Columbia
law professor Tim Wu’s little book The Curse of
Big-Ness: Antitrust in the New Gilded Age,
Columbia Global Reports, 2018, is well written and
interesting but is about US law and directed to a
US audience. I agree with his conclusions, yet as
I’ll show at the end, he provokes side questions
for me.
Wu’s
title sets his context as “the new gilded age.” He
describes the first gilded age, the late 19th and
early 20th century as a time when extreme economic
concentration led to gross inequality and material
suffering, and “feeding an appetite for
nationalist and extremist leadership.” It is
useful to note that Capital in
the 21st Century by Piketty in 2014 mapped
distribution of income and wealth from that early
gilded age to the 21st century. By then income and
capital wealth was focused into the top 1% of the
national populations considered. Middle class
income and wealth fell from a peak in the mid 20th
century. This focusing of income and wealth is
particularly extreme in the US. (See my article in
2014.) Wu is aware that antitrust is not a full
response to a gilded age.
The
introduction says that a glance at the global
economy reveals concentrated oligopolies and
monopolies in industries like finance, media,
airlines and telecommunications, “whose size
allows them to treat customers and competitors
with impunity.” We live in times when “we must
simply accept that industry will have a far
greater influence over elections and law-making
than mere citizens.” The middle class has little
influence on such things as health insurance,
taxes, working conditions and housing that
determine how life is really lived.
Wu
introduces us to Louis Brandeis who felt the
“curse of bigness” was a threat to democracy
itself. Wu says antitrust law today is suffering
from overindulgence in the ideas of Robert Bork
and economists at the University of Chicago in the
1970s.
Wu’s
book then moves on to offer the reader a well
written history of antitrust law, telling the
economic and societal benefits of past antitrust
cases, giving a review of some industrial sectors
with potential for antitrust action, making a case
for antitrust action now against High Tech
monopolistic corporations, and ending with a call
for an agenda to restore the Brandeis vision for
antitrust action.
The
history begins with a chapter on the
Monopolization Movement, or Trust Movement as it
was called in the late 19th to early 20th century.
Then companies merged into dominant giant
companies. Monopolists saw themselves as part of a
progressive movement. Social Darwinism justified
the survival of the fittest. Monopolies were a
natural sequel to competition among companies. Yet
Americans were traditionally anti-authoritarian,
entrepreneurial and egalitarian with diffused
economic and social power. The rise of private
monopoly power challenged the balance of powers
and questioned who ran the country. Resistance
channeled into the founding of an Anti-Monopoly
party and the first antitrust law, the Sherman Act
in 1890.
There
is a chapter about Brandeis, advocate, reformer
and Supreme Court Justice. Brandeis was concerned
about the economic conditions under which life is
lived. He shared a concern of Sherman about
whether large private disparities in wealth and
power are compatible with the US vision of
democracy. Wu returns to this question. Brandeis
practiced law with business clients, but was
against monopoly power and especially the tactics
employed in constructing the New Haven railway
monopoly. In 1911 the railroad fell into decline
amidst wrecks, derailments, delays, deaths and
injuries. A 1913 investigation revealed accounting
fraud and illicit payments in the monopolization
drive. By 1914 the New Haven railway was broke and
dissolved back into its major pieces. This led
Brandeis to faith in decentralized systems of
business. Brandeis and Wu see the Constitutional
right to life as a right to live and not merely to
exist. A good country and a good economy should
provide everyone with liberties and support for
meaningful fulfilling lives. Brandeis understood
that, beyond work, lives are profoundly affected
by economic matters like rent, transport,
groceries and health insurance. Government’s
highest role is protecting human liberty and
providing securities for human thriving: free
speech, but also protection for workers and an
open economy of smaller firms.
A
chapter on The
First Trustbuster tells how President
Theodore Roosevelt first used the antitrust law
against the New Securities Company – Morgan’s
monopoly over all Western railroads. This first
created an archetype and a tradition of the
courageous government official unafraid of massive
private power. Roosevelt saw that in a democracy
the elected representative had the final say.
Antitrust served as an additional constitutional
limit - a check on private power. Yet over the
last few decades this idea of a political role has
disappeared in fear and uncertainty amongst the
law’s enforcers and interpreters – officials and
judges. Wu explores the notion of the political
role of antitrust. He cites research showing how a
well-organized lobby group can bring more
influence to government than a large number of
people such as the middle class. The
Pharmaceutical companies lobby in the US to ban
Medicare from negotiating for lower drug costs
cost the industry $116 million and its success
brought a return of 77,500 percent. Lobbying
works.
The
chapter turns to the account of Rockefeller’s
Standard Oil monopoly and Roosevelt’s 1906 move
against it. It was broken into constituent parts.
This case raised a question of whether the law
banned all trusts or just bad trusts. Are there
not beneficial economies of scale? Wu shows that
as a business gets larger it begins to enjoy
different advantages that are less about economies
and more about ability to wield economic and
political power like raising prices and keeping
out competitors. A large firm invests in barriers
to new competitors who might have better products
or cheaper prices by excluding resources, making
deals with retailers or distributors and the like.
Giant firms invest in the political process for
favorable laws. Large size also brings power over
workers, wages and working conditions. That a
monopoly can be inefficient was a lesson from
Standard Oil. The breakup of the oil industry
monopoly was a boon to its further expansion – and
that effect is not unusual.
A
“constitutional moment” for antitrust came with
the 1912 election. Roosevelt was not opposed to
bigness per se, but rather that the state should
be in control rather like the Crown monopolies
loyal to the British King or the corporate state
alliances in Japan and Germany. The Republican
Taftand Democrat Wilson both proposed doubling
down on antitrust. Wilson won with policies taken
from ideas of Brandeis. It is fair to say the US
made a choice here in favour of decentralization.
In the
chapter on Peak
Antitrust and the Chicago School Wu shows a
weakening of the antitrust laws in the 1930s and
the peaking of antitrust law in the 50s and 60s
after the frightening examples of Japan, Italy and
Germany where concentrated economic power
facilitated the rise of the Third Reich. The
Anti-Merger Act in the US was followed by similar
legislation in the European Community, antecedent
to the European Union. Then Wu traces the rise of
the “Chicago School” in the 60s from which
mainstream antitrust economics came to tolerate
monopoly. There was some legitimate criticism of
some early Supreme Court findings. However, Bork
of the Chicago School took a consumer welfare
notion and argued that antitrust was intended to
lower prices for consumers. This meant that in an
antitrust case it had to be proven that the
monopoly had increased prices for consumers. That
threw out the concerns about democracy and
economic power in US antitrust law. This simpler
notion also sidelined other economic concerns like
industry stagnation and stalled innovation. It was
a gift to the courts because it offered judges a
simpler approach for dealing with hard cases.
However, behind this approach lurked free market
autonomy and trust in a Darwinian corporate life.
Except for price fixing, a government was not
expected to interfer with the sovereignty of the
market and growth of corporate power.
The
chapter The
Last of the Big Cases reminds the reader
that antitrust action continued even during the
development and spread of Chicago School ideas. In
1974 AT&T was the largest firm on the planet,
if regulated by the Federal Communications
Commission. The Justice Department filed suits.
The company was not just a monopoly, it was six or
seven monopolies: local phone service, long
distance, physical phones and all attachments,
business phones and emerging markets like online
services. AT&T argued the monopoly was
essential for good service and avoiding the chaos
of competition. In the 70s the FCC brought out
rules to protect online service providers, but
AT&T managed to subvert these. In the early
80’s, under Reagan, after a decade of litigation,
AT&T agreed to a dramatic breakup. Seven
separate regional operating companies emerged with
toughened FCC rules. The result was short-term
chaos and some lower prices. But the big change
was to innovation that had been held back – new
industries – phone jacks, modems, the answering
machine. It enabled the emergence of T-Mobile and
Sprint. Countries that maintained a national phone
monopoly held their computer industry to the
sidelines.
The
Clinton era antitrust suit against Microsoft was
to be the last. Microsoft in the 1990s grew
largely by using the technology of others – MS-DOS
was a CP/N clone, Microsoft Windows came from
Apple Macintosh, Word and Excel were copies of
WordPerfect and Lotus. Microsoft products were not
better. They were simply bundled with something
else you needed. Aware that the internet might
compete with its dominance in computers and
applications, in the late 1990s Microsoft took on
Netscape, the best browser, with its copy,
Explorer. The success of Explorer “was the
byproduct of coercive deals pushed by Microsoft on
the entire industry.” Before long, Netscape was
bankrupt and Microsoft had added a new monopoly.
Microsoft had over 90% of the market. The
antitrust suit had its critics, but the evidence
favoured the Justice Department and revealed a
darker side of Microsoft. Justice won in district
court and then on appeal. Then George Bush was
elected by that contested margin in Florida and
his Justice Department settled without the
traditional breakup. However, without this suit,
it is unlikely that Google, Facebook and Amazon
could have grown, given their dependence on a
browser formerly monopolized by Microsoft. After
this case antitrust has been in deep freeze.
A
chapter Chicago
Triumphant explores how antitrust was
reduced to dealing only with explicit price-fixing
cartels by Bush’s second term. There was some
attempt by laissez faire economists to
refine the Chicago approach with tools to measure
the effects of barriers to other companies. The
American Anti-Trust Institute was founded, but the
Clinton years were “only a speed bump.” Perhaps
most significantly, as Wu quotes another author
saying, the Harvard School “grafted economic
thinking onto existing antitrust doctrine in a way
that was both more moderate and more workable”
than the Chicago school. It was this that
attracted attorneys and judges.
There
were no new antitrust cases during the Bush
presidency. The courts drifted towards Bork.
Supreme Court Justice Scalia in an unwarranted
comment went so far as to say monopoly was an
important element of the free market system. A
section of this chapter defends the big case
tradition. A section critiques the current “Age of
Oligopoly.” Between 1997 and 2012, 75% of
industries concentrated. The former sections of
AT&T fused into Verizon and AT&T. Now
AT&T is again close to its size in the 80s.
There are now just 3 airlines in the US,
cooperating on things like shrinking seat size and
adding fees to yield unprecedented annual profits.
There are 3 regional cable monopolies which have
been raising prices 8% per year when cost of
living was flat, so that $30 bills are now $100 or
more.The
pharmaceutical industry now consists of around 10
companies with a new practice of buying a drug
with the intent of increasing its cost 1000 fold.
Ticketmaster, the dominant seller of event
tickets, merged with LiveNation, the near
monopolist promoter of events. The Bayer Monsanto
merger resulted in only 3 major players in the
global seed and pesticide industry. The global
beer industry went from 3 big players to 1 in
2016.
Many of
these mergers were during the Obama years. Obama
appointed more enforcement-oriented officials. But
when it came to the cases, the officials faced a
judiciary converted to the Chicago-Harvard
approach.
The Rise of the Tech Trusts describes
the rise and concentration of internet giants:
Google, eBay, Amazon and Facebook. These had
friendly beginnings – access to information, cheap
good books and building a global community. But
they are now acting in the trust tradition –
setting barriers to competition or buying up
competition. When Facebook bought Instagram it was
seen as good news to Facebook investors –
signaling Facebook was serious about dominating
the mobile ecosystem while neutralizing a nascent
competitor. Antitrust law should notice that. But
it hasn’t noticed this new era of big Tech Trusts.
The carefree internet 90s are over. In terms of
these unchallenged acquisitions, Facebook has 67,
Amazon 91 and Google 214. When Google bought
youTube there was not a murmur. This area is ripe
for antitrust action.
Wu
concludes giving his 6-point solution to the
antitrust situation in his final chapter A
Neo-Brandeisian Agenda.
1.
Merger review. There needs to be a reform of
merger review, which has wandered far from
Congress’ intent in 1950. This is not about
whether customers will end up paying a bit more.
It is about when the merger will significantly
reduce competition – even if that is difficult
to assess in a simple way.
2.
Public awareness. The public needs to be aware
of mergers because they imply consolidation,
inequalities and the state of capitalism. The
public or press cannot care if they don’t know
what’s happening. A quasi-judicial
administrative review with public industry
comments and public comments on any proposed
consent agreement would help.
3.
Big Cases. Wu supports looking into big cases
and suggests that the European Union is
currently doing this more effectively than the
US.
4.
Break-ups. Wu suggests breakups should be the
normal rather than the exceptional outcome.. He
refutes the arguments that breakups are
difficult or socially costly. He affirms that
breakups are self-executing in contrast with the
more recent preference for consent agreements
that are difficult to monitor.
5.
Market investigations and competition rules. Wu
wants the US to adopt a UK style market
investigation tool to examine the condition of
competition in industries with over a decade of
persistent dominance. This is good for stagnant
monopolies or duopolies. Wu also wants renewed
use of pro-competitive rules - in particular
those designed to weaken obvious barriers to
market entry.
6.
Antitrust Goals. The absurd notion that
antitrust was intended as consumer welfare must
go. The argument that alternative goals have led
to courts having too much leeway and
unpredictability is exaggerated. In contrast, Wu
believes courts are far more suited to
determinations such as whether conduct promotes
competition or whether it is such as may
suppress or even destroy competition. Such a
protection of competition test focuses on a
process rather than on a value like welfare or
wealth. Congressional intent and earlier court
precedent support this approach.
Wu ends saying the struggle for
democracy today must be centred on limits to private
power, both its influence over government and its
influence in union with government. Checks on
monopoly by antitrust law are part of that.
Amen to
all that. Wu’s arguments take me along with him.
But there are questions that go beyond the scope
of his book about how US antitrust works in a
world alongside other large powers and big trading
blocks. Wu mentions that the European Union has
comparable law over its members. How does
antitrust allow a fair sharing of “free trade”
benefits involving the US and Canada and Mexico? A
unique drug with a price suddenly 1000 times
larger affects Canadian users of the drug as well
as people in the US. Ought one antitrust regime
apply across the whole free trade area as it does
for the European Union? How does one do that?
How
does antitrust apply in a world where China now
innovates and can produce large monopoly style
corporations that can produce cheaply. These
companies might seek to impede or buy up smaller
US corporate competitors? Do governments limit
sales of companies developed on their territory or
prevent them from moving elsewhere to operate?
Then
today governments have interest in the data being
collected. I think the Patriot Act allows the US
government to access data on national security
grounds. If so, there is a government interest in
preserving Facebook as compared with the Chinese
company Alibaba for example. The US government can
then access Facebook data, if necessary. One
presumes China has similar interests in Alibaba
and Alibaba data. Does this interest in the High
Tech companies impact the use of antitrust
legislation?
