Corporate America’s Second War With the Rule of Law

Last month, after a fierce lobbying battle, California passed a law that will likely end up mandating that companies in the “gig economy,” such as Uber, treat gig workers as employees. After losing the battle to carve out an exception for Uber drivers, Uber’s general counsel, former Obama official Tony West, announced the company simply did not believe the law applied to it. Disrespect toward law is not a surprise at Uber. From the very beginning, leaders there have often seen laws as something to be tested, not followed; at one point in 2017, the company was under five separate criminal investigations.

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Matt Stoller (@matthewstoller) is the author of Goliath: The Hundred Year War Between Monopoly Power and Democracy (2019) and a fellow at the Open Markets Institute.

West’s announcement reflects an important ethos at Uber, and in corporate America in general. On the verge of the 2020s, we’re reverting to the 1920s: The rule of law, if you are powerful in either business or government, increasingly seems optional.

Elite disrespect for law is prompting a political backlash, often framed as a “techlash.” The gig economy law exists largely to address Uber’s history of a two-tiered system of worker treatment. There are the drivers who do the work, and there are the executives who control strategy and structure. Earlier this year, Uber unilaterally slashed pay for its drivers in Los Angeles by 25 percent, prompting a strike. Meanwhile, former CEO Travis Kalanick—who was removed from a leadership role after overseeing a corporate culture of alleged sexual harassment within the company and an expansion strategy of disrespecting laws set by elected leaders—remains a billionaire. The new gig economy law passed by California’s legislature is the democratic response to this unfair situation.

West’s statement is remarkable for what it implies about democratic institutions. Uber lobbied against the law, will go to court to fight the law while refusing to apply it to its drivers, and, even after the law passed the assembly, is trying to negotiate with the governor. More importantly, West says that Uber and Lyft “have already transferred $60 million into a campaign committee account” to run a ballot initiative against the new California labor law. Uber and Lyft are imposing a “money veto” over the will of elected leaders.

Silicon Valley leaders choosing to dispute the law is not unusual. Both Google and Facebook signed consent decrees with the Federal Trade Commission in 2011 over violations of privacy. Facebook, aside from its $5 billion fine from the FTC, was also charged with misleading European regulators during its purchase of WhatsApp, receiving a modest fine from the Europeans as well. Enforcers are investigating the company to see if its acquisitions of competitors like Instagram and WhatsApp over the past decade were legal. Google, no slouch to controversy, just paid a $170 million fine over alleged manipulation and tracking of children.

Silicon Valley giants are the pacesetters of society. When Uber can threaten legislatures, or Facebook or Google are fined without any consequence to their stock prices or business models, it threatens the legitimacy of our democracy. This is a crisis. It is not, however, the first time America has faced such a crisis.

In the 1920s technologically advanced financial empires—Rockefeller, JP Morgan, Dupont, and Mellon—dominated American business and politics. These were the high tech darlings of their day; Mellon’s Alcoa monopoly produced aluminum, key to the then-fantastical aerospace industry. Morgan bankers organized the electricity industry, which, like Uber or Google, seemed to most people like magic.

In some ways, elite disrespect for reasonable ethical norms was worse then. The third-richest man in the country, Andrew Mellon, wasn’t just a baron of industry, he also served as secretary of the Treasury from 1921 to 1932, under Warren Harding, Calvin Coolidge, and Herbert Hoover. (Citizens joked that three presidents served under him.) In that role, he handed out tax cuts to himself and used his position to seemingly leverage the Colombian president into giving his own oil company, Gulf Oil, lucrative drilling concessions.

Americans responded to this two-tiered system of justice with a series of popular protests and elections. In 1932, a former cotton farmer named Wright Patman filed articles of impeachment against Mellon, backed by tens of thousands of protesters in Washington, DC, and his close ally, Congressman Fiorello LaGuardia. Even before Franklin Roosevelt took office, the Senate embarrassed oligarchs through high-profile hearings and investigations known as the Pecora Commission. Roosevelt used evidence from these hearings to bring tax evasion suits against high-profile bankers like Thomas Lamont of JP Morgan and Charles Mitchell of Citibank (then National City). Mellon faced a civil trial for tax avoidance. FDR did this as he helped to patch the banking system back together, restoring Americans’ confidence that they could in fact govern themselves.

The old order fought back. Hoover, fearing disorder, had the protesters in 1932 teargassed and their protest encampments destroyed by the Army. When the government tried to impose the law on this small group of powerful actors, what FDR called the “informal economic government of the United States,” they at first refused. In the middle of the 1930s, the head of the American Bankers Association called on bankers to stop funding the government until it ended the New Deal. The A&P supermarket chain, the first company with a billion dollars in revenue and the Amazon of its day, fought the Robinson-Patman Act, a law passed in 1936 to stop the corporation and other chain stores from engaging in predatory practices against its rivals.

The courts, largely run by conservative old men, struck down 1,600 injunctions and rules in the summer of 1935 alone. Lamont, Mitchell, and Mellon escaped criminal charges, but the government continued pursuing civil remedies. Financiers poured money into advocacy groups. Patman likened them to the KKK, calling them “hooded organizations.” “They only believe in law and order,” he said, “if they write the law and give the order.”

The public validated these left-wing populists with three smashing elections, in 1932, 1934, and 1936. Just before the 1936 election, Roosevelt said that “the forces of selfishness and of lust for power” would soon meet their match, and “their master.”

By the 1950s, New Dealers had been able to impose some semblance of the rule of law in corporate America, and business leaders built great companies organized around creating better products and services. The likes of Google, Facebook, and Uber, however, are partly the result of the breakdown of this legal environment.

As I trace in my book Goliath, the New Deal system lasted until the 1970s, when a series of debates took place in corporate America and Congress over inflation, oil shocks, and breakdowns among corporations such as the train giant Penn Central—and the bankruptcy of New York City itself. Both the left and the right, for different reasons, agreed to relax rules on concentrated capital.

Starting in the early Reagan era, enforcers changed enforcement around antitrust laws and stopped aggressively enforcing white-collar-crime laws. From Michael Milken’s junk bond scandals to the savings and loan scandals to Microsoft’s predatory schemes around its operating system products, misbehavior in business soon paid well. At first much of the behavior, like that of Milken, was frowned upon. Milken and Enron executives, for instance, went to jail, and Microsoft went to trial for monopolization. But these would be the last great hurrahs for the rule of law. As Inside Job documentarian Charles Ferguson noted, between the late 1990s and early 2000s “all the rules just went away.”

This first became apparent when executives at almost 200 of the largest companies in America got unusually large stock option grants to take advantage of the post-9/11 stock market swoon. In 2004, the FBI warned Congress of a possible mortgage fraud “epidemic,” which of course went unaddressed until the 2008 financial crisis, when, again, no one in a powerful position was punished. No one was jailed for the BP oil spill or the Volkswagen pollution fraud scandal. By the time Wells Fargo was caught for systemic fraud, many Americans simply yawned at the very idea of justice for the powerful.

This trend has continued in the Trump era. Facebook’s stock went up significantly after the FTC’s action against the company for privacy violations become publicly known. The Sackler family, opioid billionaires, are reportedly set to announce a settlement with no admission of wrongdoing. As British writer Gilbert K. Chesterton once put it, “The poor have sometimes objected to being governed badly; the rich have always objected to being governed at all.”

In Washington, DC, it’s easy to see, with petty corruption of favor-seekers staying at the Trump hotel or golf course. But throughout C suites, for decades, self-dealing has been the route to riches. The gap between the rule of law as applied to the powerful and the rest of us widened long before Uber emerged. Uber, in other words, was simply adhering to norms set decades ago.

The people, however, are fed up. We call it the techlash, but it is really a long-simmering anger at lawlessness among political and commercial elites. And that era will likely soon be over.

Last month, 50 state attorneys general announced an investigation into Google for monopolizing ad markets. California has passed a potentially groundbreaking privacy law regulating use of data by Big Tech companies to complement the law on the gig economy. New York Attorney General Tish James is investigating Facebook. Political leaders are proposing ending student debt and going after a bloated health care sector, as well as breaking up Big Tech and Big Ag giants. Big Tech is increasingly at the center of the 2020 election.

The battle, now joined, will be fierce. Public servants can expect bitter fights and threats, lies and payoffs and walls to justice established by ideologically blinkered judges. But fundamentally, the rule of law is a precious political achievement of liberal democracy. It doesn’t just happen. We the people, along with elected public servants, have to make it happen. This is our test. The road ahead will be rough, but we may yet regain our ability to act as a free people.

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