The Biden Competition EO: Implications For Investors

Summary
The executive order contains 72 separate directives to 14 departments and agencies. They add up to the executive branch probing the limits of its antitrust enforcement powers under existing legislation.
The biggest sets of directives are for agriculture, tech, health care and finance, but there are many other affected industries.
Departments and agencies will have anywhere from 1-12 months to report back, and then the rulemaking process will begin. That will take a long time and face legal challenges.
Keep your eye on Congress. They can accomplish in a single session what takes the executive and judiciary years to settle.

A fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers...

This order affirms that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in labor markets, agricultural markets, Internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets), repair markets, and United States markets directly affected by foreign cartel activity.

Most of the press accounts of the new competition executive order have focused on big tech, but as you see in the highlighted part, it is only third on the hit list. The biggest lift in this bill will be for the Department of Agriculture, not the FTC and Justice Department, who handle the tech stuff. This is a very broad executive order with instructions to the Departments of Treasury, Defense, Justice, Agriculture, Commerce, Health and Human Services, Labor, Transportation, and six more named agencies.

In going through it all, here is a list of affected industries I counted:

In all, there are 72 directives in here. Most of them read like this:

The Secretary of Agriculture shall… consider initiating a rulemaking or rulemakings under the Packers and Stockyards Act to strengthen the Department of Agriculture’s regulations concerning unfair, unjustly discriminatory, or deceptive practices and undue or unreasonable preferences, advantages, prejudices, or disadvantages, with the purpose of furthering the vigorous implementation of the law.

This is sort of like the Fed’s “we are talking about when to talk about tapering QE” language. But it is the beginning of a process of these issues winding their way through the Federal bureaucracy. The time frames for agencies reporting back to the President range from 1-12 months. After that, Federal agencies grind away at their own slow pace. The FTC in particular has a years-long rule making process, but the clock just started ticking. The order relies heavily on existing legislation, like the Packers and Stockyards Act referenced in that quote, and Biden has tasked the various departments and agencies with probing the extent of executive powers under these laws. This is the key takeaway.

Add to this the new antitrust pushes in the courts and in Congress, and we are looking at all three branches of the Federal government feeling their way towards a new consensus on antitrust. Two of the intellectual founders of this movement work in the Biden White House.

This article will be, by necessity, a high level overview of what is in there, who is affected and how. Most of this stuff is small-ball, but there are also directives with potentially very large effects, especially the more general and vague ones which can wind up in a lot of places. As rules start coming down, are implemented, and inevitably wind their way into courts, I’ll follow up with industry and company-specific reports.

Whereas decades of industry consolidation have often led to excessive market concentration, this order reaffirms that the United States retains the authority to challenge transactions whose previous consummation was in violation of the Sherman Antitrust Act, the Clayton Antitrust Act, or other laws.

Then we some initiatives centered around labor markets which will affect all industries. The most important is that it looks like the FTC will be “curtailing” the use of non-compete clauses. How far this goes remains to be seen, but the widened use of these is a concern, and not just for worker mobility and wages, which is the framing in the executive order.

The Office of Economic Policy will have 6 months to report back on “the effects of lack of competition on labor markets.” There’s a lot of ways that can go.

Finally, we get to occupational licensing. This is mostly a local issue for small businesses, but one that has driven economists of all persuasions crazy for decades. We can all agree that there should be some professions, like medical and legal, with licensing requirements. But why does the person who cuts your hair need a license? These laws were typically created by incumbent businesses to raise the cost of new competition. Anyway, this initiative brings up a lot of issues regarding federalism, and I’m not really sure what the FTC can do with this hodgepodge of local laws.

The Secretary of Agriculture, Tom Vilsack, likely has the biggest set of tasks ahead. Generally speaking, these initiatives are a response to a number of complaints that farmers have had with both sides of their businesses - inputs, capital goods, and the markets for their output. This is a broadly worded section, so there may be a lot more coming, but there is special focus on meatpacking, especially poultry, and also alcoholic beverage distribution

There are several tasks for the FCC to increase regulation of ISPs and mobile carriers.

These are mostly calling out some specific practices that customers have complained about in these industries:

We are four decades into a major political and economic experiment. What happens when the United States and other major nations weaken their laws meant to control the size of industrial giants? What is the impact of allowing unrestricted growth of concentrated private power, and abandoning most curbs of anticompetitive conduct?

The answers, I think, are plain. We have managed to recreate both the economics and politics of a century ago – the first Gilded Age – and remain in grave danger of repeating more of the signature errors of the twentieth century. As that era has taught us, extreme economic concentration yields gross inequality and material suffering, feeding an appetite for nationalistic and extremist leadership. Yet, as if blind to the greatest lessons of the last century, we are going down the same path. If we learned one thing from the Gilded Age, it should have been this: The road to fascism and dictatorship is paved with failures of economic policy to serve the needs of the general public.

As you see, Wu is making an explicitly political argument here that economic concentration leads to inequality, which can lead to a breakdown of democracy. The movement is called “neo-Brandeis” after former Supreme Court Justice Louis Brandeis because it is actually looking to a return to an earlier and broader conception of antitrust that was dominant until the 1980s. Since then, the focus has been narrowly pegged to prices and output.

For investors who want to understand the foundations of the neo-Brandeis movement, Wu’s book and Khan’s article are required reading.

The overarching theme here is that eight cabinet secretaries and six more agency heads have been tasked with probing the limits of executive antitrust enforcement power under existing law, and that can wind up being broader than some of the narrowly defined initiatives in the executive order.

The wheels of the executive branch grind slowly. This has already been going on internally at the Council of Economic Advisors for six months. The departments and agencies have a time period in which to respond, ranging from 1-12 months. After that, they seek comments from stakeholders, including the general public. From that process, new rules are issued, and then will be immediately challenged in court by whomever is getting their ox gored. This will be a very slow process for most of it, especially at the FTC.