Lina Khan’s new line in the sand

I’ve always loved Federal Trade Commission chair Lina Khan. But I especially love how creative she’s being in taking on the problematic asymmetries between labour and capital via antitrust. She’s introduced a proposed rule that would prevent employers from using non-compete clauses, which she argues depress wages and kill innovation.

The FT’s Lex has pointed out that the gains in wages will come at the expense of shareholders. To that, I say, it’s about time. I think one of the major fragilities in the US economy is that we’ve constructed a system that is far too reliant on asset price gains, relative to income gains. This increases both financial volatility and fragility (anyone who wants to see the voluminous amount of academic research backing up this statement should look at the footnotes from the first two chapters of my first book, Makers and Takers).

As she expressed when I profiled her for Lunch with the FT in 2019, Khan is about values, not just prices. That’s a big shift in the intellectual framework of the FTC, but it certainly keeps with the overall stance of the Biden administration, in making a move away from shareholder capitalism and towards stakeholder capitalism. (The best and broadest illustration of this can be found in President Joe Biden’s July 2021 executive order explicitly requiring all federal agencies to move away from a narrow view of consumer wellbeing as the only measure of economic wellbeing.)

Competition policy is a powerful tool through which to achieve a more just society, and in particular to move away from labour market monopsony. Does anyone really think that most employers and employees are on anything like an even footing when negotiating compensation? We don’t even have the basics of a transparent marketplace when it comes to labour/capital negotiations, though I am glad to see that a number of states are starting to require companies to disclose at least the pay bands of various jobs, which will go some way towards changing that.

As I’ve written, Big Tech is notorious for using non-compete clauses to lock in market power. So do many other industries, and I’m totally behind the new FTC rule to get rid of them. But what interests me is how this new stance at the FTC could expand to support labour power in a broader way. We are already seeing increased interest in labour unions (both traditional and non-traditional, such as the Freelancers Union in NYC) and organising over the past few years. I suspect that if corporations were required to print detailed summaries of individuals’ compensation (and why shouldn’t they, really?) we’d see a lot more.

Peter, my question to you — what impact do you think the new FTC rule would have, if adopted? And do you see Khan’s stance as over-reach?

Recommended reading

• I was shocked and upset to read this NYT front page piece about a professor losing her job at Hamline University because she showed an image of the Prophet Muhammad in a global art history class. (Many Muslims believe that depictions of the Prophet Muhammad should be prohibited.) Despite prepping them in advance and asking students if they had objections (no one raised them at the time) and allowing them to leave the class if they didn’t want to see the image, a student reported the professor and she lost her job. I’m extremely worried about this kind of speech-policing on college campuses, which has only gotten worse since I wrote about it five years ago.

• Good news! The ozone layer is healing. This makes me feel like all the little things we do every day on the recycling or aerosol-reducing front really can make a difference. Meaning, maybe it won’t take a total moonshot to fix the environment, but rather concerted small daily efforts? I don’t know the answer to that, but this was the rare piece about climate change that made me feel better.

• My colleague Alan Beattie is quite right to note that US military might is often what protects free trade. This point should be acknowledged by Europeans more frequently (and, I’d hope, with a bit of gratitude).

• And I say good riddance to Noma. I ate dinner there years ago (not on my own dime, thankfully) and found it to be a ridiculous experience. Nine courses of absurdly precious food (eg, faux sandwich cookies of dried chicken skin with caviar cream filling served in an antique British biscuit tin) and I left hungry. I agree with food writer Corby Kummer that we need to end the tyranny of the high-end tasting menu. Ditto Frank Bruni’s more recent piece on luxe restaurants as a category.

Peter Spiegel responds

Rana, I agree wholeheartedly with your lamentations over pay in the US. Income inequality is one of the great plagues on the American economy, and I think wage stagnation is a primary driver of the growing extremism in our politics. By almost any measure, middle class workers have seen their pay grow only marginally over the last four decades, while high earners have enjoyed something of a windfall, particularly the top 1 per cent.

How much longer will the average middle class American sit by and watch their livelihoods erode before violent anti-government riots such as January 6 become a regular feature of the political landscape? “Peasants with pitchforks” is normally used pejoratively, but given the number of people who feel poorer today than they did before the financial crisis, the ranks of the peasantry are growing by the day. That’s the result of bad policy, and it’s dangerous.

That all said, I’m not convinced that a regulation banning non-competes would have the impact on wages that the FTC claims. More importantly, I’m not sure a regulatory agency should be the one banning the practice. Khan cites the FTC’s founding act as giving her agency wide authority over the US economy. She cites Section 5 of the FTC Act (first passed more than a century ago), which states rather broadly that “unfair methods of competition in or affecting commerce” are “hereby declared unlawful”.

Using that as a legal basis for banning non-competes opens a rather large Pandora’s box. Does the FTC just get to declare certain commercial practices it doesn’t like “unfair” and then proceed to forbid them? That seems both indiscriminate and a recipe for economic chaos.

I don’t particularly like non-competes (they do serve some purpose when an employee is working on a company’s proprietary technologies, though). But given their widespread use in the US labour market — the FTC itself estimates 30mn Americans are covered by then — a ban should be debated and legislated by elected representatives rather than issued by fiat from a regulatory agency.

Khan is one of the most consequential chairs the FTC has had in its modern history. But there is a circumscribed role for regulators in the US, and wholesale policy changes affecting a vast number of employers and workers should be the purview of Congress. Given we’re headed for two years of hyperpartisan division on Capitol Hill, the chances of legislating anything of substance is becoming increasingly unlikely. Still, that doesn’t mean the proper democratic processes to enact real economic change should be circumvented.

Finally, I’ll just say that while I disagree with you on this, it’s once again been great fun debating you on Swamp Notes over the last two weeks. Thanks for letting me fill in for Ed while he’s been on book leave, and I hereby hand the baton over to Gideon Rachman, the FT’s chief foreign affairs commentator, who will sit in for Mr Luce for the rest of the month.

Edward Luce is on book leave and will return in mid-February

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And now a word from our Swampians . . .

In response to “Musk, FTX and the politicisation of everything”:
“I agree with Rana that greater political awareness and engagement are key to addressing the future governance of both the US and the UK. Also, I believe the motivation for Madoff and Bankman-Fried to donate to a progressive party is as she expresses. Following the midterm results in the US my views on their politics are no longer as jaundiced as they were at the height of Trumpism.” — Neil Woodcock