Inflation is back, and President Biden has pointed a finger at big business and its willingness to raise prices. Monopolies have come under particular scrutiny. Biden’s condemnation of industries like the meatpacking sector, which enjoys high profits and little competition, is the latest thrust in an ongoing effort to tackle corporate power by focusing on antitrust policy.
Biden’s appointees to lead the Federal Trade Commission and the Antitrust Division of the Justice Department, Lina Khan and Jonathan Kanter, are the strongest antitrust crusaders in these roles since the 1970s — the last time inflation dominated the news. Recently, they announced a plan to revise the nation’s merger guidelines to address new kinds of power that have emerged in the era of massive free-to-consumer platforms such as Amazon and Google. (Washington Post owner Jeff Bezos is founder and former CEO of Amazon.)
It’s not surprising that big business doesn’t like this approach. But in Washington, as much resistance to policing monopolies has come from centrist Democrats as from Republicans — some of whom are actually quite receptive to aspects of the anti-monopoly agenda.
Opponents of the Biden approach are particularly protective of what’s known as the “consumer welfare standard” — a 40-year-old rule that says government can use antitrust law only to challenge practices that raise prices for consumers. They dismiss alternatives that consider other kinds of harms to consumers, workers or society. Indeed, many of these critics argue that using antitrust policy to address anything beyond keeping prices as low as possible for consumers upends a sensible bipartisan consensus and opens a dangerous Pandora’s box.
But antitrust law was not always understood so narrowly. Reinvigorating it would undo decades of harm to innovation, wages and fair competition that has come from allowing companies to grow ever bigger and more powerful — so long as they kept prices low.
In 1890, fears about Standard Oil and other “trusts” that had effectively monopolized entire industries, including the pivotal railroad business, motivated Congress to pass the Sherman Act. The new law reflected a broad set of concerns about the growing power of big business over farmers, labor and government, and it made agreements to restrain trade and make monopolies illegal.
But at less than 1,000 words in length, the Sherman Act left much to the imagination, allowing scholars — and the courts — to repeatedly reinterpret it. The act has been understood as a means to limit economic power, broadly defined. But it has also been tied to protecting competition, bolstering small business and even redistributing wealth at various points.
For the first half of the 20th century, regulators and the courts attempted to balance these sometimes-competing goals as they sought to enforce antitrust law and address multiple forms of corporate power. Into the 1950s and 1960s, Congress approached
a wide range of topics, including whether mom-and-pop stores deserved protection from supermarkets and whether the marketing and patenting practices of pharmaceutical companies were legitimate through an antitrust lens. Enforcement was generally robust, with regulators closely examining the potential harms of mergers, protecting competition in key industries and considering civic impacts of big business.
Between the mid-1960s and the mid-1980s, however, a push to introduce the perspective of economics into setting antitrust policy created an upheaval. Economists saw the ultimate purpose of antitrust law as promoting “allocative efficiency”: to encourage a market where no producer could raise prices above a competitive level.
Achieving this goal would, theoretically, maximize economic well-being for American consumers. Rebranded as “consumer welfare” by future circuit judge Robert Bork, this approach focused on prices as the most relevant factor in deciding if something violated antitrust law. Other issues around corporate power — ranging from big firms’ potential to push wages down to concerns that excessive concentration might be incompatible with democracy — were defined as “political antitrust” and beyond the legitimate scope of the law.
Judges, regulators and politicians gradually institutionalized this narrower vision for antitrust in Washington. Law schools started teaching antitrust through an economic lens, and the federal antitrust agencies upgraded, expanded and gave more power to their economics offices. In the 1970s, the Supreme Court increasingly drew on economic reasoning in its cases, and by the end of the decade the justices began writing the consumer welfare standard into antitrust case law. While big business and conservatives like Bork advocated for this shift, it nevertheless had bipartisan support among economists, who found populist fear of big business to be economically naive.
By the time Ronald Reagan captured the presidency in 1980 with a strong pro-business agenda, the adoption of the consumer welfare standard was already well on its way. Regulators approved mergers of unprecedented size to increase efficiencies. The Antitrust Division dropped a case against IBM that it had been pursuing for more than a decade. Whole categories of mergers that had once been closely examined — like “vertical mergers” between a firm and its supplier — were now essentially rubber-stamped. In the new vision of antitrust, company size and industry consolidation were seen not as a threat to competition or a dangerous concentration of power but instead a likely source of efficiencies that would lower prices for the consumer.
This new, hands-off approach facilitated the transformation of American business enabling the hostile takeovers and leveraged buyouts that made Wall Street rich and corporations leaner and meaner — making “greed is good” seem like the motto for the ’80s.
While Reagan’s antitrust appointees were particularly enthusiastic about big business, in the decades that followed the new, narrowly technocratic antitrust framework faced few questions from either side of the aisle. Meanwhile, wages stagnated in concentrated industries, powerful companies silenced their critics and politicians ignored questions like whether “too big to fail” might be an antitrust problem. From the presidential administrations of George H.W. Bush to Barack Obama, antitrust enforcers stuck to their lane — even as the economy evolved, inequality grew and corporate power took new and troubling forms.
In the past five years, however, liberal activists and academics have articulated an alternative vision for antitrust laws that revives older ideas about what a “moral economy” actually looks like. This vision threatens big business because it asks questions about the harms to innovation and fair competition caused by massive platforms such as Google or Amazon, even when their products are free or low in price. It tackles questions such as whether increasing concentration in the hospital industry is harming patients as well as increasing costs. And it threatens the antitrust establishment, whose dominance depends, in part, on the policy regime remaining focused solely on consumer welfare, narrowly defined. It’s this combined threat — both to corporate power, and to the antitrust establishment that relies on it for support — that has elicited such a hostile response to proposals from the Biden administration.
There are legitimate arguments against using antitrust law as a blunt tool against large corporations. Big is not always bad, and some harms are better addressed through labor law or other means. Nor is antitrust enforcement on its own likely to stop inflation in its tracks.
But tackling corporate power, and the harms it has produced for both ordinary Americans and fair markets, will require us to think more broadly about the problem of monopoly than we have for decades. The old guard argues that the consumer welfare standard keeps antitrust from becoming a purely political tool. But continuing to narrowly focus on consumer prices is already a political tool. It’s just one that — by excluding most of the ways monopolies actually exercise power — fails to serve the interests of the public.