The administration has announced an antitrust reform package that would destroy the fabric of our merger laws. The driving force behind this move appears to be frustration with the record-shattering foreign trade deficits created by the policies of this administration during the past five years. But economic problems do not disappear simply because one day a group of officials decides to shift the blame from failed fiscal and trade policies to the antitrust laws.
Allowing more anticompetitive mergers at home will not depress the value of the dollar in Europe or raise the minimum wage in Taiwan; it will only rob American companies of their competitive vitality and consumers of their selection of choice of goods and services at the lowest prices.
Why the administration persists in taking a "flight" rather than "fight" response to competitive challenges from abroad is unclear. The faltering automobile industry of the late 1970s took a different approach: Instead of seeking a waiver of the antitrust laws, as the administration would now suggest, it decided to meet world competition head-on with better products and more efficient production methods. What is really needed at this juncture is a vigilant trade plan that will reduce imbalance and open up foreign barriers to American goods.
Before officials go any further in serving up antitrust reform as a palliative for American trade ills, we should look at the record:
First, antitrust policy should take into account the realities of world markets, and not just domestic competitive conditions. But, for at least a decade or more, courts and the antitrust enforcement agencies have done precisely that. This is a non-issue and should be put to rest.
Second, we have just come through the largest and most sustained merger and takeover wave in American history. It is therefore difficult to understand the administration's argument that existing merger law is overly stringent for domestic companies. One is hard-pressed to find many "efficiency-enhancing" combinations that failed to pass antitrust muster at either the Department of Justice or the Federal Trade Commission. Ironically, the product of perhaps the most controversial merger of this administration, LTV-Republic -- which was first rejected by the Justice Department as anticompetitive but then restructured and later approved -- is now fighting for its very survival. Rather than stimulating a more efficient operation and higher profits, LTV Steel's problems are dragging down its once prosperous and freewheeling parent. There is also good reason to believe that the current corporate preoccupation with takeovers is actually undercutting our competitive performance, wasting precious resources that are sorely needed in the international competitive battle.
Third, allowing major companies in an already concentrated industry (such as steel) to merge has always troubled those concerned with promoting a competitive climate over the long run. Some who are now advocating immunity for all mergers in "distressed industries" need to stand back and consider what the industrial landscape may look like five or 10 years from now under such a scheme. Do we really want 10 or 20 of our domestic industries to resemble the defense industry, with its four or five entrenched companies? Today, that industry presents a textbook case of how competitive lassitude sets in once a substantial number of economic players are eliminated from the marketplace.
Despite the federal government's prosecution of the defense industry for price gouging, fraudulent accounting practices and substandard workmanship, these same companies still receive new defense work simply because the United States no longer can turn to other competitors: They were all swallowed up in acquisitions during the 1970s.
The deaths of small and medium-sized companies -- the companies that are the key catalysts for innovation in any industry -- have led to a sluggish corporate bureaucracy that even threatens the president's dearly prized Star Wars technology. As a Defense Department panel of computer experts looking into the Strategic Defense Initiative recently concluded, the defense industry, in its present concentrated state, is a "culture that resists change and takes only naive risks." Do we really want consumers, like the federal government, to be given less and less choice in their selection of goods and services as a result of further anticompetitive consolidations?
Fourth, attempting to weaken merger law under the guise of "export relief" is the intellectual equivalent of saying that we should accept less competition for consumers at home in order to subsidize the exports of a few suppliers. This thesis fails to explain precisely how the antitrust statutes can be the prime culprit of all our trade problems when these same laws were in effect during a period when America achieved a positive trade balance (in 1975) as when the United States racked up record trade deficits (since 1982).
Even more questionable is the linkage of merger "reform" with the current state of certain distressed domestic industries (textiles, shoes, steel). While these industries may face the most severe competition from abroad, they will be the least likely beneficiaries of alleged merger efficiencies, since their operations are not significantly tied to research and development and capital expenditures. If anything, more combinations among these labor-intensive companies will lead only to more plant closings and layoffs.
Fifth, those who now intone the proposition that scuttling existing merger law will bring antitrust into the '80s need to be asked: Which '80s, the 1980s or the 1880s? The thrust of the administration's proposals was all heard on the floor of the House and Senate in 1888-1890 when the Sherman Act was debated. The economic Darwinists opposed the new concept of preserving competition. Drawing on the notion of survival of the fittest, they held that efficiency was always found in fewer and larger economic combinations, and therefore the giant "trusts" were no threat to the American economic system. Congress in 1890 rejected these arguments, as it did those of the Populists, who said big was always bad.
The antitrust laws embody this nation's commitment to a distinctively American economic bill of rights -- that all should have the opportunity to take their chances in an open, free-moving economy. Until those seeking a relaxation of the merger laws can convincingly demonstrate that antitrust reform is truly directed at "sharpening the rules of competition" rather than dispensing with a set of rules that some would prefer not to observe, I believe that the merger laws will survive this assault and take us into the '90s -- the 1990s.