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Does Government EVER Get Better? Look at Antitrust

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By Walter Donway

September 2, 2018

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Today, antitrust is still a threat—but not, as Rand wrote more than a half-century ago, “a silent, growing reign of terror” hanging over U.S. businessmen.

Ayn Rand’s very first article in The Objectivist Newsletter, “Choose Your Issues,” identified Antitrust as one of two dire threats to capitalism and freedom (the other was the Federal Communications Commission).

But lately, antitrust’s worst theoretical foundations and practices have taken a beating from historical and legal scholarship. Today, antitrust is still a threat—but not, as Rand wrote more than a half-century ago, “a silent, growing reign of terror” hanging over U.S. businessmen.

Taking Antitrust to the Woodshed

Herbert Hovenkamp, one of the half-dozen leading scholars in the field, explains in The Antitrust Enterprise: Principle and Execution (Harvard University Press: Cambridge, MA, 2005), that the Sixties and Seventies were the climax of an aggressive, anti-business, court-led assault on business in the name of enhanced competition. Those decades saw the peak of judicial arrogance, with the break-up of some of America’s great firms, drastic court dictates to companies, huge treble-damages fines, and criminal trials of businessmen.

The persistent, bruising legal critique of antitrust theory and practice came only in the Eighties and Nineties.

The persistent, bruising legal critique of antitrust theory and practice came only in the Eighties and Nineties. Well, Ayn Rand wrote, more than once, and published Alan Greenspan, as well, on antitrust in the early Sixties. Back then, she could cite only two critiques of antitrust: Ten Thousand Commandments by Harold Fleming and the Language of Dissent by Lowell B. Mason. Neither was scholarly; neither was widely known.

For what it is worth, the Wikipedia article on antitrust, in its section on fundamental “theory,” mentions only a half-dozen or so names. One of them is Ayn Rand and one is Alan Greenspan.

Starting in earnest in the Seventies, Chicago School academics subjected antitrust theory, legal practice, and history to a sustained assault from a slant distinctly market-oriented, but utilitarian. They demonstrated that court decisions often were scandalously uninformed—driven by prejudice and sanctioned by “expert testimony” that often was junk science.

Starting in earnest in the Seventies, Chicago School academics subjected antitrust theory, legal practice, and history to a sustained assault from a slant distinctly market-oriented, but utilitarian.

They demonstrated that court decisions often were scandalously uninformed—driven by prejudice and sanctioned by “expert testimony” that often was junk science.

And that was just the beginning. In journals, textbooks, symposia, and extensively before the courts, including the Supreme Court, Chicago School partisans hammered traditional antitrust thinking and practice. In Hovenkamp’s narrative, influence of the Chicago School was followed by that of the “Harvard School” and “post-Harvard School”—but down paths blazed by the Chicago School and with less-than-essential disagreements.

The “Progressive Era” defends business as usual

Fundamental to the Chicago School critique was, first, demonstration that the antitrust laws in their origin, theory, and practice were not pro-competition; they were anti-bigness, anti-efficiency, and anti-disruptive change caused by innovation. The Sherman Act, in particular, was pure small-business favoritism, a result of small-business lobbying and a concept of competition as a field of many small players. Court decisions broke up companies that “hurt” rivals with their superior efficiency, innovation, and consistent price cutting.

“To one degree or another, all of the antitrust laws passed from 1890 [the Sherman Act] through 1936 [the Robinson-Patman Act]—virtually every substantive antitrust provision—were special-interest legislation. Furthermore, the special interest that most members of Congress had in mind was small business. Consumers did not fare particularly well under any of the statutes.

“…the 1880s experienced steeply declining rather than rising prices. Indeed, the aggregate decline was an unprecedented 7 percent in the consumer price index as market output expanded dramatically. Most of this was a consequence of the great technological revolution in production methods…but these methods required significantly larger firms because the technology required high rates of output. Firms that did not or could not adopt the new technology were squeezed to the point of bankruptcy and they made their case to Congress.

“The context makes it highly improbable that Congress would have picked 1890 to intervene in the economy with an antitrust statute designed to protect consumers from high prices…

“So, the Sherman Act was very likely passed at the behest of small businesses, injured by the technological revolution.”

Ayn Rand, in “Anti-Trust: The Rule of Unreason,” put it in the broadest philosophical context: “There is only one meaning and purpose these laws could have, whether their authors intended it or not: the penalizing of ability for being ability, the penalizing of success for being success, and the sacrifice of productive genius to the demands of envious mediocrity.”

This was the Progressive Era in American history. And the struggle for such “progress”—against  technology, productivity, and economic growth (the real gross national product increased about 24 percent in the 1880s)—continued for more than a century. The egregious antitrust cases against such firms as U.S. Steel, Alcoa, General Electric, U.S. Tobacco, Kodak, and Microsoft followed the same pattern as Standard Oil.

Ayn Rand, in “Anti-Trust: The Rule of Unreason,” put it in the broadest philosophical context: “There is only one meaning and purpose these laws could have, whether their authors intended it or not: the penalizing of ability for being ability, the penalizing of success for being success, and the sacrifice of productive genius to the demands of envious mediocrity.”

Saving Antitrust

“In Chief Justice Earl Warren’s Supreme Court, antitrust was highly distrustful of markets, suspicious of innovation and the intellectual property laws, and convinced that aggressive antitrust remedies would make the economic world a better place. The result, wrote Robert H. Bork, the most influential critic of Warren-era antitrust policy, was a mélange of incoherent policies that confused competition with small business protection and was probably worse than no antitrust policy at all.”

That is an understatement as Hovenkamp shows elsewhere. He writes: “The antitrust counterrevolution of the 1970s and 1980s challenged every one of these values. The procedural limitations placed on plaintiffs became severe, and far fewer antitrust cases go to trial today.”

Not surprisingly, the chief theoretical change was an intended “correction” of the antitrust legislation led not by Congress, which has rejected endless such appeals, but by lawyers and judges influenced by the Chicago School. In other words, if the thrust of antitrust had not been greater production, more robust innovation, and lower prices—all in “the consumer interest,” “social interest,” “public interest,” terms Hovenkamp invokes repeatedly—now they would be. No more anti-bigness, no more coddling rivals, no more punishing efficiency: just real protection and promotion of competition and better products at lower prices for consumers. The antitrust laws would do what they are supposed to do.

That, of course, does not square with the most principled formulation of Ayn Rand, for junking the entire concept of antitrust. But the overwhelming majority, including Hovenkamp, went to work making antitrust truly empiricism-friendly:

“Antitrust is a defensible enterprise only if intervention into the market is economically justified. That entails that the market be ‘bigger’ in some sense as measured by higher output, improved quality, lower prices, or more innovation. Furthermore, the increase must be enough to justify the high cost of operating the antitrust machinery.”

Hovenkamp insists repeatedly that the sole justification of antitrust is the philosophically indefensible—the consumer’s “right” to a competitive economy: higher production, better quality, lower costs. And that may be the new theory of antitrust.

Hovenkamp insists repeatedly that the sole justification of antitrust is the philosophically indefensible—the consumer’s “right” to a competitive economy: higher production, better quality, lower costs.

And that may be the new theory of antitrust. Hovenkamp spends some 400 pages parsing each assumption of antitrust (where regulation exists is antitrust fully excluded?), each rule (when should antitrust violations be condemned “per se” and when evaluated by “the rule of reason”?), each court procedure (how should expert testimony be handled?), each court “remedy” (isn’t motivation a problem when plaintiffs, who may be private rivals of the defending company, receive “triple damages” if the defending firm loses?), each complementary field of law (where do intellectual property law and antitrust law diverge and where do they mesh?), and dozens of cases; according to Hovenkamp, Kodak was unfairly damaged, but Microsoft was let off too easy!

After almost 120 years, the courts, by Hovenkamp’s own account, are repeatedly blundering, over-reaching (he calls it “overdeterrence”), and perpetuating old errors (like focusing on risks of vertical integration, which Hovenkamp deems minimal, instead of horizontal integration).

He calls constantly for court restraint, a narrow focus, a “humble” attitude toward what courts can achieve, and reliance on markets in all possible cases. He rails at the expense of antitrust vigilance by the Department of Justice antitrust division, the Federal Trade Commission, the states, and the courts at all levels. (In the Nineties and since, the Supreme Court has accepted, at most, one case a year for review, leaving the heavy lifting to the dozen circuit courts, which are “all over the place,” says Hovenkamp, in their decisions).

Hovenkamp, however, does call for repeal of the 1936 Robinson-Patman Act. Revisiting antitrust legislation, Congress improved not at all over its Sherman Act predecessors. In fact, it did worse. Congress returned to special interest legislation as applied to the emerging distribution system. After World War II, family-owned businesses were giving way to national retailers, especially grocery retail chains. Congress tried to “protect” small retailers from the competition of A&P and a host of others. Limitations on pricing and advertising were imposed by the courts.

“Congress was in fact witnessing a major revolution in distribution as American retailing passed from the control of small family-owned stores to larger, lower-cost retailers that are often bigger than the manufacturers who supply them.”

Hovenkamp adds that Congress’s perspective was “hopelessly archaic, and the revolution in distribution is now seen as one of the twentieth century’s great economic successes.” (Think of your supermarket shelves, think of MacDonald’s or Barnes & Noble, think of Amazon!)

Can we do without antitrust?

Hovenkamp points to the cases of outright, conscious collusion among companies (“naked price fixing”) and conscious “monopolizing” by firms that are dominant in a field (his prime example is Microsoft’s active defense of the monogamous marriage of its browser, “Explorer” with its computer platform, Windows.

The latter, says Hovenkamp, is an ‘intent to monopolize’ that has kept prices unjustifiably high and stifled competition. How can we entirely abandon the consumer to this kind of monopoly when we preach competition? And anyway, absent antitrust, the government would step in with regulation, which would be worse, he says.

In a very early essay, “America’s Persecuted Minority: Big Business” (surely one of the most brilliant titles of all time), Rand gave her answer:

“There is no way to legislate competition; there are no standards by which one could define who should compete with whom, how many competitors should exist in any given field, what should be their relative strength or their so-called “relevant markets,” what prices they should charge, what methods of competition are “fair” or “unfair.” None of these can be answered, because these precisely are the questions that can be answered only by the mechanism of a free market.”

But, standing astride his path to logical consistency, is the boogey man of the “consumer’s right” to a competitive economy. Such a right, as Rand pointed out, is not primary. It is a consequence of the right of each individual to freedom of thought, choice, and action in all areas of life, circumscribed only by the equal rights of others—and violated only by initiation of physical force (including by government) and its indirect form, fraud.

Implied, of course, is the right of any individual to enter into any business arrangement or agreement, including secret agreements that are voluntary. One consequence in the economy is competition. Thus, it is an outright contradiction to pretend to protect the “right” to competition when justice department lawyers, government regulators, and courts enforce on businessmen an ideal of “competition” dreamed up by anti-capitalists. An ideal existing only as an economic abstraction (sometimes labeled “Platonic competition”). An ideal that in reality is a stunted idea of the ideal economy as the mom-and-pop enterprises of an America long gone.
 

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  • Good essay on the evils of antitrust and how it hurts the economy rather than aids it.

  • W.R. Donway

    Thanks for taking the time to comment, Mike. In my book, “Not Half Free: The Myth that America Is Capitalist,” I look at some contemporary antitrust cases.