Published in the Washington Times <?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />

October 16, 2000

Nothing is sadder to watch than bureaucrats entrusted with an obsolete set of rules and regulations, trying desperately to catch up with economic, technological, and political changes that make them fossilized relics of an ancient era. That's what is going on with antitrust laws and regulations in the age of the Internet as companies and whole industries assemble, deconstruct and redefine themselves to suit a global marketplace evolving at full warp speed. It's a futile effort for government, like racing to stop a bullet that is already headed straight for the target.

The Microsoft case was (and still is, in the minds of many) supposed to be the bellwether for the “New Antitrust Era” envisioned by Clinton-Reno antitrust chief Joel Klein and his fellow regulators, both at the state level and abroad (especially within the European Community). The Supreme Court has thrown further doubt on the Microsoft breakup plan by declining to take the case on expedited appeal, insisting on “regular order” in the Court of Appeals. The War on Microsoft isn't over, but a government victory is no longer a foregone conclusion.

Meanwhile the international campaign to use old antitrust rules to thwart New Economy combinations of goods, services and markets continues unabated. The global regulators are out in force: Examples include from WorldCom/Sprint (blocked in both the United States and Europe) and AOL's acquisition of Time Warner (without the hoped-for participation of Britain's EMI Group; European authorities also demanded the withdrawal of Germany's Bertelsmann AG and a nonpreference treatment of the products of its music subsidiary, BMG Entertainment, as a condition to approval of the deal). Also affected by the regulators are web-based consumer and business-to-business purchasing cooperatives like the automakers' Covisint site. They are pushing, pulling and maneuvering to both revive antitrust as a regulatory weapon and elevate it to the global tool of choice for government officials eager to regulate the life out of the economy.

From its origins as a competition-enhancing force mediation, antitrust is being transformed into an aggressive instrument of government expansion. As Joel Klein puts it, “The only legitimate form of government intervention will be antitrust intervention.” He asserts that “Mergers that create global issues. . .will have to clear the US and Europe. . . .Ideally we should create one global antitrust authority, but it's not going to happen.”

It doesn't need to happen, though, if collusion between regulators across national boundaries achieves the same result. Voluntary collusion avoids the kind of open political debate and accountability to the electorate that legislative revamping requires. In addition to case-by-case collusion on matters like WorldCom/Sprint and AOL/ Time Warner, James Gattuso of the Competitive Enterprise Institute points out that the European Union wants to drag in the World Trade Organization and create global guidelines for antitrust. Is there a market justification for any of this antitrust overreach? It's hard to see one, given that the antitrust laws are a legacy of the late-19th century industrial era, when there were high barriers to entry for most lines of business; limited global movement of goods, services and capital; and severe geographic limits on the ability of consumers to access a diverse array of competitors. None of that is true today, with cost barriers to entry in cyberspace near zero; instant web access to goods, services and information that we could only dream about just a few years ago; and new startups every day creating new market niches and entire markets with unlimited potential.

No one knows where the next great technological breakthrough for consumers will come from, least of all the regulators with their central-planning mindset. Long-distance telecommunications, the consumer music business and broadcast media don't even exist anymore in the way antitrust rules define market shares and competitiveness. There's no way this new regulatory phalanx, even led by someone as intellectually sophisticated as Mr. Klein, can ever catch up with the bullet of rapid-fire technological change.

That doesn't mean we shouldn't be frightened of the damage they might do, however. As Holman Jenkins Jr. writes in the Sept. 27 Wall Street Journal, obsolete (and politically manipulated) regulation of the US telecom market is causing massive inefficiencies and roadblocks on the way to universal broadband access. Mr. Jenkins goes out on a limb, saying “Mark these words: Joel Kleinism is the force that, whoever's elected, is going to produce a recession probably in the coming year.”

Let's hope not. The bureaucratic instinct for survival and indeed expansion in face of threatened obsolescence is indeed a kind of market miracle in itself. But surely our political leaders have enough common sense not to kill today's economic miracle with so blunt a weapon as antitrust.

George Pieler is director of the IPI Center for Education Freedom and formerly served with the legal division of the Federal Reserve.

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