I recently began teaching a course on the regulation of “networks, platforms and public utilities,” using a 2022 casebook by the same name. It is from a group of progressive legal scholars who are trying to recover the national memory of the public interest reasons why we regulate certain industries in the first place. (The “law and political economy” blog is a parallel effort, though in my experience it seems to embrace a narrower, farther left vision of progressivism.)
The new textbook is a response to economic analyses that counsel faith in markets and skepticism toward government regulation, and to the hegemony those views have long enjoyed in public policy debate. The book explores the characteristics of various network and platform industries – telcom, energy, transportation, the tech sector, etc. — and invites students to ask themselves whether (or how) markets in those economic sectors satisfy (or fail to satisfy) social needs. A lot of the class discussion centers on situations in which markets allow the economically-strong to use their market leverage to exploit the economically-weak.
Few in history were as adept as Standard Oil’s John D. Rockefeller at creating and exploiting that kind of leverage. Rockefeller came of age in a time before the social safety net, and before any of the today’s rules regulating the petroleum value chain. There were not yet any legal carrots or sticks to solve cooperation problems the market couldn’t solve, or to moderate the human temptation to bully or exploit others for personal gain.
When Rockefeller decided to try to make money in the Western Pennsylvania oil patch, he chose to locate his oil refining business in Cleveland — farther away from both the oil patch and from eastern markets than Pittsburgh. Why? Because Rockefeller had a keen and intuitive understanding of economic leverage.
At that time oil products were shipped primarily by rail or water. As Rockefeller’s biographer Ron Chernow explained, in the early 1870s Pittsburgh was served by one railway while Cleveland was served by two. Congress had not yet decided to regulate railroad shipping rates under Interstate Commerce Act (ICA), and Rockefeller knew that he would be able to negotiate better transport rates from a Great Lakes port city served by multiple railroads. He was worried about the railroad’s leverage over him. Later, when Standard Oil grew to market dominance, Rockefeller used his leverage over railroads and others so ruthlessly that it offended the public’s sense of fairness. And modern antitrust law is in significant part a reaction to those actions.
Vladimir Putin, like Rockefeller, showed a keen ability to leverage others’ need for energy to secure political gains. For decades he has exploited Europe’s dependence on Russian natural gas to extract political concessions from European nations. His invasion of Ukraine finally compelled Europe to diversify their sources of natural gas. More recently, Baltic nations disconnected from the Russian electricity system in order to rely more on the European grid. Suspecting that Putin wishes to reconquer their lands too, they decided to reduce his economic leverage over their citizens.
The public record shows us that Donald Trump also built a career on exploiting leverage — not to build massive economic or political empires like Rockefeller and Putin, but to force tradesmen and small businesses with whom Trump had building contracts to renegotiate those deals on terms more favorable to Trump. The stakes of Trump’s bullying were puny compared to those associated with Rockefeller’s and Putin’s bullying, but the basic dynamics are the same. And now president Trump hopes to use economic leverage to force Denmark to sell Greenland to the United States.
International relations is closer to the unregulated wild west of Rockefeller‘s day. But within OECD countries we have traditionally used domestic law and regulation to encourage behavior that promotes the public interest and discourages the rich from using economic leverage to exploit the economically-weak. The question of how to use regulation to steer markets in this way is what we discuss in our networks and platforms class.
Some critics of public utility regulation argue that ever-more competition and market pricing will yield outcomes that serve the public interest better than regulation ever could. Other critics see markets as hopelessly flawed, and urge nationalization of energy industries. But beware of those trying to persuade you. If their analyses seem to caricature the status quo, dig deeper.
Among careful, truth-seeking scholars, there are precious few advocates of either (a) completely unregulated markets or (b) the sort of full government ownership of the means of production envisioned by Karl Marx. Politicians worry about unregulated electricity markets not because they are captured or corrupt, but because voters prize energy reliability above all else. So it is between those ideological extremes that the interesting debates lie — over what blend of markets and regulation best serves the public interest.
Unfortunately, outside the classroom these sorts of discussions are made difficult-to-impossible by ideological censorship of both news feeds and online social groups. Consequently, in conservative information ecosystems (bubbles), people come to see anyone who emphasizes the benefits of regulation as a “socialist” or “anti-capitalist.” In liberal bubbles, people come to see anyone who emphasizes the benefits of markets as a “neoliberal” or “corporations’ useful idiot.”
This is the climate of contempt that makes us less curious and more judgmental, more interested in winning discussions than learning from them. It is the source of the glee with which so many now glory in the public defeats, embarrassments and failures of their policy opponents.
Meanwhile, we wait to see how the GOP Congress and the courts will react to the new administration’s mostly extra-legal assault on the regulations and regulators that the new administration dislikes. Only time will tell which of our modern liberal democratic norms survive this historical moment.
Chapter 6 of my book discusses a way out of this, but it is not an easy road. Votes are the key. The propaganda machine keeps voters in a miasma of anger and misinformation. But the voters chose Donald Trump through a free and fair election, even if they didn’t vote to empower Elon Musk to supplant Congress’ role in making policy choices. We may have to endure a lot more pain before voters recognize how the modern media environment drives our political dysfunction. Here’s hoping that when and if we get to that stage, our liberal democracy is still standing. – David Spence
