Welcome to The Corner. In this issue, we discuss the need to protect the child care industry from private equity powers looking for quick profit, particularly with an increase in public subsidies to support the critical sector.

The Growing Fight to Protect Public Support for Care from Private Equity

Audrey Stienon

In March, the Massachusetts senate passed a bill expanding state subsidies for childcare that would increase public support to this industry but included a provision preventing any one private provider from receiving more than 1% of this funding. Although neutral in its wording, this provision takes direct aim at the private equity (PE) funds who own eight of the 10 largest chains in this industry, opening a new front in a growing fight to reign in the excesses of private equity.

PE firms, like Bain Capital and Apollo Global pool wealthy clients’ money into funds, buy control of a portfolio of companies, restructure these companies to maximize their profits - often by loading them with debt, and then sell them off to the highest bidder within three to five years. This is often done with little to no regard for the long-term health of these companies, let alone their workers, customers, creditors, or suppliers.

In the last year, various federal agencies have locked horns with PE in a fight over the scope of their powers to regulate these investors. For example, a new Securities and Exchange Commission rule requiring PE funds to regularly disclose their fees and performance to investors was recently struck down by a federal appellate court. Meanwhile, the PE owner of an anesthesiology chain that was recently sued by the Federal Trade Commission for anti-competitive practices has managed to wriggle free from any responsibility after a federal judge dismissed them from the case.

A second wave of fighting has emerged as - on an industry-by-industry basis - government officials and legislators move to patch some of the regulatory loopholes exploited by PE. In April, the Biden Administration set new minimum staffing requirements for nursing homes after PE ownership was found to increase fatalities in this sector. And earlier this month Senators Elizabeth Warren and Ed Markey introduced a bill empowering regulators to claw back money from PE funds that financially harmed their health care portfolio companies.

The Massachusetts childcare funding restriction represents a new line of protection against private equity—one that promotes market competition as a means of preventing PE funds from profiteering from taxpayer money. The policy debates in child care are thus of immense significance to the varied sectors receiving public funding as part of the revival of industrial policy in the U.S.

In its most basic form, industrial policy is about the role of government in shaping private markets to achieve public priorities. However, policies that provide critical public funding to the private sector through programs like Medicaid, as in the 2010 Affordable Care Act, or through subsidies, as in the 2021 Inflation Reduction Act, have routinely—and inadvertently—created the market conditions that attracted PE funds to industries such as nursing homes, autism services, and even heat pump installation. Private equity then goes on to profit from this public funding, usually while undermining at least some of the priorities that this money was intended to promote.

Childcare advocates thus worry that PE investors will undermine their efforts to structure markets to encourage private businesses to provide high-quality childcare at a reasonable cost, to help make the service both universally accessible and affordable. Public funding is key to achieving this vision, since it is the only means to bridge the mismatch between the true cost of providing childcare and ability of many working families to pay for this service.

Since PE funds and PE-backed chains have greater access to external financing, they will be among the best placed actors to rapidly expand into new communities if childcare funding increases.

One fear is that rather than using their money to invest in new supply, PE funds will instead prioritize growth through roll-ups of smaller programs. Many existing programs are vulnerable to acquisition, often because they lack the resources to stabilize their cash flow. New programs created in response to increased public funding could also be targets for PE acquisition, since the venture capital and growth equity funds most likely to finance new enterprises will want to sell them to the highest bidder within a few years.

The Massachusetts funding bill is one step in the direction of monitoring and protecting market competition. Given how most roll-up acquisitions are too small to be reported to competition regulators, industry regulators must learn to proactively monitor local market concentration levels, and to collaborate with states attorneys general and federal regulators to catch and punish anti-competitive actors.

Policymakers should also consider ways to support small businesses to reduce their incentives to sell to PE-backed chains, such as by providing better cash flow support. They should also get creative in finding ways to support alternative buyers, such as worker co-ops, to keep the programs on the market out of private equity hands.

In childcare, as in other industries, the fight to convince policymakers about the importance of public funding may be coming to an end. But the fight to determine the impact of this funding has just begun.

Open Markets and Guardian to Host Conference on America’s Information Crisis on June 27

The Open Markets Institute and The Guardian US will host a conference next week on June 27 at the Press Club in Washington on America’s information crisis and solutions to the problem. Speakers will include European Competition Commissioner Margrethe Vestager, U.S. Trade Representative Katherine Tai, Federal Communications Commission Chair Jessica Rosenworcel, and Jonathan Kanter, assistant attorney general for antitrust at the Department of Justice. It will also include comments by Sen. Elizabeth Warren, Sen. Amy Klobuchar, and others. The discussion will focus on ways to bolster the supply of trustworthy journalism, address the problem of tech platforms manipulating and censoring what individuals read, and stop corporations from taking the work of journalists and publishers without compensation. The timing of our event could not be more critical, with vitally important elections this year in the U.S., UK, Europe, and more than 50 countries around the world. RSVP for the event here.

Open Markets and National Women’s Law Center Co-Host Event on Private Equity in Childcare

The Open Markets Institute, National Women’s Law Center, and Community Change will convene policymakers and advocates on Monday, June 24, for an all-day event, “Children Before Profits: Addressing the Risks of Private Equity in the Child Care Industry,” to discuss how to protect the childcare industry from destructive forms of private equity investment. The event comes at a time when PE funds are disrupting industries from nursing homes to family doctors’ practices, mainly by rolling up independent service providers into large corporate chains. The event will take place in Washington D.C. at the Eaton Hotel. Please RSVP for the event here.

Open Markets Hosted “Too Big to Feed” Roundtable on Consolidation of Food Industry

Open Markets Institute last week hosted a virtual roundtable, “Too Big to Feed: The Threats of Corporate Consolidation on the Food Supply” with panelists Eric Schlosser, producer of Food Inc. 2 and author of Fast Food Nation; Max Miller, attorney advisor to Federal Trade Commissioner Alvaro Bedoya; and OMI food program manager Claire Kelloway. The panelists spoke about how corporate consolidation puts food workers and consumers at risk and discussed recent efforts by the Federal Trade Commission, Department of Justice, and the Department of Agriculture to challenge unfair and deceptive practices, such as new merger guidelines, enforcement of the Robinson-Patman Act, and new Packers and Stockyards rules. Marcia Brown, food and agriculture reporter for POLITICO, moderated the discussion. Watch the roundtable here.

📝 WHAT WE'VE BEEN UP TO:

The Open Markets Institute published an expert brief by Center for Journalism and Liberty director Dr. Courtney Radsch calling for a framework to establish journalism’s value in AI models. The brief is the first in a series of expert briefs designed to provide policymakers, journalists, advocates, and other stakeholders, with an overview of a particular problem caused by monopoly power and a set of clear, leading solutions for addressing it. ”To adapt their business models for the AI era, news publishers need to demand their rights and work collectively to put a figure on the value of journalism to artificial intelligence systems and assess the threat posed to future revenue and business models,” Dr. Radsch wrote.
Open Markets Institute’s legal director Sandeep Vaheesan joined the Broken Law Podcast hosted by the American Constitution Society to discuss the reinvigoration of antitrust enforcement, including the FTC’s rule banning non-competes and the recent cases brought against Amazon, Kroger-Albertsons, and Apple.
Dr. Courtney Radsch last week participated in a media innovation conference in Rio de Janeiro hosted by the Associação de Jornalismo Digital - Ajor. She spoke on a panel entitled “AI & Journalism: Risks and Potential,” a discussion that was particularly relevant in light of a recent report from Brazil’s temporary commission on AI setting meaningful limits on text-mining and automated use of content for AI.
Open Markets’ Europe director Max von Thun last week participated in an event hosted by Oxford University on the intersection of retail trends and competition policy, where he spoke on a panel on the relationship between the high street and Big Tech, and how we can level the playing field.
Earlier this month, von Thun also spoke an event hosted by EU affairs think tank CEPS on China's approach to regulating their own tech giants, where he tied Chinese regulation back to the European and US picture. He also participated last week on a web panel hosted by the Digital Markets Research Hub to discuss the main features of the UK/s Digital Markets Competition and Consumers Act.
Valuetainment cited Open Markets Institute’s report AI in the Public Interest: Confronting their Monopoly Threat, which was published last year, in an article on federal investigations into Nvidia, Microsoft, and OpenAI for their monopolization of the AI space.
The Open Markets joined 30+ civil rights organizations in signing on a letter calling on Federal Trade Commission chair Lina Khan to issue a rule on privacy protections to regulate commercial surveillance and data collection. Common Dreams covered the letter, which was also signed by Fight for the Future, Demand Progress Education Fund, Center on Race and Digital Justice, and Athena Coalition.

🔊 ANTI-MONOPOLY RISING:

The Federal Trade Commission sued design software giant Adobe, alleging that its subscription and cancellation fee structures have been designed to systematically deceive users. (New York Times)
The Federal Trade Commission opened an antitrust probe of the controversial employment and licensing deal between Microsoft and Inflection AI following concerns the agreement was designed to skirt a potential antitrust review. The move follows reporting earlier this month that regulators intend to launch a series of investigations into anti-competitive actions by major players in the artificial intelligence industry. (Wall Street Journal)
A federal judge in New Jersey ordered five breathing drug patents from the drugmaker Teva to be removed from a Food and Drug Administration list called the “Orange Book.” The move, which was prompted by a lawsuit from competitor Amneal and backed by the Federal Trade Commission, opens the way for generic competition. (Reuters)
Facebook suspended plans to begin training its artificial intelligence models on data harvested from within the European Union and United Kingdom, following several requests from antitrust regulators across the continent who questioned whether the move would run afoul of the General Data Protection Regulation. (TechCrunch)

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📈 VITAL STAT:

$3 trillion

The value of Nvidia’s market capitalization, currently the world’s largest. Currently under regulatory scrutiny for its dominance, Nvidia has cornered 80% of the AI chip market, which includes the custom AI processors made by cloud computing companies like Google, Microsoft and Amazon, enabling its gross margins of 70% to 80%. (Reuters)

📚 WHAT WE'RE READING:

When the Clock Broke: Con Men, Conspiracists, and How America Cracked Up in the Early 1990s — Journalist John Ganz traces the rise of the modern populist right to the 1990s, a decade that saw the end of Reaganism, the demise of the Soviet Union, and the first wave of insurgents like Ross Perot and Pat Buchanan. As he traces the major political developments of the decade, Ganz makes a compelling argument that the bipartisan consensus on deregulation and free trade that emerged in the 90s sowed the seeds of cultural resentment and alienation that define conservatism today.

🔎 TIPS? COMMENTS? SUGGESTIONS?

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