Jandos Rothstein
On Wednesday, the House Judiciary Committee heard the testimony of the CEOs of the four largest tech companies, as part of its investigation into the insufficiency of modern antitrust laws and enforcement to curtail monopoly abuses in the tech sector.
The hearings reflect the ascendancy of the “New Brandeis” or anti-monopoly movement. The movement is criticized from certain quarters as being politically motivated, seeking to use anti-monopoly tools to remedy traditional liberal concerns of power imbalances, income inequality, worker exploitation, and the elimination of independent merchants.
The modern antitrust movement, as well as the original movements to break up the trusts, empower farmers, or disperse concentration of economic power generally, certainly reflects a political ideology. Conservative efforts to push back on antitrust enforcement and limit the scope of antitrust law, known as the “Chicago school” because of the origins of these efforts at the University of Chicago, reflect a political ideology as well. There is no escaping politics when it comes to antitrust.
While both strands are inherently political, and while the Chicago school arguably subverts the original intent of the Sherman Act and its successors, neither of these two movements necessarily reflects an abuse of antitrust law.
But a new strand of antitrust has emerged that is more dangerous than the Chicago school. Emanating from the right, the movement’s architects seek to enforce antitrust law to punish political enemies, cement the status quo, and preserve, rather than disperse, concentrations of economic power. It is a movement I call “gangster antitrust.” It is the perversion of antitrust.
In the last four years, antitrust actions have been used by the Department of Justice’s Antitrust Division (ATR) to attack marijuana growers because Attorney General William Barr doesn’t like marijuana; to threaten CNN because Donald Trump doesn’t like what it reports about him; and to harass carmakers cooperating with the state of California around emissions standards, because of Big Oil climate denialism. More subtle examples of gangsterism include ATR and the Federal Trade Commission labeling Uber drivers banding together to form a union “price fixing,” and ATR chief Makan Delrahim personally involving himself in completing the Sprint/T-Mobile merger.
A similar cloud of gangster antitrust recently wafted from the pages of The Wall Street Journal, in the form of a July 15 op-ed by C. Boyden Gray, a longtime oil-industry lobbyist and conservative intellectual. Gray suggests that a financial institution’s decision not to loan or invest in fossil fuel companies and projects may be “violating federal antitrust law” by representing “invitations to collude on a boycott of a critical segment of the U.S. economy.” He singled out decisions made in recent months by firms like BlackRock and Goldman Sachs to shift investments away from the riskiest fossil fuel sectors like coal mining and Arctic drilling and toward more sustainable assets.
As a matter of antitrust, Gray’s conspiracy theory holds no water, as each of the institutions likely arrived at the divestiture decision on its own. In 2000, the Department of Justice and Federal Trade Commission issued a set of guidelines spelling out the kinds of communications among rivals that are potentially anti-competitive, including the sharing of competitively sensitive information or entering agreements that facilitate collusion. Nothing alleged in Gray’s piece comes close to satisfying these criteria.
BlackRock, for instance, has stated unequivocally that its decision to divest from fossil fuel was based on independent analysis of the market. By Mr. Gray’s twisted logic, any sound business decision, individual or coordinated, that happens to come with climate benefits could be described as an “invitation to collude on a boycott.” Before it was thrown out, ATR’s bogus investigation into carmakers relied on a similar perversion of the rules against cartels. It claimed, incredibly, that by working with California to reduce tailpipe carbon emissions, carmakers were engaging in a conspiracy.
In contrast to Gray’s assertion, BlackRock’s divestment from coal producers, or Goldman Sachs’s decision to not fund coal or Arctic drilling projects, doesn’t require some grand conspiracy by Wall Street against the fossil fuel industry. It requires looking at a stock chart. In recent years, independent analyses have confirmed that environmental, social, and governance issues impact a company’s long-term profitability and therefore should be integrated into investment decisions. Sustainable funds and companies continue to outperform the S&P 500, a trend that was under way well before the pandemic and especially now.
Sustainable funds and companies continue to outperform the S&P 500, a trend that was under way well before the pandemic and especially now.
It is, in fact, individually rational not to invest in fossil fuels. The industry was suffering long before banks began to restrict financing for certain segments of the coal and oil and gas sector. The industry has underperformed the S&P for 15 years and was indeed the worst-performing sector in the stock market over the last decade. Wells Fargo’s lending to fossil fuel companies makes up 3 percent of its portfolio, but accounts for nearly half of its outstanding unpaid loans. Even before COVID, the fossil fuel industry depended on razor-thin margins and huge amounts of junk debt; the Kansas City Fed has estimated that a small decrease in the price of oil would push 40 percent of oil and gas producers into bankruptcy. Since COVID, the industry is in even worse shape, as reported by Boston Consulting Group.
Gray’s argument also misses the fact that firms evaluate risk not only on whether a business is profitable (or not) today, but also in terms of long-term social and environmental risks. A bank’s support for a company that violates indigenous sovereignty or human rights, for instance, carries direct financial and legal risks, as well as broader reputational risks, as illustrated recently by the backlash to banks that financed the Dakota Access Pipeline.
In a 2020 letter to CEOs, BlackRock Chairman Larry Fink wrote: “These questions are driving a profound reassessment of risk and asset values. And because capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself. In the near future—and sooner than most anticipate—there will be a significant reallocation of capital.”
This reallocation of capital away from fossil fuels is happening before our eyes. It reflects a series of independent business decisions, and it is a good thing for investors and the planet. It should not be thwarted by antitrust gangsters perverting the law.
