Editors’ Briefing: This Week in Political Economy (November 4-11)

The costliest midterm election in US history ends with a victory for Democrats—and for money in politics in general; Amazon and Apple crack down on third-party refurbishers, raising antitrust concerns; and was Amazon’s HQ2 stunt really just a “con”?

 

 

Photo by Alpha Stock Images [CC BY-SA 3.0]

 

  • The US midterms ended with a victory for Democrats, who have taken control of the House for the first time since 2010. But Tuesday was also a good night for money in politics in general, as Karl Evers-Hillstrom notes in OpenSecrets.org. The 2018 midterms were the most expensive in US history, with Democrats outraising Republicans by more than $300 million. Overall, writes Evers-Hillstrom, 89 percent of House races were won by the biggest spender: “A cash advantage didn’t always translate to success at the polls for congressional candidates. Still, the candidate with more money won most of the time, and fundraising and outside spending trends appear to match up with election results.”

 

  • Tuesday was a good night for corporate America as well, as companies that spent millions on attempts to sway voters ahead of high-profile ballot measures largely prevailed. California’s Proposition 8, which aimed to rein in dialysis costs and was fiercely opposed by the dialysis industry, was defeated, leading to a rise in dialysis stocks. Proposition 10, California’s rent-control initiative, was also rejected by voters following a campaign to defeat it that was partly financed by Blackstone. Prop C, San Francisco’s homelessness tax that was at the center of a public battle between tech billionaires Marc Benioff and Jack Dorsey, passed by a wide margin—but may take years to take effect due to legal challenges. Voters in Montana rejected a proposal to expand Medicaid, but voters in Idaho, Utah, and Nebraska all voted in favor of Medicaid expansion. In Washington, voters passed an industry-backed measure that bans future soda taxes in the state, while voters in Oregon rejected a similar initiative. In Nevada, Warren Buffett’s Berkshire Hathaway managed to defend the near monopoly of its electric utility subsidiary NV Energy. And in Portland, Oregon, voters passed a ballot measure that bars corporations from making political donations and limits individual campaign contributions.

 

  • Michigan’s Democratic governor-elect Gretchen Whitmer, reports The Intercept’s Zaid Jilani, added a Blue Cross Blue Shield executive to her transition team after the company helped fund her gubernatorial campaign. And President Donald Trump will award the Presidential Medal of Freedom to Miriam Adelson, the wife of Republican megadonor Sheldon Adelson. The Adelsons gave $113 million to GOP candidates during the 2018 election cycle.

 

  • In the run-up to the midterm election, companies increased their pressures on employees to vote for candidates endorsed by their corporate lobbyists, report The Intercept’Lee Fang and David Dayen. “Business groups are increasingly using the workplace as a staging ground to shape the outcomes of elections,” they write.

 

  • The Democratic takeover of the House, write William Mauldin and Vivian Salama in the Wall Street Journal, will make it much harder for the Trump administration to pass USMCA, the administration’s makeover of NAFTA.

 

  • Facebook also had a reason to celebrate on Tuesday, as it made it through the midterms relatively disaster-free. But more than anything, argues Kevin Roose in the Times, “this year’s midterm election cycle has exposed just how fragile Facebook remains.”

 

  • Amazon’s 14-month search for the site of its second headquarters (aka HQ2) seems to have ended with a whimper, as reports surfaced that Amazon would in fact build two new offices, one in Long Island City in New York and the other in Crystal City, Virginia, which is near Washington, DC. After soliciting bids from dozens of cities across the US, Amazon will go ahead with two locations in which CEO Jeff Bezos already owns homes. “This was never a contest,” said Scott Galloway in response.“It was a con meant to induce ridiculous terms that they then took to the cities all along that they knew they were going to be in.” But the truly big prize Amazon will get out of its HQ2 stunt, argued ILSR’s Stacey Mitchell, is not tax breaks—but data. “At the end of the day, it may well be that the data is the most valuable thing that Amazon has gotten out of this,” Mitchell told Business Insider’s Hayley Peterson. “Amazon has a godlike view of what’s happening in digital commerce, and now cities have helped give it an inside look at what’s happening in terms of land use and development across the US. Amazon will put that data to prodigious use in the coming years to expand its empire.”

 

  • Meanwhile, opposition to the terms Amazon is likely to receive is growing among New York progressives. The Financial Times reported this week that Google is planning a major expansion of its own in New York, one that would more than double the number of its employees in the city.

 

  • Amazon has removed independent Apple refurbishers off its Marketplace as part of its new partnership with Apple, reports Motherboard’s Jason Koebler. The agreement, tweeted Hal Singer, raises some antitrust issues. “Given Amazon’s dominance as an online retail marketplace, its decision to disregard the first sale rights of resellers will significantly limit consumer choice,” law professor Aaron Perzanowski told Koebler. “The fact that this move was demanded by Apple makes it even more problematic. What we see here are the world’s two most valuable companies engaging in a coordinated assault on the lawful resale of consumer devices.”

 

  • Amazon, Facebook and Google are all being looked at by the federal government for potential antitrust violations, President Trump said in an interview with Axios. Following the midterm election, Trump added that he is willing to work with Democrats to regulate social media platforms. While this is not the first time Trump has made this threat, Big Tech should brace for more pressure from Washington, writes the Financial TimesRichard Waters.

 

 

  • In other tech news, Amazon executives defended its controversial facial recognition technology after employees raised concerns about its aggressive marketing of the technology to law enforcement agencies and the US Immigration and Customs Enforcement (ICE). A week after 20,000 of its employees staged a massive worldwide walkout, Google said it would put an end to its practice of forced arbitration for complaints of sexual misconduct. In an interview with the New York Times, Google CEO Sundar Pichai seemingly defended the company’s controversial development of a censored search engine for the Chinese market by saying that “one of the things that’s not well understood, I think, is that we operate in many countries where there is censorship. When we follow ‘right to be forgotten’ laws, we are censoring search results because we’re complying with the law.” Pichai did add, however, that “it’s not even clear to me that search in China is the product we need to do today.”

 

  • From Motherboard: “An ongoing study by Northeastern University and the University of Massachusetts claims that Sprint is arbitrarily throttling Microsoft’s Skype without adequately informing consumers.”

 

  • A week after AT&T pulled HBO off of Dish’s satellite service, Tim Wu writes that AT&T’s “brazenly anticompetitive strategy” has been widely predicted prior to the controversial court approval of its merger with Time Warner. “Unfortunately, there is every reason to think AT&T will keep using HBO and other media properties as weapons in the industry. The more it raises prices or withholds content, the more it either harms its rivals or gains new customers for itself. It’s a win-win situation made possible by the merger’s integration of content and content delivery.”

 

  • The Justice Department has reached a settlement with Sinclair over Sinclair’s alleged sharing of advertising sales data with certain local television-station owners.

 

  • Saudi Arabia may be mired in controversy at the moment, but among Silicon Valley entrepreneurs Saudi capital is as in demand as ever, reports the Wall Street Journal.

 

  • PwC’s global chairman, Bob Moritz, argued in the Financial Times last month that the Big Four accounting firms should not be broken up. This week, he was joined by David Sproul, CEO of Deloitte in the UK. KPMG became the first of the Big Four to publicly pledge to stop offering consulting services to large audit clients in order to “remove even the perception of a possible conflict [of interest].”

 

  • From Vox: Seattle’s radical plan to fight big money in politics.

 

  • From the FT: “Cobalt’s supply shock a painful warning to carmakers.”

 

Stigler Center Goings-On

 

  • Join us on Monday for a conversation between Fahmi Quadir and Luigi Zingales on short selling, regulation and exposing corporate fraud. More details here.

 

 

Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy