Zephyr Teachout On Corruption

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3:21Better Offline. And I'm joined today by Zephyr Tichaud. She's a professor of law at Fordham Law School and the author of Break Em Up, Recovering Our Freedom from Big Ag, Big Tech and Big Money. Zephyr, thank you so much for being here. Thanks for having me on, Ed. So let's talk corruption. So you've talked a great deal about corruption, but what does it mean in the business and economic sense? Yeah. I mean, corruption is this idea that comes from the Latin, you know, the rupt. Right. Rupture, break apart. and a corruption is breaking apart from within. So it's internal disintegration. I mention that and the deep roots of the language because questions of corruption have been central to economic and political thinking for thousands of years.

4:12So one way to start thinking about corruption, if you don't mind, is to think about Aristotle. Okay. Okay, right? Because I actually am quite drawn to Aristotle's understanding of corruption. And I think it's a kind of man on the street understanding of corruption as well. What is it? Yeah, it's the idea that those with governing power use that governing power to serve themselves instead of the public. Right. So in Aristotle's classic formulation, he talked about the difference between a monarch and a tyrant. Both are ruled by a single entity. Right. The difference is the monarch serves the public and the tyrant serves himself.

4:58Aristotle's other two formulations were then the rule by an elite few. Ah. Right? So a rule by an elite few is either an aristocracy. Right. An elite few governing for the public or an oligarchy, elite few governing for themselves. And then finally, the mass version of this, a little more controversial, especially in modern translation, was the idea of a polity or mass rule. And often it was described as democracy. In other words, people using the public power for themselves. But the key there is that he saw the corrupted version as being about how you use your power. Right. It's sort of core internal motivation, frankly.

5:49And so I'm going to guess that that's how you're looking at tech at the moment. And to be clear, I fully agree. It feels like, and I talked with Matt Stoller a few episodes back, and he kind of said this thing around authoritarianism. It's a new authoritarianism. And you've made this point too. So do you think – And I think just before we get into this, it's important to just then in very, you know, Shakespeare in 30 seconds way, say this fight about what is corruption and what isn't then has become a 2000 year fight. Right. So Hobbes, for instance, thought that Aristotle was crazy on this. He's like, yeah, people are always going to be selfish.

6:27Right. And that's a flat version of Hobbes. But it's actually a fight about human nature and what's possible with human nature on the one hand. But it's also a fight about where public power is versus your private life. Because Aristotle isn't not saying in that formulation or understanding of corruption that in your private life you can't seek out yourself. He's saying there's something uniquely dangerous and destructive to a public when the governing power is self-serving. So when this, as applied to the modern big tech, big ag questions, the underlying philosophical question then is, is this a governing power?

7:12And if it's governing, that's really problematic because it's set up to be selfish, right? That's the nature of modern business. So the selfishness isn't the problem, the governingness is. Does that make sense? Yes, because that and that's kind of and that's kind of the bothersome thing about this because you've got so many monopolies oligopolies, whatever. So one I like to choose that most people are not people are kind of dancing around. This one is the cloud empires. You've got Google, Amazon, Microsoft, Oracle to an extent, though, for different reasons. And they are the ones that set the terms of how the Internet is built out.

7:46Akamai and CDNs to an extent. But you can't. What can you even do about something like that? Is that cloud empire bad or good? It's kind of hard to tell. But the thing they definitely have is power unchecked. Yeah, I love your language of term setting. Yeah. And it's not always obvious, right? But that if you think of a government, you know, what a governing entity does, if you think of governing not in a flat formal sense, like are you elected or not? But who actually has the question for whether something is governing? I think one way to ask that question is, does it have the power to set terms?

8:24Right. Right. Yeah. And which is effectively the tech industry. Yeah, right. Every big player, Airbnb sets the terms for vacations. The cloud empire set the terms for how cloud storage is monetized and indeed sold and how indeed our electric grid is built out or not, as the case may be. i mean even musk with tesla and i have many thoughts about that man kind of sets the terms of how charging works now like they have the standard now even though he's a mess and even then when he fired most of the supercharger team it's like oh this isn't just about tesla this is now the entirety of america is being let down right but what do you do about that like how do you what can i mean what you and i can do might be somewhat limited but what can society do with this kind of thing?

9:09Well, you know, let's start with where we did start on corruption, language of corruption. If we think about term setting by selfish actors as a problem in the political realm, before we then apply it to the realm we may not think of as political, but it's clearly political too. There's a series of strategies for either removing that term-setting power, right? Or having public regulations. So even if they're term-setting, the terms are fundamentally set by the public, right? And so the classic American strategy was to have diverse sources of competing power in a presidency, Senate, and Congress.

9:57Right, yeah. So that's a break-em-up model, you know, if you would. It's not just elections, but it's actually about providing different sources of competitive power at the local and federal level, local, local state. And when you say competitive power, is that so local and federal government stuff? Is that just is that is elections part of this? Are these like what are the different mechanisms there that help break them up in a governmental sense? Yeah, it's all of the above. So, right. So, if you have, you know, we can be a little glib about just comparing, you know, presidential systems to parliamentary.

10:35That's one source of difference, but it's not the only source of difference. It's cantons versus not cantons, right? Right. So what it is to say is not that there's an ideal vision. I don't think there is. But that genuinely separating sources of power so there's some public contestation, I think of it both as a federal state and across federal and across state branches as being important. That's one mechanism. It's not the only mechanism. But then there are at least options and means in which people will be cycled out and ideas will be cycled in. Right. And then in the election sphere, we're very worried, as we should be, about arenas where there's no competitive elections.

11:16Somewhat scary. Yeah, very scary. And the lockout of the opportunity for new ideas or for leverage on a grassroots level. You know, I think of it often, if there's nobody you could turn to, if the water smells bad in the morning and your elected officials aren't doing anything, there's a problem. It doesn't mean you're going to win, but at least you have some access to disrupt. You have methods. Right, yeah, right. So then when you apply that breakup or divestiture model to companies, you can see similar visions, right? So what I mean to say is that there's plural ways to do breakups. Right. And that's one of the things that the electoral or political world can inform thinking about breakups.

12:02But it's not the only way to break up power.

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15:41So what are some ones we're not doing yet then? Because it feels at times like the only thing there is is just antitrust. And thanks to Ronald Reagan, that's not been awake for a while. Yeah. It's kind of waking up. Yeah. It's making noises. What are the other mechanisms? I mean, that we could even create. Right. Well, so when I sort of think about anti-monopoly, and I know you've talked to Matt before, but you think of anti-monopoly as anti-concentrated private governing power. Right. You know, the tyranny of private governing power. And anti-trust is one part of that. In the United States, the first real 19th century anti-monopoly movement was actually around non-discrimination principles.

16:32So the Interstate Commerce Act, which came out of farmers coming together saying down with monopolies. The first thing they asked for was open access, basically, what we might think of as open access. Yeah. On the same terms, non-discrimination, right? You have the access to whether it's a grain elevator or a train to not have differential treatment. Right. And so it is a key way to break up power. We may not think non-discrimination equals breaking up power, but… No, it makes sense. Yeah. Because I was just talking with Cory Doctorow about this. And he had suggested that one of the main things is the government forcing interoperability between platforms.

17:20Everyone has to have the same standard. So you can look at posts from Twitter, X threads. And I'm not even talking about the Fediverse necessarily, just open standards. Why do you – well, I mean, is there a reason why these things just don't happen? Is it that they're not being pushed through? Is that the lobbying is powerful? Like, is it all of the above, I guess? Right. Right. Is it – the ability to discriminate between counterparties is extremely valuable. Right. As you know. Right? Yes. Right. And especially true if you have monopoly power. Right, right. Right. So I'm laughing because I'm just trying to think of the right point of intervention.

18:01So maybe going to history again is useful. Sure. So we see the 1890s and this first – the first effort is – and always claiming first is difficult. It's all jumbled together. Right. History is a mess. Right. History is a mess. There's – because there's – I'm going to do my own little segue. Even within corporate charters, there were anti-monopoly provisions in the 19th century. Really? But basically rules that said you can only engage in this certain line of business. Right. The government will only grant you a corporate charter and all the privileges that accompany that. In the event. In so long as you stay within the line of business for which you applied to the charter.

18:47Right. Does that make sense? Why don't they do that anymore? Well, in, I'm going to get my dates wrong, but the gesture right. Right. Late 19th, early 20th century. Actually, it was a little earlier. There was a real effort to engage in – I appreciate the question, and I'm being the academic worried about sloppiness. Don't worry about it. People get mad at me for getting things right, so don't worry about it. Yeah, yeah, yeah. No, I want to put the asterisk there for the corporate law historians who are listening. But there were, you know, really interesting, there was a move towards free incorporation.

19:30Anybody should be able to incorporate as an anti-corruption move. Which kind of makes sense. Which makes a lot of sense. I can understand the logic. Right. And then there's a, because the idea is, oh, if you can only get a corporate charter if you're friends with somebody, that's a pretty corrupt system. Right. Does that make sense? Well, but now they've moved on to other ways of doing that. Yes, exactly. And then the other part was an effort to expand what all corporate charters have since become, which is you get a charter to do whatever is legal in the state. Right. That's now what a corporate charter is.

20:05This is a long digression to say that anti-monopoly impulses have showed up in a lot of different areas of law, right? Right. Not just in federal antitrust and railroad law. It's so interesting because it almost feels like, because I mean, fairly blaming Ronald Reagan, I feel like we can all do it every day. But it feels as if it's just been a slow bleed for like hundreds of years where we just, the ramifications of decisions at the time that probably made perfect sense because at the time corporate charters were very limited. There wasn't much commerce or at least more limited commerce. It almost feels like we need to bring that back because an episode, a thing I just wrote recently even, I was thinking about Salesforce.

20:46Salesforce, one of my least favorite companies. And if you ask what Salesforce does, that is a very long answer because they do CRM, they do data lakes, they do AI, they do chatbots, they do different kinds of chatbots. They have all of these things and they do it by vacuuming up these companies. They eat them alive. And now they do it, much like Microsoft, as a means of making sure you don't buy another product because we've got everything here, like a buffet. Can we stop that? How do we stop these acquisitions? It almost feels as if acquisitions are the first place to start. Yeah. To make it much harder.

21:22Well, so stopping – we're talking about different elements of antitrust or anti-monopoly. So one element is non-discrimination rules. And that doesn't mean that every industry should be subject to radical non-discrimination rules in all cases. But that if there are industries that the ability to discriminate between counterparties is going to allow for exploitation and extraction and shutting down of new entrants, then non-discrimination is really important. Antitrust then also very important. And the first step in antitrust is not allowing that, as the American system has set up, is not allowing mergers.

22:06Now, I'm not as familiar with the Salesforce corporate structure, but I gather that one of the things you're talking about is the way in which, one, we've been quite lax until recently on merger policy. Yes. But we also haven't until very recently, until Cantor and Khan's recent merger proposals, we've had this highly formal understanding of where threats lie. And where have we seen threats before? We see threats primarily with horizontal acquisitions. I'm a shoe company buying another shoe company. Secondarily, between vertical integration, I'm a shoe company buying a shoelace company. So entirely consumer choice, basically.

22:49Right. But the conglomerate merger, the merger in adjacent institutions, has sort of been assumed to be, well, that's not a threat because it's not about dominating either that vertical or that horizontal. And one of the interesting buried parts of the merger guidelines, which I think is really important, is a recognition that – and I forget the exact language. Maybe Cantor just said this in a speech, but these don't fit anymore. Yeah. Right? Like when Amazon's buying Whole Foods, well, maybe they're using the data of the Whole Foods customers to create a moat somewhere else. Well, it's just it almost feels like we need to start asking them, why do you need this so bad and make them justify it and not be totally open to it?

23:43Because I don't even know why they bought it other than the data for sure, because whatever. But also it's another way of conquering another commerce vertical. No, I think there's so much. I mean, I think there is so much that we miss psychologically as well as economically when we think about mergers as if everybody's just rational. Yeah, yeah, yeah. There's also a lot of boys playing Risk, too. I fully agree because there's a lot of – one of my prevailing theories with tech right now is that everyone says, well, open AI, for example. Yeah. Well, they're going to work it out because he's really smart.

24:17It's like, what if he isn't? What if they don't have any idea? What if they're just doing this? Salesforce, great example. They just bought a digital storage company. And it's not really obvious why, but, you know, they're going to work it out, I guess. I saw a piece of the information saying, oh, Benioff's got it back. It's like, what has he got? What is going on? And it almost feels - The more capital is sloshing around, actually, the less likely that we should think that all these decisions are rational. Yes. And on top of that, we've got - There's a very irrational feeling to the economy. I've said a lot about this.

24:49Yeah, that's really interesting. Well, because a lot of these companies will spend like$30 billion. Okay, I'm being a little bit. Like$10 billion to make$300 million. And I guess that you can't really stop. Like maybe you don't stop that. But at some point you have to wonder if that's a symptom of these big, ungainly, monstrous companies. The companies that do everything and thus do nothing. Well, there's this interesting, it reminds me of this research. I wish I could find it around the urge to merge. Have you heard about this? No, no, no. I think this is older research, but somebody put together a bunch of grad students and compared them to CEOs like, would you do this merger?

25:26And those who already had power just get really – They just get grabby. They get grabby, right. And denying that there's a power hungriness is just denying – do we not learn anything from thousands of years of literature and history? They want to learn more. And I think that Elon Musk is one to choose as well, because as we speak, we're just on the day after the robo-taxi event. I thought it was illegal to make stuff up when you're a public company, but I guess Elon Musk has special rules. But that actually kind of brings me to a point. What do you do with people like Musk who, they're evil, and they're very clearly corrupt in some way, but they're not really breaking a law?

26:09How do you moderate the power of someone like Elon Musk outside of antitrust? Because antitrust has done nothing. like sec could barely touch him what how do we start bringing these people back down to earth wow well antitrust is part of it right uh campaign finance is part of it um uh and there are i i maybe i'm answering too glibly but there there isn't a single answer i do there isn't yeah i know that there isn't one if there was i i assume someone would have done it yeah i mean there is But that's not legal. And then there are industry-specific abuses and challenges that it's not – just because you and I are interested in anti-monopoly law or what the FTC could do tomorrow doesn't mean that there aren't real challenges with specific industries that are unique.

27:04Unique foreign policy challenges with Starlink. Right. Right. unique policy levers too that could be used with some areas of maybe he shouldn't have national security clearance that's a good start right but it's it i think it comes back to that thing you were saying though it's the it almost as feels as if the media kind of but definitely the government doesn't look at these things and say oh they're accumulating power they're like oh they're just accumulating markets and you know that's okay yeah it's still bad but like they're fine with it and it feels like we actually really have to start getting like there must be new legislation to stop that or maybe just it's as simple as what if we stopped companies getting so big yeah what if we just started pinning them down a bit and disincentivizing that specifically well there there is clearly a problem of sort of gross power yes right and there have been various efforts in the past to say, well, we should just limit gross power, not simply, I think this is what you're getting at, abuse of such gross power, right?