Libertarians from the Cato Institute say the Bush administration should celebrate the centennial of the trust-busting Sherman Act on July 2 by simply abolishing it.
Influential economists from the so-called Chicago School believe the 100-year-old antitrust act should be invoked only when a proposed merger would detract from "economic efficiency," with less regard to whether it might cause prices to rise or competitors to fail.
Some ambitious Democrats plan to use the anniversary to begin speaking once again to some of the most sensitive issues in American politics: the power of the big guy vs. the little person, the role of government, and the fairness -- or lack of fairness -- of free markets.
And then there is the Bush administration, which plans to mark the passage of the law with a low-key ceremony Friday in an inter-departmental auditorium, away from the debate that still seems to swirl around one of the country's most enduring pieces of legislation.
Instead of emasculating the Sherman Act, as the Reagan administration seemed determined to do to the cheers of the business community, the Bush administration appears to be gearing up for more vigorous antitrust enforcement. This year, the Federal Trade Commission -- which with the Justice Department is charged with enforcing antitrust laws -- has made 39 requests for more information about proposed mergers, up from 25 at this time last year. Requesting additional information is the first step toward blocking mergers. In addition, the FTC's bureau of competition, which once employed 217 attorneys, now hopes to add 21 to its depleted roster of 141.
James Rill, head of the Justice Department's antitrust division, has launched high-profile investigations of price-fixing by elite Eastern colleges and major airlines. He has stepped into trade relations by vowing to prosecute subsidiaries of foreign companies for "anti-competitive" actions their corporate parents take overseas.
Moreover, Justice Department and FTC officials have taken pains to publicly and explicitly reject the free-market theories of the Chicago School that had informed the Reagan era policy. Whereas the Chicago School welcomed any merger that helps the economy create, produce and deliver goods in the most efficient manner -- irrespective of its effect on prices -- Kevin J. Arquit, the new director of the FTC's bureau of competition, now rejects the notion that economic efficiency alone can justify a merger.
"The idea is to prevent wealth transfers from consumers to producers," he said, using the type of language not heard much in government since the 1970s. Arquit calls the Sherman Act "a tremendous piece of legislation that has helped assure competitiveness for 100 years. I hope it lives on for another 100 years."
It isn't clear how often the Bush administration will flash red lights in antitrust, but a few cases hint that stricter enforcement might be in store.
The FTC has blocked a merger that two oil refiners said would increase efficiency. The agency said that the combined refining company would have the market power to raise prices and that the high cost of building a new oil refinery would be a "barrier to entry" for new competitors.
The Justice Department demanded the restructuring of Gillette Co.'s acquisition of Wilkinson Sword Inc. to preserve Wilkinson's U.S. razor blade business as a separate competitor.
The government also is pressing a case against Detroit automobile dealers who had agreed to stay closed on weekends as well as Monday, Wednesday and Friday nights. In the motor capital of the world, people who built cars had to take time off from work in order to buy one. The FTC decided the Detroit car dealers' agreement was "inherently suspect" under antitrust laws and is suing to have the agreement declared illegal. During the Reagan years, the department likely would have been required to prove that the agreement resulted in higher prices for consumers.
Last year, two glass manufacturers, the Ohio-based subsidiary of Pilkington PLC and a unit of the Japanese giant Nippon, formed a joint venture in the United States to produce a type of flat glass used primarily in buildings and automobiles. The two companies also made a pact barring Nippon from building any new glass factories in the United States unless it did so through the joint venture. The FTC, in approving the joint venture earlier this year, tore up the pact limiting Nippon's ability to expand its own capacity.
"The joint venture brought an additional player into the market and was pro-competitive," said Arquit. "But what the agreement gave with one hand, it took away with the other."
What is at stake in antitrust is much more important than glass factories or the hours of car dealers. Antitrust policy goes to the heart of American attitudes toward bigness, fairness and government.
Public concern about these issues hit a peak in the 1880s, as new industrial technology and improved transportation links spurred corporate mergers. In 1888, the major parties put antitrust planks in their presidential campaign platforms. Between 1889 and 1891, 18 states enacted antitrust laws.
In 1890, for the third straight year, a Republican senator from Ohio, John Sherman, introduced an antitrust bill, which after extensive rewriting by the Judiciary Committee passed the Senate by a 52 to 1 vote. It easily passed in the House.
Section one of the Sherman Act prohibits contracts, combinations and conspiracies in restraint of trade. Section two prohibits monopolization, attempts to monopolize and combinations or conspiracies to monopolize "any part of the trade or commerce among the several states, or with foreign nations." The act enables either the U.S. attorney general or private individuals to bring suit, and, as a deterrent, allows private individuals to recover three times the amount of actual damages sustained as a result of the unfair actions.
But while the intent of the act seemed simple enough at the time, the body of law that has flowed from it is among the most arcane in American jurisprudence. Enforcement has waxed and waned depending on the forces working in the economy and the politics of the day.
For 10 years after passage of the act, most of the attorneys general charged with enforcing it came to Washington from corporate practices and had trouble mustering funds, personnel and enthusiasm that some of the Sherman Act's sponsors probably had in mind. When Theodore Roosevelt took office in 1901, he created a special antitrust enforcement division in the Justice Department. A series of important cases clearly established the government's power to block mergers.
Unsatisfied, Woodrow Wilson made antitrust a major issue in the election of 1912. Summoning emotional populist themes, Wilson complained, "American enterprise is not free; the man with only a little capital is finding it harder to get into the field, more and more impossible to compete with the big fellow."
Wilson lamented the "un-American set of conditions" that enabled "a small number of men" to "extend a network of control that will presently dominate every industry in the country and so make men forget the ancient time when America lay in every hamlet, when America was to be seen in every fair valley, when America displayed her great forces on the broad prairies, ran her fine fires of enterprise up over the mountainsides and down into the bowels of the earth, and eager men were everywhere captains of industry, not employees."
And, he said, "What this country needs above everything else is a body of laws which will look after the men who are on the make rather than the men who are already made."
As the law developed in the hands of lawyers and judges, during the early days of the New Deal and later during 1960s and 70s, it became increasingly easy to challenge mergers between two major players in the same industry, without having to muster proof that prices would rise or competition would be restrained.
Instead of Wilson's populist political appeal, this cycle of antitrust activism was based on the theory that with more competitors in a market, consumers would be more likely to get cheap prices. Under this theory, the high cost of starting a new company could pose "barriers to entry" that could make it difficult for new competitors to enter the market and undercut prices charged by firms that seize monopoly power. Most also suggested that economies of scale -- the ability to make an item more cheaply through mass production -- did not work to any substantial degree in most industries.
During the late 1970s, political and economic currents began to shift against the established antitrust theories. The public became disenchanted with activist, interventionist government policies. And combinations of U.S. firms began to look less important as foreign firms entered the U.S. market and provided plenty of price competition. Rather than worry about whether U.S. companies were too big, some economists wondered if U.S. companies were big enough to compete in global markets.
The result was that antitrust enforcement during the Reagan administration was the most lax since the Sherman Act's first decade. William F. Baxter, an academic from Stanford University was appointed -- instead of a practicing antitrust lawyer -- to head the antitrust division of the Justice Department. At the FTC, Reagan appointed James C. Miller III, who opposed most of the agency's activities.
At Justice, Baxter issued new merger guidelines that changed what most economists and lawyers agree were excessively restrictive rules that had developed. Spurred by the Chicago School of antitrust, the new guidelines recognized that mergers could enhance efficiency, that relatively concentrated industries could be competitive and that some economic markets cross national boundaries. Baxter said he wanted to "move away from populist corporate bashing toward an economically rationalized competitive policy." One oft-used slogan was that antitrust law was designed to protect competition, not competitors.
The Reagan Justice Department guidelines weren't as lax in theory, however, as they were in practice. During a decade in which the number of mergers reached biblical proportions, no significant combination was blocked by the government, and aside from blatant price-fixing conspiracies, few lawsuits suits were filed. Justice's antitrust staff was slashed by about 40 percent. The Senate Judiciary Committee identified 10 mergers where high-ranking officials overruled division section chiefs' recommendations that the mergers be challenged.
The administration did find time to try to weaken the ability of private individuals and companies to sue for antitrust violations. Often the Reagan Justice Department intervened on the side of antitrust defendants in those cases. It also proposed abolishing treble damages that private plaintiffs can win in antitrust cases, a change that would sharply reduce the number of private cases.
"A lot of important law has come out of private treble damage suits. They are an immense deterrent to anti-competitive behavior," said John Shenefield, who was head of the antitrust division under Jimmy Carter.
In case after case, the Reagan antitrust lawyers argued for the use of the "rule of reason" that would force people to prove anti-competitive effects of a merger. Doing that could be virtually impossible in some cases and prohibitively expensive in others, placing a tremendous burden on private plaintiffs trying to block corporate mergers and unfair pricing practices. Current FTC Chairwoman Janet Steiger said, "Analysis of efficiencies consumed greater amounts of investigatory resources" and even strained limited enforcement capacity at the FTC.
In the eyes of many, the antitrust law was a hindrance to international competitiveness. Congress amended the antitrust laws by easing rules for cooperative ventures among competitors involving research and development projects and is considering easing restrictions against joint production. In lobbying for approval of the merger between Republic Steel Corp. and LTV Corp., then Commerce Secretary Malcolm Baldrige argued that such combinations were essential if the United States was to maintain a healthy steel industry. Subsequently, LTV filed for protection from creditors in U.S. bankruptcy court, and Harvard economist Frederic M. Scherer was said to quip that the Republic-LTV merger "caused tremendous indigestion, not innovation."
During the years of slumberous federal antitrust enforcement, state attorneys have increased antitrust enforcement sharply and many states have passed their own antitrust guidelines, often banding together to bring the sorts of cases once brought by the Justice Department or the FTC. Ironically, the Supreme Court, which has been skeptical of federal antitrust actions, has upheld stricter state antitrust standards because of the belief held by a number of Reagan era appointees that federalism should leave room for greater states' rights.
What seems to motivate the Bush antitrust team is not so much the ideological instinct to change the antitrust laws as the more lawyerly instinct to enforce them. The public seems to have had its fill of big mergers and acquisitions. And the intellectual underpinnings of a renewed defense of antitrust are beginning to emerge. Perhaps the hottest book in economic circles these days is an 800-page tome by Harvard Business School Prof. Michael Porter, "The Competitive Advantage of Nations," which argues that the only countries that will prosper in the global economy of the future are those that have vibrant, competitive domestic markets. "Firms that do not have to compete at home rarely succeed abroad," Porter said.
"Pragmatism has replaced ideology -- and that means more enforcement," said Scherer, obviously pleased by the Bush administration's renewed interest in the Sherman Act.
So, too, are some lawyers. The Minnesota Institute of Legal Education is holding a seminar this year called "The Rebirth of Antitrust." Its brochure says the antitrust laws "enter the second century somewhat beleaguered by the Reagan years but their future holds promise. The director of the antitrust division has pledged a new era of enforcement. This will mean more activity for all attorneys involved in antitrust litigation."