint’s PACs gave the group as a whole about half that much, a total of $42,000, according to the center.
Spokesman for Latta and Whitfield said AT&T’s and Verizon’s campaign donations didn’t influence the representatives’ positions on spectrum limits. The other members didn’t reply to requests for comment.
“AT&T and Verizon have put on a full-scale lobbying campaign and they’re spreading money all over town and writing op-eds,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation, which supports limits. “Each side is trying to pressure the FCC, sometimes with public letters, and sometimes with research, and equally often it’s with private phone calls.”
The spending also pays for lobbyists to visit the FCC, where they meet with the staff writing the auction rules and with commissioners who will ultimately vote on them.
Between October 2012, when the FCC issued its notice to develop rules for the incentive auctions, and Jan. 30, when the FCC held a public meeting to discuss its progress, the agency received more than 400 filings that include comments, papers, presentations and information about visits, Gary Epstein, head of the commission task force writing the auction rules, said at the Jan. 30 meeting.
The outpouring ranks the incentive auction among the most active issues at the FCC in years, said a senior FCC administrator. “It’s a lot,” the administrator said. “A whole lot.”
T-Mobile, which views the auction as a make-or-break event for the company, has been a fixture at the agency.
From October 2012 through March 13, lobbyists and executives for the company visited the FCC 36 times, and submitted 20 comments, presentations, letters and research papers for a total of 56 filings, the most of any organization or company, according to data compiled by the Center for Public Integrity.
One of the biggest complaints T-Mobile gets from customers is the inability to get access deep inside buildings, which can be alleviated with low-band spectrum, said Tim O’Regan, a spokesman for T-Mobile. “Lack of low-band spectrum is the biggest challenge T-Mobile faces,” he said. “It’s critical to the future of our network and critical for the future of the company.”
AT&T and Verizon visited the FCC 15 times each during the same period, according to the Center’s analysis, ranking the carriers as the fifth most active. Sprint met with commissioners and agency staff 11 times during the same period, which ranked it tied at 11th.
It’s not the number of FCC filings “that matters most, but rather the quality and depth of a stakeholder’s conversation and advocacy with FCC staff,” said John Taylor, a Sprint spokesman.
The Expanding Opportunities for Broadcasters Coalition, a group of more than 70 television stations that support the auction, had the second most meetings with the FCC, and the National Association of Broadcasters, which may lose members if stations choose to sell their frequencies, was the third-most active group. Other organizations that have frequented the FCC’s offices in southwest D.C. the most have been the Competitive Carriers Association, a group that includes as members Sprint and T-Mobile and supports spectrum limits, and Dish Network Corp., which is considering launching its own nationwide wireless network.
Buying academic research
But tracking traditional lobbying doesn’t tell half the story of the spectrum influence game.
Wireless carriers have hired economists from some of the most prestigious universities to conduct research to support specific positions and attend FCC meetings where they can explain arcane auction theories and rebut other economists’ papers filed by their rivals.
“With this [spectrum auction], the number of factors that go into what is right and wrong is very complicated and subject to debate,” Public Knowledge’s Feld said, “so this has been an extraordinary boon to academic economists. If you do spectrum auction research, you are making a lot of money now.”
AT&T has assembled the largest team of consultants and economists, most from top universities including Yale, Columbia, and the University of Pennsylvania.
One of the key studies the company has cited during its meetings with the FCC, according to the center’s research, was conducted by Philip Haile, an economics professor at Yale University, with co-authors Maya Meidan, an economist at the consulting firm Compass Lexecon LLC, and Jonathan Orszag, also at Compass Lexecon, a former member of President Bill Clinton’s National Economic Council.
The authors conclude the government would lose up to $13.4 billion if the FCC institutes the mildest limitations and twice that if tougher restrictions are followed. In a footnote on the front page of the study, the authors disclose that the study “was supported by funding from AT&T.”
T-Mobile has the second-largest team, with Greg Rosston, deputy director of Stanford University’s Institute for Economic Policy Research and a former deputy chief economist at the FCC, figuring prominently. Rosston and another Stanford economist proposed a bidding process in which spectrum limits are sequentially eased if not enough revenue is raised under the caps. T-Mobile also paid Jonathan Baker, an economist at American University, who argued spectrum limits can increase auction revenue.
“We have retained a number of experts … to help us respond and provide expert guidance on complex issues,” said T-Mobile’s O’Regan. He declined to disclose how much T-Mobile paid the economists, saying the compensation was “consistent with what gets charged in the market and the field” for such research.
Enjoying financial support
Verizon also has paid a former FCC economist on its team, Leslie Marx, who researches auction theory at Duke University’s Fuqua School of Business. Marx concluded in her research submitted to the FCC that an auction with no limits increases revenue and the amount of spectrum applied for mobile use.
AT&T and Verizon didn’t reply to repeated requests to comment on its spending on spectrum lobbying and support of research and associations.
Sometimes relationships are less obvious. Economists at Georgetown University’s Center for Business and Public Policy Research — including a former undersecretary of commerce in the Clinton administration and a former director of the Congressional Budget Office, Congress’ economic research arm — published a study in April 2013 that found spectrum limits would result in “a less robust and competitive auction and reduce auction revenues by as much as 40 percent” and slow the transition to faster networks, all arguments that are similar to AT&T’s and Verizon’s.
The center states on its website that it “has enjoyed the financial support” of AT&T and the Verizon Foundation and more than a dozen other organizations. John Mayo, an economics professor and executive director of the center, said the financial support didn’t lead to the study or influence its conclusions. He declined to say how much AT&T and Verizon gave to the center.
Spectrum caps “is an important topic that the Center’s experts in telecommunications policy proposed would be ripe for research, ultimately leading to our study,” Mayo said in an email. “The research methods, analysis, and findings in all Center studies are designed and determined solely by the authors and are released subject to internal quality review with no external input.”
The authors state on the front page of the study that their research “is not dependent upon any of the policy positions of current, previous or prospective Center supporters.”
“You can have a peer-reviewed journal article with good data by distinguished scholars that comes to a conclusion that goes to a corporate point of view, and that’s fine,” American University’s Thurber said. “But we should clearly know that it does [support a corporate view], and then we can make a judgment about whether there is a conflict of interest.”
Sprint has been much less active. The company filed a study by two European economists who found “restrictions on the amount of sub-1 GHz spectrum operators can acquire at auction have not resulted in any reduction in auction revenue in the myriad European nations that have adopted them.”
Sprint and T-Mobile also have funded groups supporting spectrum limits. The two carriers and Dish each gave between $10,000 and $24,999 in 2013 to the New America Foundation, which has met with the FCC to argue for caps on frequencies, according to the New America Foundation website.
“As always we are aligned with the other consumer groups and we are all in a coalition with the smaller carriers,” the foundations’ Calabrese wrote in an email. The financial support from T-Mobile, Sprint and Dish, however, was “not for any research papers or anything in particular.”
Free Press, a consumer advocacy and journalism organization in Washington that supports restricting spectrum purchases and has testified before Congress, doesn’t accept money from corporations and has funded no independent research, according to the group’s website. Public Knowledge has received donations from all four carriers for an awards program, and Sprint gave money to the group to analyze FCC spectrum data to develop Public Knowledge’s position on limits, according to Feld.
But consumer groups are outgunned by AT&T and Verizon. With their big spending on traditional lobbying and funding of associations, think tanks and universities, the corporations play the influence game better than anyone else, said Kevin Werbach, who studies Internet and communications policy at the University of Pennsylvania’s Wharton School of Business.
“This is their core competency, and they have been playing this game for a long time,” Werbach said. “These are companies that support foundations and other groups that do a lot of good work, but in the end are strategically designed to advance [AT&T’s and Verizon’s] interests.”
Two sides of Wheeler
FCC commissioners are scheduled to vote on proposed auction rules, including whether it will include limits, at its May 15 meeting. That could open another round of public comments, and at that point the lobbying “will hit its peak,” said an executive at one of the wireless carriers.
Two of the Democrats on the commission, Jessica Rosenworcel and Mignon Clyburn are likely to support limits. The two Republicans, Ajit Pai and Michael O’Rielly, are less likely to.
That leaves the affable FCC chairman, Tom Wheeler, who President Barack Obama appointed last year, to decide. Wheeler knows a lot of about lobbying, having headed up the National Cable Television Association, one of the biggest lobbying spenders in Washington, and the Cellular Telecommunications & Internet Association.
Wheeler, who wields a lot of power as chairman, hasn’t indicated how he would vote. At a speech at his alma mater, Ohio State University, he described himself both as “a rabid believer in the marketplace” and as “an unabashed supporter of competition.”
“A key goal of our spectrum allocation efforts is ensuring that multiple carriers have access to airwaves needed to operate their networks,” he then said.
It remains to be seen which Wheeler will show up to vote — the former lobbyist who fought federal regulations and whom AT&T lobbyist called “an inspired pick to lead the FCC” or the Obama appointee who believes that the wireless market needs more, not less, competition.
