President Reagan last week unveiled a plan to relax federal antitrust laws by significantly weakening the government's ability to halt combinations of competing firms. In industries hard hit by import competition, he would lift the strictures almost entirely.
Considering the attitude this Administration has had toward corporate merger activity all along, the move is hardly a surprise. Under Reagan policies, the government already has permitted even some of the largest companies in industries such as oil to join together. This has emboldened others to seek dominant market positions by means of merger. At present both a Pepsico-Seven-Up combination and a Coca-Cola acquisition of Dr Pepper are in the works. Unless the government acts to stop them, the two companies will have an 80% share of the huge soft-drink market.
In fact, Reagan antitrust policy has contributed significantly to U.S. business' general preoccupation with mergers and takeover battles. This has diverted the attention of many corporate leaders from the task of simply running their own businesses effectively.
According to the Administration, the antitrust law changes are part of the process of letting the free market determine more completely what happens in the economy. It is an effort to let American industry become more competitive by removing some of the regulatory fetters.
The big risk, however, is that such a policy will lead not to more competitiveness but to a lot less.
Reason for Concern
There is good reason for such concern. The history of some of the most troubled industries in the nation has been heavy concentration of market power, followed by a kind of creeping inability on the part of the major companies in such industries to respond to change. The auto industry moved at a snail's pace to respond to import competition. The steel industry came to regard itself as a supplier of a product often in short supply. It learned how to actively sell what it makes only after foreign mills showed the way. Meantime, the American steel industry had delayed modernization to the point of losing its technological edge in the world.
Market power that comes from bigness may well have the potential for creating efficiency and lower cost. But it has equally as much potential and probably more for creating complacency.
Specifically, what the President wants to do is change the Clayton Act so that it prohibits mergers only when a market-controlling monopoly would result. That is an important change from the current law that permits the government to step in and bar a merger if it might "tend to create a monopoly." In addition, he would provide a five-year moratorium on antitrust bars to merger activity in industries beset by tough import competition.
Some U.S. business leaders have been complaining for years that U.S. antitrust policy is far too stringent, especially when compared with the policies of major competing nations such as Japan. Steel producers talked for a time about getting together to build a jointly owned steel-making facility with all the latest technology to reestablish American leadership in that field. They saw antitrust regulations standing in the way.
It may be that some types of exemptions would be helpful. But just as soon as major competitors in any industry are permitted to cooperate too closely, the net effect is to produce less competition. Less competition in domestic markets is hardly likely to breed more competitiveness in export markets.
Antitrust laws shouldn't be viewed in the same light as other forms of regulation. The antitrust laws don't basically tell companies how to operate--not like the rules that used to govern airline fares and interest rates on bank deposits. Getting rid of some of that federal interference probably was wise. Antitrust rules, on the other hand, tell companies how not to operate. They are the rules of a game that must be played fairly for a free market to have any chance to operate.
Without such rules, given the current proclivity among businessmen to try to buy each other out, the rush toward market-dominating combinations would accelerate. Freeing whole industries from such restraints because of import competition is foolish and dangerous.