The power of antitrust law reached its peak on a day in 1911 when the U.S. Supreme Court found that Standard Oil Co. and American Tobacco Co., two giant corporations of their era, had illegally attempted to monopolize their industries. Ever since, it has been a spasmodic slide into obscurity, if not irrelevance.
The Reagan Administration's antitrust proposals confirm the eclipse: They are neither as vital as the Administration contends nor as calamitous as critics allege.
Commerce Secretary Malcolm Baldrige says that the proposals would significantly improve America's international competitiveness. It's hard to see how. The inability of U.S. companies to merge or cooperate is not a major cause of the trade deficit. And even if Congress approves the proposals, the main effect will be to put into law the Justice Department's existing merger guidelines. But the package is not a monstrous surrender to business.
Antitrust enforcement is not disappearing. Nor should it. Business executives like high prices, and at times try to fix them. In the last five years the Justice Department has brought hundreds of price-fixing cases against road builders, electrical construction firms and government contractors. Merger restrictions are needed for the same reason. Although standards are looser than 10 years ago, mergers that dramatically concentrate power in specific markets are--and would remain--illegal.
But the importance of antitrust law has been doomed by changing economic conditions and, ironically, the triumph of its central political premise: the subordination of private business to public purpose. The major antitrust laws--the 1890 Sherman Act and the 1914 Clayton Act--straddled an era of huge change. Between 1880 and 1920, America's urban population quadrupled and the industrial empires that this process produced were, in a nation of farmers and small businesses, awesome and alien.
The economic consequences of these vast firms have always been unclear. Monopoly power was often tempered by economies of scale. Although Standard Oil controlled more than 90% of all oil refining, it often lowered prices. But these firms raised other anxieties. The antitrust laws reflected, says Robert Katzmann of the Brookings Institution, the "American fear that concentrated private power could undermine democratic government." President Woodrow Wilson said in 1913: "America was created to break every kind of monopoly and to set men free upon a footing of equality."
This debate has now been settled. When the antitrust laws were enacted, Big Business was dominant. Government checks were narrow and weak. Now the opposite is true. Government regulation is powerful and pervasive.
Meanwhile, the economic relevance of antitrust law has diminished. Most important, the rising tide of conglomerate mergers, involving companies in different industries or markets, falls outside the scope of antitrust law.
At the same time, increased international trade has eroded the power of companies in concentrated industries, such as steel and autos, to exercise pricing power. Finally, as the so-called Chicago school of economics argues, the dominant position of firms in some industries reflects superior efficiency, not monopoly power. Breaking up these firms would hurt the economy and possibly undermine America's international competitiveness. When the Justice Department abandoned its case against IBM, it acknowledged that size is not itself illegal.
The result is that less is lEft for antitrust enfOrcement. Many conglomerate mergers are inefficient. But policing them would require a huge, probably self-defeating, extension of government authority. And these mergers have not increased the concentration of economic power. In 1958 the top 100 non-financial (non-bank, non-insurance) firms controlled 31.6% of non-financial assets. In 1982 their share was 28.2%.
Even a decade ago, antitrust policy held out much promise to reduce inflation or improve living standards by eliminating pockets of monopolistic power. Now possible gains seem modest. Increased trade and deregulation (mainly of airlines, trucking and communications) have added to competition, while the natural checks of markets seem stronger than they once did.
The central antitrust idea remains as powerful today as in 1890: Competition is good both politically and economically. But it is less and less fulfilled by antitrust laws. They are not being abandoned so much as they are fading away.