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Wednesday, October 9, 2024

FTC, Break Up the Longshoreman

Background

The recent strike of the Longshoreman's union (ILA), according to news reports, centered around wages and automation. The wages issue has been tentatively resolved, but the automation issue is still alive. According to the union itself, "[We] just [want] to tighten the language that no automation means no automation." (Emphasis added)

A major complaint from the union was that there was an automated gate system at one port and possibly more. An automated gate system for trucks to pass through without needing a union representative to open and close it. This is akin to a union demanding elevator operators continue to open and close the doors for passengers like they did seventy years ago instead of it happening automatically.

Because of this union intransigence, US ports lag behind the rest of the world in terms of efficiency. The Port of New York and New Jersey has zero automation.

The FTC is charged with promoting competition in the US economy. On their logo, claim to be "protecting America's consumers." Every day, the FTC fights against anticompetitive business practices. It surely is their duty to make sure that the ports are competing with each other to provide the best services to consumers--both the ultimate American producers and consumers who benefit from the goods that are conveyed through the ports and the immediate ones like shipping companies.

Why This Case Demands Additional Attention

In a normally functioning, competitive port economy, ports would be competing with each other to provide the most efficient service to shipping companies and producers, which would include making improvements in automation at its facilities so it could move the maximum amount of goods, as fast as possible, all day every day. This competition would benefit American consumers because it would reduce the costs of shipping and allow for even more and better goods to be available.

If one port fell behind, then shippers would use other ports and encourage laggards to keep up. This is exactly how competition works in every other industry, and as long as the costs of switching, i.e. shipping items through North Carolina instead of South Carolina, or Jacksonville instead of Miami, are low, then competition can be really effective. In fact, we can be pretty confident this would happen because it is happening throughout the world. The US ports, particularly on the East coast, are falling behind because the rest of the world operates much more competitively.

US ports are falling behind because the rest of the world operates much more competitively.

The reason the East coast is falling behind is that competition is not allowed to take place because there is a monopoly. Not a conventional monopoly of firms or the ports, but of labor. Even though the ports are independent and compete with each other, one union's workers control more than 90% of East coast shipping.1 The unions are allowed to have a monopoly of employees which is being used to produce anti-competitive and anti-consumer outcomes.

One union controls more than 90% of East coast shipping.

Imagine if Amazon Web Services, which provides cloud data for companies, controlled 90% of the cloud market, meaning it hosted company websites and data, and it was the only one that did (instead of competing with Microsoft and Google among others). What if Amazon told its customers that they won't provide compression for data for any customer, so every customer has to store its data at full size and take up more space and pay Amazon more. Further, if any customer tries to go elsewhere or host their own site, Amazon will stop hosting their data altogether, badger them, conduct a national marketing campaign calling them "scab" companies and urging everyone to boycott them. Do you think the government would get involved?

Imagine if there was one cloud data provider and it told its customers that it refused to store compressed data, forcing customers to pay more, and there was nowhere else they could go.

Every union holds some level of monopoly. Some unions control labor at a single firm, and some unions hold large manufacturers such as car companies. However, the Longshoreman's union controls practically every port on the Eastern seaboard that provides international container shipping. Domestic automobile companies still compete with non-unionized foreign automobile companies, or plants in right-to-work states with no unions. This competition keeps pressure on the car companies to keep up with technology even if it hurts union members' job prospects. There is no such competitive pressure for the ports.

Because the anti-consumer, anti-competitive group is a union, the FTC doesn't do anything, but given their new approach, where they expand their areas of concern beyond just prices to effects on labor, perhaps they should also expand the focus beyond corporations to labor so they can break up this union that is holding American shipping back.

1Author's calculations based on data from Bureau of Transportation Statistics.

Friday, February 3, 2023

When Competition Goes Wrong

A recent paper provides a good example of how most people's view of competition, and the benefits it produces is slightly flawed. Understanding these examples helps ensure that competition is applied correctly. In the paper, researchers learn that as more health providers were allowed to prescribe treatment, more treatments, specifically opioids, were overprescribed to the point of harming patients. If you think about this for a moment, you realize it is because the competition between health providers was driving them to provide what consumers wanted--more opioid prescriptions. So, this is a case where competition is harmful, but it helps elucidate what competition actually does.

Many people think competition produces low costs, low prices, high quality goods and services and is unconditionally beneficial, but what competition actually does is push producers and sellers toward whatever the consumer desires. For most goods and services the desires of the consumer are beneficial to her and to society: high quality, low price cars, groceries, homes, computers, etc. In the case of opioids and other products that are beneficial in limited quantities yet are harmful in higher quantities, competitive forces benefit neither. This is due to the addictive nature of opioids. Consumers desire more than is good for them and so competition among providers results in what those consumers mistakenly desire.

Vehicle Inspections

This phenomenon is not limited to opioids. When I was in graduate school, I learned this concept from a fellow student whose Ph.D. thesis analyzed vehicle emissions inspections. He found that more inspectors led to more cheating. The reason was the same. While the inspectors were meant to be acting as agents of the state, their true customers were the vehicle owners. The vehicle owners' goals were not to have low emissions but to get a Pass from the inspector and so the more inspectors there were, the more they were driven to give consumers what they wanted to the detriment of state regulations.

News Media

The history of media consumption in the United States is an extremely illustrative example of this. From the advent of television until the 1990s, there were a handful of broadcasters vying for ratings. Up until the expansion brought on by cable, they fought with each other to appeal to the broadest possible audience. This focus on the highest possible rating coupled with journalists' ideology led to a slightly left-of-center framing of news.

Seeing an opportunity to provide audiences, particularly conservative audiences, with less available news and opinion, Fox News was created and quickly attracted a huge contingent of conservatives across the country. This led to the creation of its doppelganger MSNBC which appealed to liberal audiences. Then, the internet ushered in the further fracturing of the media landscape and ever more gradations of content to satisfy extremists and moderates of both sides (though notably, nothing to appeal to people who want objective journalism). Competition between news media companies has thus created a spectrum of information providers that reflect the biases, particularly confirmation bias, and whims of the entire electorate.

Artificial Intelligence

The next battlefield over which competition may eventually do us in is AI. Several companies have been working on AI for several years, but have been reluctant to offer AI-based services to consumers. Now, with Microsoft purchasing Chat GPT, which is already offered to the public, and also planning to integrate it into its offerings, other companies will feel the pressure to do the same. This will certainly kick off a zealous competition between these companies to further the capabilities of AI in an effort to provide their customers with an amazing product for a low price, meaning an ever-more advanced artificial intelligence that could potentially rival or surpass our own.

Many have pointed out the risks of AI advancement, but for the past ten years, development has been slow and of low concern. Now that companies have entered a new era of competition to provide it to consumers, though, growth will take off. Hopefully, not to our ruin.