Antitrust policy is corporate welfare, a prominent illustration of how regulation, not just spending, enables and encourages transfers of wealth by force.
Antitrust is something of the original sin of the administrative state, though there were major classes of government intervention before it, such as national banking, tariffs, and public subsidies. In a sense antitrust is merely one category of rent-seeking—but, as a category of looming government intervention untethered from discrete rules and regulation, its very presence is distortionary. Market actors find themselves accused by so-called trustbusters of being too big, reducing consumer welfare, raising rivals’ costs, and—in the latest iteration—of doing other bad things like interfering with free speech.
With respect to the latter, modern non-monopolies made of code are being treated as essential facilities by left and right. Even though private entities cannot censor, we find recommendations and even demands made for the most extreme “remedy” of all, corporate breakup, which has not proven consumer-beneficial in the past. Here antitrust heralds new levels of social costs that were entirely avoidable.
It is the federal government and its coercive antitrust intervention that performs these vicious misdeeds—suppressing competition, reducing consumer welfare, raising costs, impeding speech and more—with unsurpassed vigor. It is too often ignored that much early industrial dominance was deliberately imposed by regulation itself, such as the granting of exclusive franchises that banned competition and intentionally created monopolies and sustained them for decades at the expense of competition and new wealth creation.
Antitrust gets away with its misdeeds because it operates on the perverse principle that “no business is entitled to its property if that property can be redeployed so as to expand output,” and that business has “no right in principle to dispose of its property as it sees fit, but only a conditional freedom so long as it helps maximize some social utility function.” For more background see Fred L. Smith Jr.’s article “Why Not Abolish Antitrust?” in the January/February 1983 issue of Regulation magazine and “The Case for Reforming the Antitrust Regulations (If Repeal is Not an Option)” in the Harvard Journal of Law & Public Policy from 1999.
Antitrust regulation is contradictory. No company, nor conceivable combination of them, ever possess more power than the handful of government enforcers lording over them all. Coercive monopoly power is not a market phenomenon. Rivals’ responses and potential market reformats are open ended, meaning there is no set upper bound to competitive reactions and, in turn, wealth creation. Where monopoly power exists, it was a condition granted by government favor.
In this important respect, antitrust enforcement cannot maximize social utility even on its own terms, which are myopic. Markets interactions are not static, but dynamic. Enforcement actions, taken to be beneficial, in reality deny consumers superior competitive responses to the alleged bad behavior or presumably harmful commercial activity and make society and consumers poorer. Businesses do not operate in a vacuum and face an assortment of adversarial upstream, downstream, and lateral stakeholders and watchdogs apart from government that respond to their every move. As I have often noted, these include suppliers, business customers, media, Wall Street and capital markets, competitors, and advertisers.
Business transactions are fundamentally voluntary, non-coercive dealings. For over a century now, the largest companies could have, perhaps, been even larger—expanding wealth, jobs and checking one another.
This means that minus antitrust, GDP and societal wealth could be far greater than it is. Like most regulatory incursions, however, this never gets acknowledged, let alone assessed and reported. At the same time, the administrative state’s funneling of wealth-creating sectors into artificially segregated regulatory regimes (such as the Federal Energy Regulatory Commission, the Federal Communications Commission, and the Department of Energy) has disrupted innumerable potential synergies and made network sectors, in particular, smaller and less integrated than they could otherwise be—drone recharging stations, for example, might have been deployed alongside 5G. Already dampened by the administrative state approach, subjecting large-scale commercial activities to antitrust regulation dampens them still further, a double whammy. This implies extraordinary unappreciated regulatory costs of the antitrust regime.
As a corporation is often deemed an artificial person, even the largest of firms is characterized by a series of intangible relationships, and is in that respect a “fiction.” Yuval Noah Harari, in “Sapiens: A Brief History of Humankind,” using Peugeot as an example, put it this way: “All the managers could be dismissed and its shares sold, but the company itself would remain intact….Peugeot SA seems to have no essential connection to the physical world. Does it really exist?” He continues, “Peugeot is a figment of our collective imagination. Lawyers call this a ‘legal fiction.’”
The point isn’t to downplay economic power but to assert that one ephemeral commercial “fiction” can offset and discipline another, and antitrust stands in the way of that iterative process. It is straightforward to imagine mergers or partnerships or partial mergers vastly larger than those in seen and in play today, particularly as entrepreneurs expand global operations and explore commercial space activities. Without antitrust regulation, more efficient partial mergers or “collusions” rather than inefficient total mergers could have occurred. Every merger already endures permission-filing delay rather than immediate execution. Mergers that do take place can be sometimes suboptimal in the sense that prior transactions involving one or all parties that would have made the present one moot were previously denied, rendering even classical liberals later defending a second-best transaction, a “market” move sub-optimal compared to the market-preferred one that would have occurred.
Geoff Manne and Joshua Wright have explained in “Innovation and the Limits of Antitrust” the high social costs that accompany antitrust intervention in poorly-understood innovations and innovative business practices. To remedy the harms of intervention, they propose “simple rules that minimize error costs,” including per se legality for new product introductions, requiring direct proof of anticompetitive effects; eliminating treble damages, and per se legality for unconditional refusal to share intellectual property. In this vein, prohibiting competitor suits in predatory behavior cases is an overdue step as well to begin (thinking wishfully) putting the antitrust era in the rear-view mirror.
Not only is there the absence of emphasis on property rights in the administrative state, but measures like antitrust affirmatively go above and beyond to deny the institution of property rights.
Despite costs too great to fathom, the forced and illusory “protection of competition” by antitrust (sometimes motivated by score settling), is a category of regulation with too many beneficiaries, including an antitrust bar, to easily eliminate. But people are catching on.