The U.S. government's bold experiment in tolerating business monopolies came to an end last year with the Justice Department's antitrust suit against Microsoft.

Three presidents, starting with Ronald Reagan and ending with Bill Clinton, supported the innovation that in 1982 abandoned efforts to change the structure of highly concentrated industries. For nearly a century, successive administrations had invoked the law's prohibition against monopoly or any attempt to form one. Now enforcement was being dropped with no fanfare. Why was the experiment undertaken? And what were the consequences of this dramatic shift in a policy that had endured since the enactment of the Sherman Antitrust Act in 1890?

To answer the first question, we have to return to early January 1982, when CEO Charles Brown of AT&T and Assistant Attorney General William Baxter agreed to settle the government's antitrust suit against the Bell System. Everyone involved knew from the start that this was a historic occasion, maybe even a defining moment in U.S. political economy. A Republican administration--Reagan's--was breaking up a monopoly, in this case, the largest private corporation in the world. Ma Bell was such a fixture in American life that her passing at first elicited shock, and then a flood of sentimentality.

Despite this vigorous and successful action against the Bell System, however, President Reagan was extremely friendly to American corporate enterprise. At that time, many of America's largest firms were beset by fierce competition from more efficient European and Asian companies that were making deep inroads into U.S. markets. Mergers and acquisitions were one of the ways American companies were getting up to speed in this new environment, and the Reagan administration did everything it could to ease them through that transition.

Baxter, who was directing antitrust policy, was convinced that the only monopolies that needed to be attacked were the rare ones (like the Bell System) whose markets were closed off to competitors by the government. Baxter was devoted to Chicago School economics with the same devotion others worship a deity. One of the central concepts of the Chicago School was the idea that, without government intervention, markets would drive sluggish monopolies out of business or into the arms of more aggressive competitors--as it had Western Union, the largest monopoly in the United States in the 19th century. Efficient, innovative monopolies, on the other hand, would give consumers all the advantages of competition, so there was no reason to invoke the antitrust laws against them. With that in mind, Baxter had abruptly terminated the government's antitrust suit against IBM at the same time that he energized the attack on AT&T.

Once he had the Bell System's scalp on his belt, Baxter was happy to preside over the first phase of a quiet experiment in public policy. He simply ignored the numerous opportunities the government had to attack large-scale mergers and strategic alliances among competing firms. Microsoft was safe under this antitrust regime, as were Intel and other large U.S. companies. The experiment continued after Baxter left government, and George Bush's administration found no reason to revive the antimonopoly policy. Indeed, the policy of ignoring mergers that would in an earlier day have been considered attempts "to monopolize" continued through Clinton's first term, although both the Department of Justice and the Federal Trade Commission began to growl at some mergers, and to rev up their investigation teams. It was not, however, until the spring of 1998 that the Department of Justice decisively ended the experiment by filing its famous antitrust suit against Microsoft.

This is, then, an appropriate time to begin evaluating the results of the great antitrust experiment of the years 1982 to 1998. What happened to the American economy during those years? Were we hurt or helped by relaxing the scrutiny of monopoly under the venerable Sherman Act? During the first decade of the experiment, many Americans suffered through a painful era of transition. Millions were forced into early retirement, obligated to change jobs or driven out of the labor market entirely. The shock waves of what economist Joseph Schumpeter called "creative destruction" were felt in every American city and every large company. During those years, the U.S. business system experienced the most formidable transformation in its history--one that dwarfed even the 1890s, when the giant corporation was becoming the dominant form of enterprise in the U.S. industrial economy.

During the years before World War I, business and federal policy had both been adjusting to the demands of an economy that was primarily national in scope. Then, most of America's business was at home, where our large markets were protected by high tariff walls. But during the 1980s and 1990s, the U.S. economy was adjusting to a vast global system in which goods, services and currencies were trading on a real-time basis and American-based companies were being forced to come up to international standards of efficiency and innovation or go out of business entirely--as many did. In this setting, a national antitrust policy was no longer relevant to the most important changes taking place. What was important was having plenty of effective companies that could meet and best their international competitors.

For the corporate leaders who were trying to guide their firms through this transition, it was a great relief not to worry about antitrust suits while they were attempting to rebuild their organizations and reorient their work forces. One of the main reasons AT&T's Charles Brown had agreed to break up the Bell System was so he and his fellow executives could concentrate on running a telephone company instead of tending to lawsuits. During the 1980s and early 1990s, managers as well as their employees in most American companies had every reason to focus all of their energies on weathering this era of intense global competition.

By the mid-1990s, it was apparent that the fruits of the transition were worth the pain. Creative destruction had worked. America had weeded out the weak competitors in its ranks, improved its ability to innovate and once again taken a leading position in the world economy. Its rate of unemployment was one of the lowest of the world's advanced economies. Mergers and acquisitions had helped, as had strategic alliances that enabled U.S. companies to broaden the front across which they were introducing new products and services.

Since the economic results of the great antitrust experiment were so successful, Congress should take another look at the statutes that are being used today to reenergize a policy rooted in a national economy that no longer exists. In a global economy, the traditional antimonopoly policy is an anachronism. There may be significant political reasons to attack Microsoft and other large U.S. companies. But Congress should look beyond those short-term, political gains and consider instead the long-term economic interests of the United States.

Louis Galambos teaches business and economic history at Johns Hopkins University. He is co-author of "The Fall of the Bell System: A Study in Prices and Politics" (Cambridge University Press).