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How Biden's Plan Will Go After Industry Giants

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Joe Biden’s vow to take on the U.S. economy’s most dominant companies faces a monumental task: combating years of consolidation that have left industry after industry controlled by a handful of firms.

The executive order the president signed Friday puts the weight of the federal government behind a sweeping effort that will target everything from airline baggage fees to soaring prescription drug prices.

In some cases, it will result in incremental changes, but in others, the measure raises the possibility of a slew of new regulations for corporate America and a tougher approach to overseeing how companies do business, from mergers to the ways they treat their workers.

At a White House ceremony Friday, Biden invoked the 20th century’s best-known trust-buster, Theodore Roosevelt, who took on John D. Rockefeller’s Standard Oil, and Franklin Delano Roosevelt, whose Justice Department is credited with reinvigorating antitrust enforcement in the late 1930s.

“Between them, the two Roosevelts established an American tradition, an antitrust tradition,” Biden said. “It’s how we ensure that our economy isn’t about people working for capitalism, it’s about capitalism working for people. But over time, we lost the fundamental American idea that true capitalism depends on fair and open competition.”

Economists have documented how industries across the economy saw rising concentration levels starting in the late 1990s. According to the White House, higher prices and lower wages caused by lack of competition are estimated to cost the median American household $5,000 per year.

Even with a steady rise in consolidation across markets, Biden’s order puts the authority of the federal government behind the effort to counter it, said Michael Kades, the director of markets and competition policy at the Washington Center for Equitable Growth.

“The president is saying this is a problem the government will attack,” said Kades, who was an antitrust lawyer at the Federal Trade Commission, which shares a mandate to enforce antitrust statues with the Justice Department. “The highest levels of the government is making competition policy a priority, and that’s a commitment there that we haven’t seen from any president in my lifetime.”

The order targets three sectors where the administration believes consolidation has led to higher prices — agriculture, technology and drugs. It directs more than a dozen federal agencies to begin 72 initiatives to strengthen competition, including new regulations.

It calls on the FTC and the Justice Department to toughen merger enforcement and to review past deals that were approved.

The measure also aims to empower workers by calling for restrictions on noncompete agreements that make it harder for people to switch jobs. Roughly half of private-sector businesses require at least some employees to enter noncompete agreements, affecting as many as 60 million workers, according to the White House.

The administration’s challenge cuts across industries. In airlines, four major carriers control nearly 64% of domestic passenger traffic, according to the U.S. Bureau of Transportation Statistics, after a series of bankruptcies rolled through the industry from the 1990s to 2011 and triggered a series of mergers.

As part of that consolidation, the number of U.S. carriers with full-service cabins and international networks shrank to three in 2013 from seven in 2000, with American Airlines Group Inc., Delta Air Lines Inc. and United Airlines Holdings Inc. as the survivors. Southwest Airlines Co., with a mostly domestic network, rounds out the four biggest.

Five U.S. tech companies — Apple Inc., Microsoft Corp., Inc., Alphabet Inc., and Facebook Inc. — make up half of the top 10 most valuable companies in the world by market capitalization.

10,000 Fewer Banks

Just four lenders possess nearly half of the assets in the country’s banking system: JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. American banks have announced $47 billion worth of deals this year alone, more than the $45 billion announced in all of 2020.

In a fact sheet released Friday before the signing, the White House pointed out that the U.S. has 10,000 fewer banks than it did two decades ago, with many of those closures tied to mergers and acquisitions.

The administration’s campaign is certain to face blowback from companies and their trade groups in Washington. The U.S. Chamber of Commerce, the biggest business lobbying group, called the idea that the economy has become too concentrated a “flawed belief,” and warned the administration against neglecting the importance of large firms for economic growth.

“In many industries, size and scale are important not only to compete, but also to justify massive levels of investment,” the group said in a statement Friday. “Larger businesses are also strong partners that rely on and facilitate the growth of smaller businesses.”

The broadband industry was quick to criticize Biden’s proposals aimed at internet service. The president called for restoring so-called net neutrality rules passed by Democrats during the Obama administration, which bar internet service providers from interfering with subscribers’ web traffic. They were gutted by the Federal Communications Commission during the Trump administration.

A trade group representing telephone companies AT&T Inc. and Verizon Communications Inc. said competition is thriving, leading to lower prices and more innovation in internet service.

“You wouldn’t know any of this from reading the executive order exhumed from some time capsule in an alternate universe,” it said.

Industry analysts are skeptical about how far-reaching the Biden order will be on companies.

Although the president called for tougher scrutiny of bank tie-ups, the directive is unlikely to stop the “tsunami of bank mergers over the long term,” Wells Fargo analysts, led by Mike Mayo, said in a note to clients Friday. The order could have the unintended consequence of hindering smaller players from merging to compete more effectively, Mayo said in an interview.

Health Care Hurdles

Blair Levin, an analyst at New Street Research, said in a note that Biden’s broadband recommendations involve policies advocated by regulators during the Obama administration that were either reversed by Trump or not implemented.

None of the proposals would result in the kind of price regulation and overbuilding that investors have become worried about since Biden released his infrastructure plan, Levin said.

In health care, although economists have long pointed to market concentration as a driver of higher medical prices, it’s unclear how much Biden’s order will be able to change things.

The order nudges regulators to update their guidelines for reviewing hospital mergers, but in many parts of the country, markets for health-care services and medical insurance are already highly concentrated. Drugmakers’ power to set prices is often based on natural monopolies from patents on medications.

Across the the health-care industry, potent lobbying groups are adept at harnessing political support to their advantage. Hospital trade groups pointed to their industry’s performance during the coronavirus crisis and said stricter antitrust regulation could threaten access in rural areas.

And Biden’s directive for federal health officials to work with states to come up with plans to import medicines from Canada, where they are cheaper, echoes a Trump administration proposal. Canada balked at letting Americans import medicines, and imposed measures limiting distribution of drugs to protect its supply from bulk sales across the border.

“The drug pricing stuff is just retreads of ideas that have been around forever,” said Spencer Perlman, director of health-care research at consulting firm Veda Partners LLC. “It’s not realistic, and it’s not a big deal.”

Biden’s White House is hoping that by focusing on the ways government can tackle a myriad of expensive and unpopular elements of American life, it can win support in its quest to reverse decades of deregulation.

Stage Management

The release of the executive order was carefully stage-managed over the past few weeks, with the White House promising almost daily that the directive would offer tangible improvements on airline fees and shipping prices to costly phone repairs and noncompete agreements.

Largely populist initiatives — like efforts to lower drug prices and internet costs or sell hearing aids over the counter — were emphasized over broader regulatory efforts that could limit mergers between technology companies or banks.

As a result, the wide-ranging undertaking received little public criticism from Republican lawmakers who might otherwise have characterized some of the moves as government overreach.

Senator Chuck Grassley, an Iowa Republican, issued a statement saying he was “glad the Biden administration is particularly beefing up enforcement and expanding transparency in the livestock markets.”

Polls suggest that Americans remain divided — but persuadable — about Biden’s role in handling the economy. While 48% of voters surveyed earlier this month by The Economist say they approve of his handling of the economy, 40% say they disapprove and 12% have not formed an opinion. That comes even as 64% of Americans say the nation’s economy is a “very important” issue to them.

Biden took pains to frame the executive order as an effort to bolster — rather than counter — capitalism.

“I’m a proud capitalist,” Biden declared as he signed the executive order. “But let me be very clear — capitalism without competition isn’t capitalism. It’s exploitation.”

(Photo: Chris Kleponis/CNP/Bloomberg)

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