Enemies of Progress

Enemies of Progress

July 01, 1998

In the late 1980s, CEI discontinued publication of the Washington Antitrust Report (WAR). We had thought that the era of foolish antitrust regulation was over; that the efficiency-oriented work of Yale Brozen, Robert Bork, and others who applied Chicago-school economic insights to competition policy had successfully refuted the old antitrust rationales forever. After all, their analysis had clearly demonstrated that antitrust bureaucrats had wrongly attacked a wide array of innovative and efficient business practices. America seemed to have rejected the view that one must attack competitive practices in order to save competition.

Indeed, for a while, even antitrust regulators seemed to accept these insights. The Federal Trade Commission Chairman, Daniel Oliver, quoted approvingly from The Incredible Bread Machine, a satirical commentary on the IBM antitrust case, and The Department of Justice’s antitrust chief, Bill Baxter, actually dropped the IBM case and moved quickly to settle the AT&T litigation. Most importantly, antitrust enforcement against a wide array of once suspect business practices - resale price maintenance, vertical and horizontal mergers, cooperative R&D, tying and bundling practice - lessened and, in some cases, almost disappeared.

Today that whole liberalization era seems like a pleasant dream. Both Democrats and Republicans have rediscovered the magic of trustbusting, and the regulators have renewed their assaults on successful firms in innovative sectors. What went wrong?

For one, the successful antitrust reforms of the 1980s were highly dependent on picking the right people. Reforms that rely on "good guys" running the show have little stability. After all, most people seek to expand their authority, and the entrepreneurial individuals now heading the antitrust agencies are aggressively exploring every novel argument available to expand their power.

Moreover, past antitrust reformers rarely sought popular support; they did little to quell populist fears of Big Business. This meant there was no real legitimization of antitrust reforms which, in turn, explains the fact that the recent public policy U-turns on antitrust regulation have encountered little political opposition.

Finally, earlier criticisms of antitrust were of limited scope. The prevailing reform position was that antitrust regulations were well intended and often useful; antitrust simply needed better oversight. Little attention was given to public choice criticisms of such regulations – arguments clarifying how antitrust benefited the regulator or a competition. Competition in network and other emerging sectors of the economy remained poorly understood.

Moreover, the ambiguity and scope of the antitrust laws (taken literally, the Sherman Act would prohibit almost all business activities) invites the filing of legally feasible, if economically untenable, cases - and they are. And businessmen who find their market share or profits declining are always tempted to manipulate antitrust regulations to handicap their rivals – and, again, they do.

Whatever the cause, the second coming of antitrust is likely to harm rather than help consumers and the economy. Federal and state antitrust laws introduce great risk to any dynamic sector of the economy, and antitrust regulators rarely go after any others. The antitrust laws consistently seek out precisely those firms that succeed by blazing new trails in unmarked territory - whether it is Alcoa in the 1940s or Microsoft today. Of course, these "monopoly" opportunities, while essential to progress, are transient and ephemeral, quickly washed away by the creative forces of competition. Yet, since antitrust regulation views the world in static terms, it fails to understand this, and, thus, cannot help but lower consumer welfare by weakening the forces of innovation. Thus, free market criticisms of antitrust’s renaissance should be viewed less as a way of liberating Bill Gates and more as a means of securing a positive future for the world.