I post this from my friends and colleagues at The Counterbalance, with their permission:
Anti-monopoly regulators can be powerful, if they dare to use their power
A large furiously busy industry of regulators, economists, lawyers, scholars, consultants, lobbyists and policy-makers work on competition law, nearly all operating inside narrow technocratic circles, often with little connection to the real world of warm-blooded citizens, taxpayers, small businesses or workers. Much of this frenetic activity has rubber-stamped the march towards monopoly that all our societies have suffered since the 1970s.
But it can be good to be busy too. In today's edition of The Counterbalance we meet one of the busiest actors in this terrain, Ioannis Lianos, a prolific academic who co-founded the Inclusive Competition Forum with our Michelle Meagher, and is now head of the Hellenic Competition Commission. In November 2019, two months after taking up his position, his office mounted dawn raids against Greece's biggest banks. And those were just the start. In this interview with the Balanced Economy Project’s Nicholas Shaxson, he talks about taking on vested interests, and new ways of thinking about economic power.
This edition also looks at big tech funding of think tanks in Europe, some reports of the link between monopolisation and shortages of basic goods, and some stuff we’ve been up to. Our next edition will explore the giant finance-fueled sector called private equity, as a first edition in our occasional series “How Finance Creates Monopoly”.
Apologies for the long time lag since the last edition. We’ve been . . . busy.
The Counterbalance Interview: Ioannis Lianos
NS Welcome to The Counterbalance. It seems that there is a 'new antitrust' mood in the air, as some regulators ponder how to move away from a narrow focus on prices and "consumer welfare", towards broader perspectives reflecting factors like the concerns of workers or of small businesses, inequality, the structure of markets or power. What has your journey been?
IL Thank you. In the United States in the last few years, civil society has made antitrust a major topic, and helped bring back issues like economic power, and bigness. This has influenced policy makers in the US and it is clear that more and more people are becoming concerned about Big Tech now, and about concentration in the global economy more generally.
A few years ago I was probably one of the few academic voices in Europe taking a perspective much broader than consumer welfare, to bring in justice, fairness, and sustainable development, for example. I remember organising a conference on inequality and competition policy back in 2016 where I put forward the idea that equality and fairness should be a concern. I remember people were skeptical at the time.
This paradigm is now in a state of great flux and has not yet settled into a new order. However, views have evolved and people who were critical a few years ago about developing a broader framework than “consumer welfare” (which takes into account the various distributional implications of competition law) now are seeing the light!
In 2019 I heard there was a vacancy at the Hellenic competition authority. I had been wanting to come back to Greece, for personal reasons. When the government called me, I was interested in becoming a permanent member or a commissioner, not the president. I wanted to focus on technocratic work, I didn't want to be in the media or be involved in politics as has been the choice of some of my predecessors. I have never been politically affiliated in Greece, although in the competition community in Europe I am considered a progressive (putting forward a green agenda for competition law enforcement and promoting the interests of consumers but also labour). I am certainly not in the neoclassical price theory mainstream. But if your country calls you to serve, you do so!
NS If you exclude things like inequality or fairness in your analysis and narrow it down to just "consumer welfare" and "economic efficiency," well, this is easier to measure. It's a bit like the drunk in the night looking for his car keys under the street lamp. "Did you lose your keys here?" a policeman asks. "No, I lost them in the park. But the light is much better here."
Still, how do we find those car keys? Defenders of the status quo like to argue that if you introduce concepts like justice or sustainability then policy makers have too many goals and too much discretion, which can be a big problem too.
IL Competition scholars fear being accused of bad taste in mixing political with economic and legal questions. As heads of competition authorities, we are not elected, and this is very important. We need predictable concepts in our analysis, not unlimited power or an impression that we have huge discretion. So from this perspective the critics are right.
However, the competition policy establishment has been operating with mono-centric competition law, in terms of focusing only on prices and output. The reason is that its main source of expertise is neoclassical price theory, where the individual loses their identity and becomes an automaton operating on a rule-book of self-interest. I am interested in poly-centric competition law, which is closer to the real world, where there is multi-layered decision making, taking into account our limited knowledge and also the different institutional and cultural frameworks we each operate. This is a more sociological perspective.
We need new concepts, a different framework -- and to make it all operational. I now see, as head of a competition authority that you can’t convince an authority to adopt a proposal unless you provide a framework, with operational concepts and metrics, to make them practical and improve decision-making.
NS New concepts such as?
IL Part of my recent work involves economic ecosystems. This is a well known issue, but it is open to debate how to deal with them.
Until now, we have defined market power in terms of a relevant product market: we look to see if a firm has a big market share and other characteristics that let them increase prices.
But the way firms compete has changed, particularly in the digital economy. They try to develop broader ecosystems of products, and broader economic activities that are linked to each other, where they are the orchestrators. For example, an online market for apps and content. It's not just digital firms: traditional banks, for instance, want to develop as one-stop-shop ecosystems, to offer clients various possibilities. (An ecosystem is a broader concept than a platform: it might be decentralised, for example a blockchain ecosystem where there is no platform.)
You don't just have one market: there may be different markets, and actors can leverage power in one market to create power in another.
Some ecosystems develop through the merging of value chains, which get unified through technology. For example, in the past you would have a pharmaceutical value chain, which was considered as different from a healthcare and the medical equipment value chains. But now, with the rise of data and personalised medicine, these chains merge. Economic activities that in the past we would consider as different, come together.
Ecosystem analysis can enrich our understanding. There is still some work to be done but the concept is now well accepted in Europe and frequently referred to in legal texts.
NS Monopoly power is closely linked to "financialisation," where finance, and financial tools and techniques, become increasingly dominant in the economy, and often involve long complex chains of actors. Ecosystems analysis would seem relevant here?
IL This is an important issue. For example, I have co-authored a paper on financialisation in the food value chain, where I argue that competition authorities need to look not just at traditional economic analysis but also wisdom from other fields, such as advanced social network analysis, and look at issues like common ownership.
In the past we would think of firms drawing profits out of price markups on their products. But companies with positional power in an ecosystem get valued more highly by financial markets, and this increases their stock price and their market value. This is the real source of their wealth.
In a more recent paper, I explore the way financialisation affects the corporate governance of digital platforms and their competitive strategies.
So, just saying 'bigness is a problem' is not enough. The ecosystem concept tries to deal with these gaps in our understanding. This is an urgent agenda, and it needs vigorous debate.
NS So how are you practically using these ideas in Greece?
IL Already we are using the analysis. In our supermarkets investigation, we tried to map the interactions between supermarkets and their suppliers, and drew a map of the network of these relations, to understand which of these supplliers or supermarkets had a more central position in this network, in terms of more sales, or more partners. This has helped us identify and measure superior bargaining power. This innovative approach was recently presented at an OECD meeting and we had very positive reactions from other competition authorities.
We are putting forward a new competition bill in Greece which will be the first in the world with a specific provision on abuse of ecosystem power, although the problem is also recognized in other jurisdictions (such as Germany, Austria or Italy) which have adopted or are exploring comparable approaches. It is about the abuse of a position of power in an ecosystem of paramount importance for the economy.
The important thing is to identify if competition is taking place not in a market but in an ecosystem of core and complementary products, then assess economic power at the level of the ecosystem, and then see if there is abuse of that power. This does not really develop new remedies, and that is not the purpose (as we want to provide legal certainty to firms) but it helps the authorities to understand what is going on in the real economy, and to make sure the remedies are implemented properly.
NS Greece is a member of the European Union. How does this fit with European law?
IL The goal of the competition bill is not to be a substitute for the European Digital Markets Act (DMA), but a complement.
The DMA deals with major problems to competition at the EU level and major platforms like Google, Facebook etc. But there are many other platforms, like in tourism, banking or agriculture, which are very important for Greece, but which are not regulated under the DMA. If none of these have a dominant position in the market, you can't use traditional competition tools. You might have an oligopoly.
The importance here is also to open up an economy that has the top 10 same companies in place for almost 40 years. These have created closed ecosystems which may suppress innovation from newcomers and smaller but dynamic firms. The important issue here is to open up the economy for innovators.
NS What about the famous Greek shipping industry?
The global shipping industry is basically outside Greece: it concerns international transport. From the 1970s to the early 2000s this sector had been exempted from enforcement of competition law, though since then these exemptions have been narrowed down. Most international ocean trade (in containers) is controlled by three alliances, which do not involve the Greek shipping industry. Some competition authorities, such as the Australian Competition and Consumer Commission, have recently launched investigations on exorbitant shipping charges, and highlighted the high concentration in this sector. However, if we want to act at this level, there is need for EU action. We are not here to apply Greek competition law extra-territorially.
NS About those dawn raids. You must have angered some people.
IL For many years the Greek competition authority did not touch the banking sector. A couple of months after I joined, we did dawn raids on the biggest banks, and the banking association. We sent almost all our staff, there was almost nobody left in the office...
We collected a huge amount of data: we've worked with the IT forensic unit of the criminal police and invested in AI to help us deal with such complex investigations.
There are many different interests and legal issues that have been raised for the first time from defence counsel. There is also a lot of pressure from media - "why is there no case yet?" But these cases take 3-5 years to complete. We have limited staff. I can’t say much more, as it’s a pending case but we are doing our best to finish this as early as possible.
We had dawn raids almost every week during June-July and September. (In recent publications, we have been credited as being the authority in Europe that has performed the most dawn raids!)
We have been quite active in all socially important markets. In the digital sector, we funded a study finding that Greece is one of the most expensive jurisdictions in the EU for mobile telephony. This raised an important debate and we think helped put pressure and achieve a better deal for consumers although we have no jurisdiction in enforcing competition law in the telecom sector (the telecom authority does). We had dawn raids on supermarkets, we have also done investigations in the energy sector. We have a recent investigation involving Coca Cola. We have an ongoing interesting market investigation in construction, raising among others, issues of common ownership, as a fund has acquired shares in the two biggest Greek construction companies. This was probably the first case in Europe relying on the “common ownership” literature.
We also had a market investigation into press distribution, also using the common ownership literature. This is not about digital: it is the classic traditional press, and the main press distribution company is basically a monopoly, with publisher-shareholders in its share capital. Dealing with the press is not easy: this is really a “dangerous” field. You will read about some things that you have done that people don't like, and some things you haven't done... In less than two years we have been active in the most important sectors of the Greek economy, while also reforming the structure of the authority. Those who defend the status quo and stagnation do not like change. But we care about the long term.
So there has been this backlash on one side, but on the other side we are trying to develop a broader consensus and links with civil society, to promote discussion in the media. Slowly, we are getting there, bringing competition policy to the centre of discussion.
How have you tried to develop a consensus?
It has been hard. For example, bringing in the ecosystem analysis. First, we had to conceive, operationalise and explain something new to other members of the law commission, and convince them. That was difficult. Then it was hard to explain it to the government, which is not interested in developing concepts just because they are of academic interest: they wanted to see how it was relevant for the Greek economy. We had to make it operational, to increase legal certainty, communicate it, and get the firms to comply. The law was put out for public consultation -- there was comment from business, but not much from civil society -- and hopefully in a few weeks it will be put to parliament for a vote. Some oligopolistic industries here in Greece really oppose it.
In Greece we have different issues than in the US. In terms of appointments, we have tried to bring in an extra committee of independent experts, selected by the European Commission, and other independent authorities (the central bank) to oversee the nomination process and to avoid the political instrumentalisation of the authority by different political parties. Of course, politics are important and cannot be excluded from consideration but it is equally important in relatively young competition jurisdictions like ours to develop the citizens’ trust in the authority as an independent institutional player. We also have a minimum amount of funding for the authority, measured as a share of GDP, so there is no discretion to reduce our budget. This is a major institutional innovation in the EU.
My job is to transform the authority and to develop a strong and durable -- beyond my personal mandate – public ecosystem for the protection of competition in Greece.
Reconciling Efficiency and Equity: A Global Challenge for Competition Policy, Damien Gerard, Ioannis Lianos, Cambridge University Press, 2019.
Ecosystems and competition law in theory and practice, Michael Jacobides, Ioannis Lianos, 2021
A report into Big Tech lobbying in Europe
Following our interview with Tommaso Valletti outlining the corruption of Europe’s institutions by consultancies, law firms, economists and others, a new report into lobbying by Big tech firms adds another dimension to our growing understanding of the European “System of Monopoly.” This image, outlining big tech funding of thought leaders, is one of several in this rich, detailed report.
Full disclosure: we do not take money from corporate funders. Our funding so far is restricted to a small grant from the Joffe Charitable Trust. (Meanwhile, in the United States, the American Economic Liberties Project has a report showing the correlation between how concentrated an industry is, and how much power it has over government. Nobody will be surprised to learn of a significant empirical link.)
Since the last newsletter we’ve written an article in Open Democracy, about the rise of a remarkable anti-monopoly movement in the United States, and the lack of one in the UK or Europe. We also wrote in The Guardian about why competition authorities should take on private equity, (with more on that - lots more - to come.) Michelle gave the opening speech at the Bill Kovacic antitrust salon with US Senator Amy Klobuchar, she spoke at the UK’s IPPR Oxford Media Convention, delivered a keynote speech at the Competition Law Scholars Forum, and wrote a Twitter thread about “a meeting that changed everything”. We contributed to and influenced the IPPR’s landmark report Prosperity and Justice after the Pandemic. We updated and expanded our submission to the UK’s Competition and Markets authority on private equity in Children’s Social care . . . and we have lots more brewing.
Regulators ahead of civil society
While the anti-monopoly movement in the United States blazed a trail that antitrust regulators (and other government agencies) are now following, the opposite seems true in Europe and in other parts of the world, where regulators are generally far ahead of civil society. This is a decidedly peculiar and unfortunate situation, and something we’re determined to change. Anecdotal examples of ‘regulatory activism’ include the Competition Commission for COMESA (the Common Market for East and Southern Africa) taking on a tax haven-based investment fund over mobile telephony, Germany blocking a newspaper deal, the UK authorities seeking to block a sports takeover and to reverse Facebook’s acquisition of Giphy (which would be a breakup, of sorts), new probes into Facebook, or a fierce speech by Australia’s top competition official Rod Sims. We’d also add the great Chinese crackdown on Big Tech, and Chinese calls in other countries (in this case, South Africa) “for strengthening anti-monopoly on several occasions,” (even if Chinese civil society isn’t exactly able to push Chinese regulators to do anything.)
Monopolisation, shortages, and a loss of diversity and resilience
This is a story that’s quite well understood in the United States - that as those small-business ecosystems wither in the face of advancing monopoly, resilience withers with it. (See, for instance, Matt Stoller’s The Corrupt System Behind Covid Medical Shortages.) But we’re delighted to see this angle being investigated by the Financial Times’ Sarah O’Connor — one of few journalists in the UK who is clearly alive to the profound nonsense of the ‘consumer welfare’ approach — in an article entitled The hidden costs of powerful buyers and cheap prices. Sarah uses the example of supermarkets, in line with what we wrote about previously. “If [the supermarket buyers] walk into the room and say you need to drop your price by say 10 per cent because we’ve been offered your volume by someone else . . . what do you then do when your entire business is geared up to supplying them?” asks one farmer, who was presumably too afraid of the monopolists to provide his or her name. That’s a topic - fear - that we’ll return to in future editions.