Antitrust and Architecture: Coordination not Domination

Nicolas Kemper

The drive to unionize architects looks like a contest between management and labor. This characterization, however, is misleading. While a union may focus on the relationship between the leaders of firms and their employees, the costs of accommodating their demands will ultimately be shouldered by clients. It follows, then, that just as workers are organizing to bargain with their bosses, bosses should coordinate collectively to bargain with their clients.

Logical, but illegal. In February of 2014, Peggy Deamer and a colleague asked Robert Ivy, CEO of the American Institute of Architects (AIA), why the organization was ineffective at advocating for better wages and fees for its members. He told them that even talking about wages and fees was off-limits, after two antitrust proceedings against the AIA, in 1972 and 1990. Working with the architect Vittorio Lovato, Deamer would go on to parse this history at great length—8,000 words—in The Avery Review. The article, “The Sherman Antitrust Act and the Profession of Architecture,” is an important part of the intellectual groundwork for unionizing architects.

Of course, antitrust was not created with architects in mind. Antitrust, as described by the law professor Tim Wu in his book The Curse of Bigness, arose at the high-water mark of the Gilded Age to combat the Trust Movement, whose financiers and robber barons worked to place each market under the control of a single monopoly. The public backlash was considerable (there was at one point even an Anti-Monopoly Party), spurring Congress to pass the Sherman Antitrust Act of 1890. Its bald and broad language banned “every contract, combination in the form of trust or otherwise…in restraint of trade or commerce.”

That trusts are no longer the primary vehicle for today’s would-be monopolists can obscure the law’s continued power and relevance. The trust’s contemporary incarnation might be a private equity firm, but trusts, mergers, acquisitions, monopolies, rollups, combinations, and consolidation are all ways to describe the concentration of market power and are therefore the target of antitrust. Terminology aside, the law might be best understood not by what it is against, but what it supports: economic rights. Its proponents held that without economic rights, political rights were meaningless. Said one of antitrust’s greatest champions, Supreme Court justice Louis Brandeis, “Men are not free if dependent industrially on the arbitrary will of another.”

In practice, much of the agency in antitrust policy sits with judges, regulators, and the presidents to whom they answer. Initially, enforcement was patchy: Between 1895 and 1904 more than 2,274 manufacturing firms merged into 157 corporations. By 1900 almost every industry fell under the control, or was on its way to being controlled, by a single monopoly. The following year Theodore Roosevelt finally began putting the law to use, picking only a few fights, but they were sufficiently high profile (such as breaking up Rockefeller’s monopoly, Standard Oil) to earn him the moniker of “trustbuster.” By the late 1930s, Franklin D. Roosevelt’s Justice Department had made antitrust enforcement systematic, bringing 1,375 complaints in 213 cases across 40 industries. The role of German monopolists in elevating the Nazis to power and then fueling their war effort was so clear to policy makers that antitrust gained still new vigor after World War II. In 1950, the Anti-Merger Act joined the Sherman Act, allowing the Justice Department and Federal Trade Commission (FTC) to challenge mergers and so stop a monopoly before it could form. By the 1960s antitrust enforcement was considered an essential function of federal government. Lee Loevinger, President Kennedy’s antitrust chief, captured the attitude when he testified to Congress that “[t]he problems with which the antitrust laws are concerned—the problems of distribution of power within society—are second only to the questions of survival in the face of threats of nuclear weapons.”

Up to this point, antitrust had yet to touch architects. In fact, throughout the period sketched out above the AIA openly advocated for higher fees. Richard Morris Hunt, who cofounded the AIA in 1857, established 5 percent as the standard architecture fee on his projects, a number the AIA published as a fee schedule, the first of many that would create standard fees across the profession. According to Deamer, the organization felt it was within its rights to set fees because “the dignity of the profession rested on its united front of expertise, not the cheapness of its members.” This behavior did not run afoul of antitrust enforcers because architecture was considered covered by the Learned Profession Exemption, which held that antitrust did not apply to medicine, law, engineering, and other such professions.

Then, the direction of antitrust enforcement shifted.

With big business chastened, politicians on the left and right were lulled into complacency by their own success. In the 1970s a phalanx of academics and think tankers, with the University of Chicago as their base and Robert Bork at their head, waged a disciplined war on the ideological underpinnings of antitrust. They argued that antitrust was all about the consumer, and the only important metric for measuring consumer welfare was the price of goods. This approach, still in force today, made the work of regulators and judges in charge of reviewing mergers or consolidations much easier: either the price went up or not. With the focus on price instead of size, so long as their goods were cheap (or even free), companies from Walmart and Amazon to Google were allowed to grow to gigantic proportions.

At the same time (the 1970s), a series of antitrust court cases involving lawyers, engineers, and dentists led to the demise of the Learned Professions Exemption. So when the Justice Department began asking about the AIA’s fee schedules, the organization decided not to put up a fight, entering into a 1972 consent decree that scrapped the fee schedule. A second consent decree, in 1990, banned practices that would “prohibit any individual architect or architectural firm, acting alone” from expressing an opinion on prices or competitions. In her article, Deamer draws out the implications: “two architects agreeing to boycott an architectural competition is illegal; architects in a local area agreeing to not submit an RFP for a certain project is illegal.”

There was an irony, she wrote, that the antitrust hammer came down on the architectural profession at precisely the moment big business was given a pass. In presidential administrations from Reagan to Obama, regulators stopped fighting consolidation. To cite one data point from a 2019 Yale antitrust enforcement data survey, in the 1970s the antitrust division at the Justice Department would routinely bring more than 10 antimonopoly cases a year. In the period from 2000 to 2018, the unit brought just one. The lopsided federal response to the 2008 financial crisis, which relied upon gigantic infusions of cash from the federal reserve, further exacerbated imbalances as financiers with low interest rates and easy access to capital snapped up businesses that were under duress. Facebook swapped innovation for an aggressive acquisition strategy, buying 67 companies, Instagram and Whatsapp among them. Amazon bought 91, and Google 214. Outside the flashy world of big tech, private equity firms led rollups to create monopolies or oligopolies in areas as obscure as local dental practices, veterinary offices, and high school cheerleading. Between 1997 and 2012, 75 percent of industries became more consolidated. Companies grew swollen, wages at the bottom stagnated, and inequality exploded.

In recent years, a school of lawyers, policymakers, and journalists generally referred to as the New Brandeis Movement has championed an antitrust revival. They would like the government to stop more mergers, break up the big tech companies, and target more federal support to smaller players and upstarts. In 2016, Lina Khan published a forceful argument in a paper published in the Yale Law Journal, “Amazon’s Antitrust Paradox,” which lays down the case against price as the chief measure of antitrust. In 2018 Tim Wu published The Curse of Bigness, which I have been citing in this article.

In 2019, Matt Stoller released an even deeper history of antitrust called Goliath and continues to keep aggressive tabs on the topic through his Substack newsletter, BIG.

A few politicians on the left and right took up their call, but after decades of inaction, robust antitrust enforcement felt about as plausible as universal healthcare. Then in July 2021, President Joe Biden gave a speech that told more or less the same story I have laid out here—even calling out Robert Bork by name: “Forty years ago, we chose the wrong path, in my view, following the misguided philosophy of people like Robert Bork, and pulled back on enforcing laws to promote competition.” Wu probably wrote it.

The antitrust crowd had a wish list of hires, and Biden made almost all of them. Wu is now on the National Economic Council. Khan, at just 32, is now the head of the FTC, with the ability to block new mergers. Jonathan Kanter, an outspoken critic of big tech, is now the head of the antitrust division at the Justice Department. Already, he has sued to block the merger of the two largest book publishers, Penguin Random House and Simon & Schuster, arguing not that the merger will raise prices, but that it will hurt small producers—in this case, authors. A federal court just allowed a case by the FTC that would break up Facebook to move forward.

To be fair, antitrust does not break along strictly partisan lines. The FTC case against Facebook began under the Trump administration. In a break from the reaction to the 2008 financial crisis, a bipartisan set of lawmakers structured the Covid relief packages to funnel support to individuals and small businesses. Nevertheless, the Biden administration has significantly upped the ante. There will be a backlash, but now it is big business that has been lulled into complacency by its success. My friends in big law tell me there is a mad scramble underway for lawyers with antitrust expertise.

But how does this excitement about antitrust enforcement square with the experience of architects?

I talked with antitrust lawyer Andrew McCreary about how the story of antitrust and architecture measures up with the heady fight against big business. A recent article cowritten by McCreary, “Exit Strategy,” in the Stanford Law Journal showed how venture capital may prompt consolidation, and it proposed reforms to merger review that have since been endorsed in Congress. While he said Deamer’s work on antitrust is valuable, he took issue on a few key points. Her call for the deprofessionalization of architecture by ending licensure strikes him as particularly contradictory: “Her concern seems to be a race to the bottom on price, yet [deprofessionalization] seems to invite even more people to become architects—which would seem to accelerate that race.” He also noted the article conflates architecture employees and architecture firms. Deamer often simply refers to “architects” without making it clear whether she means architecture firms or their employees.

McCreary underscored the importance of asking, “What is the problem you’re solving, and for whom? And then does antitrust help or hurt, or is it beside the point?” For instance, architects must go through expensive graduate programs that saddle them with oppressive debt while conditioning them to inhumane work conditions. This is a real problem that shapes the industry, but one that has little to do with fee schedules and antitrust enforcement.

Architects make less, and bill less, than professions ranging from law to engineering. With that problem as our focus, we might turn to Deamer’s conclusion, which identifies three ways to legally collude: state exemptions and legislation, implicit collusion through third-party surveys, and unionization. The state exemption, also known as the Parker immunity doctrine, dates to 1943, when the Supreme Court ruled in Parker v. Brown that California could make laws that were anticompetitive. Lawyers today often use the state exemption, via state-condoned state bar associations, to protect anticompetitive behavior. The second method, implicit collusion, is exemplified by a third-party survey of New York’s corporate law firms, the “Salary Wars Scorecard,” published by Above the Law. Even though it is their employees and not the firms who submit their salaries for publication (often anonymously), corporate law firms nevertheless adjust their salaries to match the published schedule. (For those wondering, the standard first-year salary recently went up to $215,000, before bonuses.) In an interview, Deamer suggested that were this publication, NYRA, to simply start publishing a survey of each architecture firm’s salaries and fee schedules, it would thereby implicitly establish a path to industry-wide cooperation. Finally, regarding unions, their exemption is very clear cut: Congress exempted unions from antitrust law in both the Clayton Antitrust Act of 1914, pointing out that “the labor of a human being is not a commodity or article of commerce,” and then more completely with the 1932 Norris-LaGuardia Act, which prohibits contracts that make employment conditional on not joining a union.

The distinction between firms and employees is important here. Deamer’s first two methods of collusion are available to architecture firms. Unionization is only possible for employees. Yet were employees across several firms to unionize, establishing uniform salaries and benefits across a large part of the industry, it would force their firms to raise their rates, achieving the same end that the AIA fee schedule used to serve. Some clients at least appear to understand this implication: In an article in Curbed about the failed union drive at SHoP, associate principal Shannon Han told reporter Isabel Ling that “we’ve had clients threaten to stop working with us if we unionize.” By contrast, a non-union solution that increases cooperation among architecture firms may be bad for individual architect/employees, if that cooperation entails actions (such as non-poaching agreements) that in effect depress employee wages.

McCreary pointed out that there is at least one more way (not on Deamer’s list) firms can collude without violating today’s antitrust laws: mergers. Law, he explains, relies upon assumptions; for instance, a defendant is innocent until proved guilty. In the case of price-fixing, the law assumes the behavior to be anti-competitive, and it is incumbent upon the price fixer to prove otherwise. With mergers, the law assumes a merger to be creating some greater efficiency or value, and it is incumbent on the regulator to prove otherwise. Therefore, two separate architecture firms setting a price or agreeing to not participate in a competition or to not reply to an RFP will almost always be assumed to be illegal behavior, but if the two were to merge into one larger firm, the merger would be assumed to be legal. At which point they are then allowed to set prices and boycott competitions and RFPs together, as a matter of course.

Price-fixing and mergers are addressed in the two sections of the Sherman Act itself. Section 1, the focus of Deamer’s article, deals with agreements among multiple firms to restrain commerce. Section 2 pertains to the conduct of a single firm that tends to maintain a monopoly or seeks to monopolize a market through anticompetitive means.

In some ways, over the past four decades federal regulators have largely stopped enforcing Section 2 and become if anything overly zealous in their enforcement of Section 1. Ironically, attacking small firms for cooperation actually encourages the very consolidation the Sherman Act is supposed to prevent.

The law professor Sanjukta Paul unpacks this paradox in her article “A Democratic Vision for Antitrust,” which appeared in the Winter 2022 issue of Dissent magazine. In the piece, Paul focuses on franchises like McDonald’s and gig companies like Uber. In both cases, one company effectively dictates prices, work conditions, and so much more to thousands of nominally independent restaurant franchisees and gig workers. Antitrust law condones and even encourages this centralized control. Yet were gig workers (who, as independent contractors, are treated as businesses) or franchisees to coordinate prices among themselves, or even organize and bargain collectively with their franchisor, that would be illegal.

In short, Paul argues, antitrust accepts “vertical domination” while prohibiting “horizontal coordination.” She suggests a simple solution: carve out an antitrust exemption for small enterprises, like the one recently enacted by Australia.

Overall, she advocates stricter scrutiny of vertical integration, where the relationship is one of domination, coupled with exemptions and encouragement of horizontal coordination. Such an approach would bring antitrust enforcement back to where it was in its halcyon days, when, Paul writes, Louis Brandeis actually “sought to stabilize markets through coordination among small players,” understanding that “a chaotic, fractured market was ripe either for corporate consolidation or for domination by powerful players in adjacent markets (whether buyers or sellers).”

Denied the prospect of coordination, architecture firms have (true to Brandeis’s prediction) leaned into consolidation. There has not been an architecture union since 1947, and organizers at SHoP could not convince 50 percent of their colleagues to support a union, but according to a 2015 Architect Magazine survey, 78 percent of architecture and interiors firms were actively eyeing a merger or acquisition. And a comparative look at Architectural Record’s “Top 300 Firms List” between 2007 and 2021 shows that 5 of the largest 25 American architecture firms merged or were acquired, while the average size of the top 25 firms doubled from 157 to 306 architects. Across the AIA’s 19,000 member-led architecture firms, those with 50 or more employees employ more than half the nation’s architects and account for more than half the profession’s revenue.

McCreary points to a growing set of research that suggests merged firms are in fact less efficient than their constituent parts, which would suggest the desire to charge higher fees drives this consolidation. While the NYRA fee survey is still yet to come, it would appear larger firms make more money. According to a 2012 AIA survey, the larger the firm, the more net revenue per employee, with firms at 100-plus employees reporting almost twice as much revenue per employee ($138,000) as those with 2 to 4 ($74,000).

In this context of consolidation, unions make sense not just as a method of bringing about industry-wide coordination, but also as a method of ensuring large firms share their already-realized coordination revenue equitably.

Yet mergers and unions cannot be the profession’s only paths to coordination, because most American architecture firms remain small: as of 2020, 60 percent of the AIA’s member-led architecture firms have fewer than five employees. If the federal government were to adopt Paul’s carveout for coordination among small firms, it could allow the 60 percent to cooperate and create alliances, bolstering their revenue without being forced to join the rush into consolidation.

Higher architecture fees are not an end unto themselves. As Paul puts it, the original goal of antitrust is not competition for competition’s sake, but to encourage competition and coordination in “relation to broader social ends.” That is what Lina Khan, in her confirmation hearing, referred to as “fair competition”—markets that are “characterized by socially beneficial competition, fair prices, and decent wages.” Architects whose work is better-supported and -valued will be empowered to do better work. The ultimate beneficiary will be our homes, our public spaces, our environment, and our society. ⬤

NICOLAS KEMPER is trying to build a small media cooperative in New York.

This article appeared in our February 2022 Issue, #26. Click here to purchase a copy. Click here to receive the current and future issues.