Is the Reagan administration to blame for the wave of corporate mergers and takeovers that has hit the American economy in recent years?
From a number of quarters, that seems to be the charge. The Association of State Attorneys General protests that "anything goes" in the Reagan Justice Department. Sen. Howard Metzenbaum (D-Ohio) repeats the allegation in hearings on merger enforcement.
Ralph Nader indicts the Justice Department's Antitrust Division for going out of business without telling anybody. And academic critics allege that "megamergers and corporate giantism" are undermining the United States in international markets and even causing our trade deficit.
If these charges are part of a counterattack on current antitrust policy, they are badly misplaced. Misplaced because, for the first time in nearly half a century, courts and government agencies are applying antitrust laws in ways that accurately reflect contemporary economic and market conditions.
In fact, the administration is simply continuing the quiet evolution in antitrust policy of the past two decades. The approval of mergers in the past few years is as much the result of long-term trends in antitrust interpretation as it is the result of the Reagan administration's distinctive approach to antitrust.
Today's merger policy must be seen first in light of the changed markets in which American industries compete, particularly the increasingly international nature of those markets. Second, it must be seen as incorporating economic analyses that permit a more detailed examination of the likely competitive effects of merged firms.
Under this new learning, the key is "efficiency" -- how will this merger affect the efficient working of this particular market? The touchstone for evaluating a merger is no longer the traditional, populist-oriented test: absolute size and aggregate concentration. Bigness by itself is not bad. In a worldwide market, a domestic player's size is not as critical as its operating efficiency.
"Efficiency" is neither a buzzword nor the corporate mantra of the 1980s. Efficiency means making what consumers want (allocative efficiency) using the least amount of resources (productive efficiency).
The efficiency approach stands in contrast to the populist preoccupation with the dangers of massed corporate power -- with its alleged detrimental impact on prices, jobs and standards of living -- which controlled judicial and governmental thinking on antitrust for much of this century.
As late as the 1960s, the Supreme Court found illegal a merger between two grocery chains with a combined 7.5 percent of retail sales in the Los Angeles market. A few years earlier, the court barred the merger of Brown Shoe, primarily a manufacturer, with Kinney Shoes, a retailer, for fear that the resulting enterprise would be too big -- and too efficient -- though it involved less than one-half of 1 percent of all retail stores selling shoes.
The costs of such a narrow (and often inconsistent) merger policy were not immediately evident. America had entered the 1960s as the undisputed world leader in industrial production. It could tolerate a merger policy that frustrated more efficient use of industrial resources.
But the growing internationalization of world markets eliminated the competitive cocoon. Confronted with more efficient overseas producers, American producers found themselves hampered by rules that often made it difficult to change business structures.
The new economic learning challenged the populist orthodoxy arguing that concentration was more likely to produce economic efficiency than an industry cartel. In fact, it appears unlikely that global market power -- and abundant jobs and comfortable standards of living -- can be sustained except by efficient production.
Gradually, the new methodology worked its way into antitrust decisions and enforcement policy. In 1974, for example, the Supreme Court reversed course in a case involving General Dynamics, ruling that a merger was not illegal merely because of high concentration levels.
By 1982 the Antitrust Division's position was that its ''enforcement efforts are targeted at behavior that has the demonstrable effect of restricting competition and thereby limiting economic efficiency and consumer welfare.''
The most recent Merger Guidelines (1984) intensify the Antitrust Division's commitment to the efficiency approach. Today's antitrust enforcers are looking for hard evidence of anticompetitive effects rather than unsubstantiated hypotheses, an approach that inevitably means fewer antitrust challenges, especially in the merger area.
Nevertheless, in 1985 and 1986 alone, the federal antitrust agencies challenged 33 proposed acquisitions -- hardly a lackadaisical record of "anything goes."
The overall reduction in the number of antitrust merger prosecutions reflects a careful choice of cases -- those with cartel earmarks (e.g., price fixing, bid rigging) -- rather than government malingering. The revised 1984 guidelines have successfully informed business of current merger policy and how its standards are applied. Armed with this information, businesses and their lawyers can avoid acquisitions that will not pass enforcement scrutiny.
This is not to say that business decisions should be given free rein. Nor is that what current merger policy does. It factors in the hard realities of our current global market, factors largely irrelevant to the traditional populist approach.
Antitrust enforcement isn't dead; it's geared for the times.
The writer is a Washington lawyer.