Monopoly Round-Up: How to Stop the Enshittification of America

As usual, there’s a lot of monopoly-related news. There was an important win in the Paramount-Warner merger fight, the world of tech giants is in a civil war over open source AI models, and Lina Khan continues to annoy the superrich by becoming the Chair of one of the most important economic development posts in New York City.

Before getting to all of that in the full round-up I want to discuss a political opportunity to improve the lives of Americans very quickly.

In a few months, it’s likely that Congress will change hands. If it does, one thing Democrats could do is pass a law making it possible to sue big companies who cheat their customers, suppliers, or employees. Right now, it’s virtually impossible to do that, and the result is a degradation of our economic order so significant that we’ve had to invent a new word to describe it.

The Legal Roots of Enshittification

The term “enshittification” was coined in 2022 by novelist Cory Doctorow. He initially used it to describe the decline in quality of monopolistic tech platforms like Google, Facebook, and Amazon, who lock in users and then degrade their experience to secure more profit. But people now use the term to describe how everything from veterinary services to landlords are getting worse, rapidly.

On a consumer level, we’ve all experienced getting nickeled and dimed, as well as stuff breaking more often than it used to. I’ve written a lot about this dynamic, from Ticketmaster’s junk fees to bad service from water cooler giant Primo Brands to stripping our ownership in video gaming and farming equipment.

The word “enshittification” was recently added to the dictionary, and there’s a reason for that. The experience of being trod upon is now routine. There’s a site called Worse On Purpose that regularly profiles the prevalence of poor quality products, from appliances to mattresses to Whole Foods to cookware to pet care. As the New Yorker put it, we live in the “Age of Enshittification.”

We didn’t always have to put up with poor quality products, bad service, and unfair treatment. What happened? And can we reverse it? The answer is pretty simple. From the 1980s onward, corporate America convinced judges to stop letting ordinary people sue big businesses for screwing them. Small businesses, like independent pharmacies, also lost the ability to get their day in court.

The right to sue is fundamental in America, so fundamental that the seventh amendment of the Constitution guarantees a right to a jury trial where “the value in controversy shall exceed twenty dollars.” So if it’s enshrined in the Constitution, how did they take it away? The answer is the big business lobby convinced judges there were simply too many frivolous lawsuits frustrating the rights of capital. (Remember the public relations campaign about how McDonald’s got sued for serving ‘hot coffee’ because of those greedy trial lawyers?)

One way to get rid of these nuisances was to say that people were voluntarily waiving their rights. Of course, in most cases, people had no choice, and usually didn’t even know they were waiving their rights. You know when you click on the endless parade of “accept” buttons when signing up for a new service? Or signing dozens of documents when getting a loan, or an employment agreement? Yeah, that’s one of things you are signing away – your right to sue.

Courts have traditionally not allowed people to waive these rights. Starting in 1983, however, the Supreme Court reinterpreted a 1925 law, the “Federal Arbitration Act,” meant to legalize arbitration of contract disputes between large businesses. They ruled that Congress preferred moving disputes out of the courts and into secretive arbitration panels.

Soon arbitrators, who were hired by corporations and whose proceedings are secret, were judging matters of law, such as antitrust, consumer protection, and employment discrimination. Here’s Lina Khan and Deepak Gupta on what was a de facto massive transfer of wealth to big business:

Against the backdrop of a movement claiming excessive lawsuits were strangling small businesses, courts would continue to expand the realms in which companies could compel arbitration. In the 1995 case Allied-Bruce Terminix v. Dobson, the Supreme Court permitted the use of arbitration clauses by companies in routine consumer contracts.

This prompted Justice O’Connor to remark that, “over the past decade, the Court has abandoned all pretense of ascertaining congressional intent with respect to the Federal Arbitration Act, building instead, case by case, an edifice of its own creation.” In 2001, the Court ruled against a group of Circuit City workers, holding that employers could use arbitration clauses in contracts with employees despite statutory language to the contrary. that arbitration clauses were enforceable against illiterate consumers; a separate court ruled that they were enforceable even when a blind consumer had no knowledge of the agreement.

The most important cases were more recent. The “game-changers were 2010’s Rent-A-Center v. Jackson, holding that arbitration clauses must be enforced even when they are part of an illegal contract; 2011’s AT&T Mobility v. Concepcion, granting companies the unfettered right to enforce clauses that ban class actions; and 2013’s American Express Co. v. Italian Colors Restaurant, requiring enforcement even when doing so has the practical effect of completely precluding redress under a law enacted by Congress.”

Binding arbitration agreements are now routine in wireless contracts, banking agreements, payday loans, nursing home contracts, and employment. And since these court decisions, tens of billions of dollars that used to flow from corporations to consumers, employees, and small businesses in the form of class action lawsuits stopped. More importantly, big business simply no longer has to care about treating anyone honestly, because there is effectively no more redress through the courts.

To give a sense of how bad this situation is, in 2019, there were more people in America struck by lightning than consumers who got monetary awards from an arbitration panel. And this situation is quite valuable to big business. One academic found that after a regulation allowing class action lawsuits against financial firms was struck down in 2017, the stocks of those firms outperformed. Your frustration at a broken product or deceptive claim boosts stock prices.

The class action waiver is particularly problematic. Previously, class actions, where people band together with others that have similar claims, made it possible to address all sorts of bad behavior. It isn’t worth going to court to recover $10 from your cell phone provider, but if you can band together with a million people each of whom got swindled by that same wireless operator, then it becomes economically possible. So a business thinking of cheating lots customers of small sums had to think twice. But eliminating class actions effectively legalized the kind of nickel and diming that is the hallmark of enshittification. In addition, it is much more difficult to bring antitrust cases against dominant firms, since a lot of antitrust cases are class actions.

This problem isn’t just about individuals. The Main Street Competition Coalition has filed a brief on how this problem affects pharmacists and grocers. I noted that uniform rental firms Cintas and Unifirst have built their model around forcing millions of small businesses to consent to arbitration, so there’s no recourse to what many people claim is systemic swindling. Indeed, if the cost of cheating someone goes down, we’re just going to have a lot more cheating as a business model.

Ok, so that’s the problem. Where’s the fix? Well, it’s pretty simple. Congress can pass a law saying that forced arbitration doesn’t apply to civil rights, antitrust, employment, or consumer rights cases, unless both parties choose after the dispute occurs. You might not think that’s possible, but such a law actually passed the House of Representatives 2022, pushed by Representative Hank Johnson and Senator Richard Blumenthal. It didn’t, however, get through the Senate.

And there’s a greater possibility of this happening than you might think. Starting in the mid-2010s, there was increasing interest in corporate dominance of the courts. The New York Times did a series in 2015, calling arbitration a “far-reaching power play orchestrated by American corporations.” Under the final years of Obama and into the Biden administration, various government agencies acted.

The USDA sought to limit arbitration clauses from hitting poultry farmers, the CFPB tried to ban arbitration agreements in financial products, the DOT tried to stop airlines from using them against passengers, and so on and so forth. Many of these were undone by the Trump administration, but the Supreme Court has also surprisingly started chipping away at arbitration, expanding the types of employment contracts exempted from the Federal Arbitration Act. In 2022, Congress actually passed a law exempting sexual harassment and sexual assault claims from being subject to binding arbitration in employment contracts. So now those cases are actually flowing into the courts again.

The politics here are set up well for reform. When Democrats sought to limit arbitration a few years ago, they ran a standard left-liberal coalition of consumer rights groups, plaintiff lawyers and unions. But today, small businesses are upset as well. And there’s a much bigger conservative plaintiff’s bar, and they are unhappy with the inability of ordinary people to vindicate their constitutional rights. There are lots of possible ways to change the law. You could say no class waivers for claims that are less than some reasonable threshold, like $5000. Or overturn Concepcion and let state unconscionability laws apply once again. Or say the FAA doesn’t apply in state courts, which is something Clarence Thomas believes. If the Democrats passed legislation, they may be able to get a concession from Trump on this issue.

Letting people sue big business in court once again is actually a pretty normal American solution to enshittification. The American political system has never enforced consumer protection and employment primarily through state regulators. We enforce our rights through the court system, and specifically via private citizens bringing cases. While in Europe there are strong consumer protection regulators, in the U.S. our strong consumer protection regulator is the face of a lawyer on a billboard.

So let that guy go at the problem again. It worked for a few hundred years. Might as well get back to it.

And now, the rest of the news round-up. Private equity is ruining horse riding, Lina Khan has a new job and is already upsetting the superrich, and Paramount took a major loss in court. Plus, SpaceX is down by 50% already. Pop that bubble! That and more, after the paywall.

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