The Corner Newsletter: December 01, 2022
Welcome to The Corner. In this issue, we explore how a drought threatens to keep the railroad industry in crisis mode even if the immediate threat of a strike is avoided. We also describe our urgent call on government agencies to investigate Elon Musk’s ownership of Twitter and Starlink, which poses threats to democracy and national security.
Mississippi Drought Will Strand Railroad Industry In Crisis Even if Strike Is Averted
Luke Goldstein
This week, Congress passed a resolution ratifying a tentative labor agreement with rail worker unions to avert a looming railroad strike that could cripple the economy. But even if we dodge that threat, railroads are at the center of another crisis. This next potential emergency starts with the ongoing drought on the Mississippi River but it doesn't end there.
Little to no rainfall in the Midwest has led to historically low water levels on the country's most commercially active water passage for domestic transport and global exports. Around $100 billion in cargo, which includes fuel, coal, grain, industrial chemicals, building materials, and over 90 percent of agriculture exports, is shipped by river every year.
But now shallow water restricts the number of barges that can pass through narrow strips of the river. Several barges have gotten stuck on the floor of the riverbed and caused long traffic jams. For the few shippers who can still find barges to take their product, rates have skyrocketed nearly 300 percent compared with the same time last year.
Naturally, many shippers are looking to railroads to save the day. But it turns out that railroad deregulation and consolidation make that option a non-starter for most. Under relentless pressure from Wall Street to maximize short-term profits, railroads have stripped out so much capacity and laid off so many workers that they cannot begin to pick up the slack even as they impose monopoly prices on what little extra traffic they can handle.
"We have farmers needing to export goods and they have no one to turn to because the rail lines say they're at capacity," said Todd Tranausky, the Vice President of Freight Transportation Research, which monitors the rail industry.
According to FTR's analysis, part of the problem is that the rail lines laid off workers right before the pandemic and have struggled to rehire new staff since the supply chain crunch hit.
The other problem is Wall Street’s mania for ripping out track. For example, one of America’s most storied railroads, the Illinois Central, used to operate a high-capacity, high-speed, two-track mainline paralleling the Mississippi River between Chicago and New Orleans. But in the 1990s, investors installed a new CEO, E. Hunter Harrison, who ripped out the second track and closed key yards. With that, the Illinois Central lost much of its capacity to serve as a viable alternative to barge or truck traffic. But Harrison boosted profits by cutting expenses faster than revenues, making him a Wall Street darling.
Cheered on by powerful hedge funds, Harrison subsequently brought the same kind of radical downsizing to three other major railroads, introducing an industry trend that became known by the perversely Orwellian term “precision scheduled railroading.” As OMI policy director Phillip Longman details in his feature in the Washington Monthly, the result is a highly profitable industry with ever diminishing capacity to meet America’s transportation needs even as energy shortages and climate disruptions make railroads more critical than ever.
Now as the drought crisis unfurls, two other large rail carriers — the Canadian Pacific, which operates tracks paralleling the Mississippi south of Minneapolis/St Paul, and the Kansas City Southern, which controls key routes to the Gulf of Mexico and beyond — are filing to merge. This will bring still more concentration and monopoly pricing to the industry, and quite possibly, the shedding of more rail infrastructure. Regulators should block the deal as the first step towards restructuring our national rail system to better serve the public interest.
Open Markets Sends Letter to DOJ, FCC, and FTC Calling for Review of Musk’s Twitter Deal
The Open Markets Institute on November 17 sent a letter to the heads of the Department of Justice (DOJ), Federal Communications Commission (FCC), and Federal Trade Commission (FTC) urging the agencies to review Elon Musk’s purchase and management of Twitter and his ongoing management of Starlink — including his abuse of these powerful communications platforms for his own personal, political, and business interests.
Open Markets believes that Twitter is an essential communications platform that serves a critical role in civic discourse and disaster response around the world, and Musk’s deal to buy Twitter poses a number of immediate and direct threats to American democracy, free speech, and national security. Bloomberg devoted an article to OMI’s letter on Musk’s ownership of Twitter and Starlink. The letter was also covered by Politico in its morning newsletter.
Open Markets, ICCI, and TACD Send Letter to FTC Urging Crackdown on Surveillance Advertising
Open Markets Institute, the Irish Council for Civil Liberties, and the Trans Atlantic Consumer Dialogue, filed an official complaint with the Federal Trade Commission on the privacy, market, and security hazards of surveillance advertising. The groups urged the agency to act against commercial surveillance and to define real-time bidding as an unfair and deceptive practice. The comment read, “Surveillance-based advertising hurts the internet and exposes us all to discrimination, manipulation, and to private and government surveillance. The Irish Times wrote about the complaint filed with the FTC.
📝 WHAT WE'VE BEEN UP TO:
OMI senior fellow Johnny Ryan’s examination of thousands of pages of documents from a California court case involving Meta revealed that the company was most certainly not in compliance with European data regulations. The Washington Post and Irish Times covered Ryan’s pivotal role in bringing Meta’s obfuscations over its data to light. The Post said Ryan "conducted the original research on the court documents, which he says offer a rare insight into what Facebook knows about its own data processing.”
Tech Policy Press this week published OMI reporter Karina Montoya’s essay on Big Tech accountability amid the spread of misinformation as part of a series on Race, Ethnicity, Technology, and Elections.
Marketplace quoted OMI legal analyst Daniel Hanley on the power Apple’ wields by deciding which products can be marketed on its App Store: “Apple is shutting out any potential competition, right, to their own developed services.”
Executive director Barry Lynn was quoted in CNET on Amazon’s strategy of maintaining high prices through unfair practices, saying that recent court cases brought against the online retailer are “showing that Amazon is, in a very routine way, forcing consumers to pay more than they need to.”
In an article on the demise of the merger between Simon & Schuster and Penguin Random House, Los Angeles Times cited a letter signed by Open Markets Institute stating that the merger “would bring well more than half of key U.S. book markets under the control of a single corporation, which poses a variety of potential threats to freedom of speech and democracy in the United States.” City Journal, the Manhattan Institute’s in-house magazine, also took note of Barry Lynn’s comments to Washington Post on the decision.
🔊 ANTI-MONOPOLY RISING:
The Federal Trade Commission is likely to file an antitrust lawsuit against Microsoft’s $69 billion takeover of video game maker Activision Blizzard, which produces Call of Duty and Candy Crush. A lawsuit against this merger would represent the biggest move yet by the FTC under Chair Lina Khan to rein in technology companies. (Politico)
Two baseball coaches this week filed an antitrust lawsuit against the National Collegiate Athletic Association over unfair coaching practices. They accused the baseball association of enforcing a “naked horizontal restraint” that reduces pay and mobility by restricting competition among baseball teams seeking coaches. (Bloomberg Law)
The Department of Justice has opened an investigation into Texas real estate tech company RealPage for alleged collusion with landlords to raise rents, following a ProPublica investigation last month. The DOJ also plans to look into a 2017 merger between RealPage and its largest competitor. (PopSci)
The Department of Justice continues to monitor Live Nation, the parent company of Ticketmaster, after unprecedented chaos during last month’s ticket sales for Taylor Swift’s concert that could force a breakup of the company. DOJ surveillance began prior to the debacle following anonymous tips suggesting a history of anti-competitive behaviors by both companies within the music sale industry. (Politico)
📈 VITAL STAT:
$16.3 Billion
The amount in damages being sought by thousands of digital publishers from Google and its parent entity Alphabet in the U.K. on behalf of thousands of digital publishers for alleged anti-competitive behavior related to the company’s adtech practices. (Tech Crunch)
📚 WHAT WE'RE READING:
“Chokepoint Capitalism.” (Beacon Press, Rebecca Giblin and Cory Doctorow). In this new book, the authors explore how creative labor markets, including film, music, news and book publishing, have been captured by Big Tech corporations through anti-competitive practices, and what existing solutions Americans can deploy to break their power.
“Rent Going Up? One Company’s Algorithm Could Be Why.” (ProPublica, Heather Vogell, Haru Coryne and Ryan Little). This story exposes how the merger between Texas-based real estate company RealPage and its largest pricing competitor helps landlords collude to set rent prices across the U.S. — which has recently prompted an investigation by the Department of Justice Antitrust Division.
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