Myth #4: We already control corporate power with antitrust
In 1882, oil magnate John D. Rockefeller formed the Standard Oil Trust, and began to buy up the US oil industry, eventually bringing under its organizational umbrella 90 per cent of the oil production in America. This stimulated a raft of copy-cat arrangements in sugar, whisky, lead, rope, cottonseed oil and linseed oil by industrialists nicknamed the ‘robber barons’.1 Standard Oil engaged in a torrid menu of unfair dealings to secure its supremacy, including agreeing with the railroads to raise the cost of carriage for rivals, intimidating smaller firms into selling out to the trust with the threat of ruination, and bearing down its political influence over the whole industry in the grant or obstruction of new pipelines.
At the same time, mass production and mass distribution introduced a new conflict into political discourse. The concentration of power was disturbing, but the scale of production that it allowed brought about a level of national industriousness that was hard to resist. Americans were propelling these behemoths forward with their eager consumption, although many continued to be troubled by the question of what economic and political life under the dominion of such companies would be like.2 What was the price that would be paid for industrial progress?
Now, unlike in the past, an international force of antitrust regulators steward the development of industry and, in theory, watch specifically for the impairment of competition, dominance in markets and aggregations of power. You would think that antitrust lawyers, regulators and economists would be very sensitive to signs of growing market power, perhaps even over-zealous, trained as they are to spot market distortions in their incipiency. If that were the case, any industrial concentration that we see, and the accompanying harms, must have been regulator-approved and is therefore nothing to worry about.
And yet the evolution of antitrust has plotted a very different path to what you might expect, a path which has failed to keep up with accelerating industrial consolidation. Antitrust has turned into a technocratic field of experts mechanistically applying dated economic theories, out of touch with the urgent reality of our times. These enforcers earnestly review mergers and other corporate schemes designed to avoid competition and to consolidate power, but generally deem that they are benign or beneficial, bewitched by theories that convince them this is so. I saw this at first hand when representing big corporations before the antitrust authorities, as well as when I switched sides to work for government enforcers reviewing corporate power. Almost all mergers are cleared by the authorities, and few monopolists are challenged. And what started out as an American preoccupation with neoclassical economics, consumer welfare, price and the infallibility of markets, has been replicated in the EU, and across the world. Antitrust has become a merely mythological constraint on corporate power.
The US Sherman Act of 1890, which was eventually used to break up the Standard Oil Trust in 1911, is often treated as the foundational antitrust statute. Indeed, the word ‘antitrust’ comes from the original motivation of the legislation – to break up industry consolidations that had used the legal ‘trust’ structure to ward off regulation – hence anti-trust.fn4
Antitrust law was a response to the power of the trusts, but the trusts had developed as a way to circumvent a different regulatory device taking aim at their scope.3 Before the Sherman Act, corporate power in the US had been controlled not by the federal government but by individual states. Companies have always relied upon the government for the right to incorporate – it is the government that grants companies the ability to become companies ‒ so individual American states had used this leverage to control corporate activities through corporate law: by prohibiting corporations from doing business outside the incorporating state, or prohibiting one company from owning shares in another, and thus placing inbuilt limits on the scale of industry.4
As the US national market grew and became more interconnected, companies were able to choose in which state to register, and the powerful trusts were able to lobby for weakened incorporation laws – which some states were happy to provide in order to attract companies and the associated registration fees and tax revenues. Corporate law was no longer an effective limit on corporate power.
The Sherman Act, a federal antitrust statute sitting above state incorporation laws, was supposed to step into this regulatory gap, but it was a weaker tool for containing corporate power than state corporate laws had been. Corporate law empowered states to sue if a company breached the terms of its licence, with a presumption of harm to the public interest, on the basis that incorporation is a privilege which the state is empowered to take away. But instead of following this model for the regulation of corporate power in federal antitrust, the drafters of the Sherman Act based the legislation on the common law principle of ‘restraint of trade’, which was not designed as a curb on power per se.
Unlike corporate law, which could punish a breach of corporate duties with the dissolution of the company, threatening the very existence of the powerful corporation, the common law concepts of restraint of trade and monopolization permitted reasonable distortions of competition.5 The possibility of a justifiable monopoly was always left open, and the courts were more willing to step in where there was clear evidence that dominance had been achieved through illegal acts, directly restricting competition, rather than through the merit of the ‘pristine monopolist’ – a high bar. The government could not go after the broad basis of power and instead had to pick away at individual corporate acts in a piecemeal fashion, in each case showing some anti-competitive economic harm.6
Whilst the shape of modern antitrust was crystallizing in the form of ‘restraint of trade’ under the Sherman Act, some, like Supreme Court Justice Louis Brandeis, argued that focusing on economic harm was a red herring – the problem was not monopoly as such but rather the sheer bigness of these conglomerate enterprises. Brandeis lamented the ‘curse of bigness’7 and argued that it was necessary to ‘[curb] physically the strong, to protect those physically weaker’ in order to sustain industrial liberty.8 As Brandeis is famously supposed to have said, ‘We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.’fn1 Bigness posed a fundamental threat to economic democracy, he argued. But this was not the concern that was ultimately embedded within the Sherman Act, and mimicked in competition laws across the world. Antitrust, unlike corporate law, would limit itself to prosecuting only economically harmful monopolies and not corporate power more broadly.
The University of Chicago became the gravitational centre of neoliberal thinking in the twentieth century, grabbing hold of the view that markets should be left free, companies should serve only shareholders, and monopolists should not be heavily regulated. But in fact the early Chicagoans – what we might call Chicago School Mark I – in the 1930s had been more in tune with Brandeis. They had been concerned with corporate power as a threat to economic freedom, and saw monopoly as the enemy of democracy.
One scholar and founding member of the Chicago School, Henry Simons, called for the ‘outright dismantling of … gigantic corporations’ and the ‘persistent persecution’ of producers with market power.9 He thought antitrust violations should be ‘prosecuted unremittingly by a vigilant administrative body’. Even Milton Friedman initially supported the government’s role in cracking down on monopoly power – it was for the state to ‘police the system’ of the competitive order, he wrote, and to ‘establish the conditions favorable to competition and prevent monopoly’.10
This pro-enforcement view did not last, however, particularly once the government started acting upon it. Concerns with economic power were soon replaced wholesale by an abiding distrust of the power of the state.
The free market agenda at Chicago was initially driven by an outsider from Europe – Austrian economist Friedrich Hayek. He feared the rising power of the interventionist post-war state, having seen in Germany what could happen when a fascist leader gets control of highly monopolized and concentrated industry, and the concurrent ability of a highly monopolized industry to bring their chosen leader to power. This is what conglomerates like chemicals company I.G. Farben had done, and the executives of the company were later tried for war crimes and crimes against humanity at Nuremberg, having manufactured the gas used by the Nazis to kill millions of Jews.11
Unlike Brandeis, for Hayek the solution was not to make sure there are no monopolies for a fascist leader to take hold of ‒ he instead wanted to make sure that the government would always be too small and too weak, relative to private enterprise, to usurp private power. Hayek saw ‘in the encroachment of state intervention on every aspect of social and economic life’, as he characterized the New Deal and British welfare state, ‘a creeping totalitarianism’.12 Whereas others thought it would be possible to stave off communism by taming free markets, Hayek saw the development of socialism by stealth. Socializing capitalism would be the death of it, he feared.
Fundamentally, Hayek saw himself as a champion for freedom – but it was freedom for private property, for the ruthless monopolist, for the wealthy and the successful. Friedman too exalted shareholder value on the same basis, arguing that competitors should be left free as long as they stuck to the ‘rules of the game’, by which he meant ‘free competition’. But by the 1970s the ‘rules of the game’ had come to mean competition between monopolies who were assumed to act ‘as if’ they constantly faced the threat of the disruptive upstart.
After the Second World War, Hayek in particular could see that the Cold War would be won through a battle of ideas.13 Ironically borrowing from the playbook of the Fabian socialists who had founded his home academic institution – the London School of Economics – Hayek formed the Mont Pelerin Society in 1947 as a free marketeers’ AA meeting where the goal is not to cure yourself but convert everyone else.14 The objective was to formulate a strategy to rescue the liberal economic order.
The phoenix that rose from the intellectual ashes of market liberalism at Mont Pelerin, and eventually found its home at the University of Chicago, was Chicago School Mark II, new liberalism, or ‘neoliberalism’, which took a fresh approach towards economic power (effectively denying that it exists) and individual freedom (holding it as supreme). Whilst those on the left thought the continued growth of corporations would at some point overpower the state, and that companies should therefore be nationalized or brought within state control, neoliberal Chicago antitrust became synonymous with self-correcting markets, benign corporate expansion and transient market power. Indeed, if monopoly persists, it was thought to be through the fault of government not the markets.
Mark II Chicagoans came to think that any government intervention in the market was a fundamental, proto-fascistic breach of individual freedom. These ideas were not taken seriously at first, belonging to what jurist Richard Posner, himself a Chicagoan, later described as the ‘lunatic fringe’ of academia.15 But after a time, this faith in free markets, the conviction that market power can always be tamed by competition, that companies will pass on their cost savings to consumers and that the most efficient scenario will necessarily crystallize, as if according to some natural law à la Adam Smith’s invisible hand, led to an ideological bias towards big companies that came to overwhelm the animating goals of antitrust and any former disquiet over power. Even their love of the ideal of perfect competition could not convince these conservatives of the need for government intervention to protect it. For Hayek this could only irreversibly lead towards socialism, repression of liberty and the degradation of the human spirit. There remained a central concern with freedom ‒ but it was freedom for the pike, not the minnow.
Although it may seem from this brief glance at history that the antitrust enterprise was doomed from the outset, hobbled by an inability to go after power directly and by a rising ideology more sceptical of government power than of corporate abuse, actually the concept of economic harm is broad enough to have captured all sorts of different kinds of corporate power. How did antitrust come to focus on market power and price only? And how did this idea end up serving big business?
The logic flows directly from the idea that corporate muscle is a buffer against government power, as well as a conduit for low prices for consumers and a manifestation of efficiency. Prices, as a result, became almost the sole concern within antitrust.
The most influential articulation of this price-centric approach came from the pen of free market ideologue Robert Bork, whose 1978 book The Antitrust Paradox is still considered the seminal text of the modern antitrust era. Bork was disdainful of what he saw as the constant meddling with markets by authorities who were often doing more harm than good by inhibiting efficiency. As Bork saw it, the paradox of antitrust was that antitrust authorities sought to preserve competition by interfering with it and by protecting what he thought of as inefficient competitors. He thus labelled antitrust ‘a policy at war with itself’ (the subtitle of his book).
For Bork, competition was not about the process of rivalry between many firms, as most of us commonly understand it to be. Rather, competition was about an outcome: maximizing ‘consumer welfare’, as measured by looking at the impact of any given conduct on price. Bork argued that ‘competition’ was just a shorthand for whatever it was that maximized consumer welfare, which means that as long as you can characterize a market as competitive, even if there are only a few companies left competing, then you have an argument against antitrust enforcement. Bork was not the first to introduce the concept of ‘consumer welfare’; he was borrowing from the toolbox of neoclassical economics. But once this cuckoo made a bed in the antitrust nest, the bias towards big business was bound to hatch.
This, in fact, was a fundamental shift ‒ and Bork’s ultimate coup. Corporate law, as we have seen, had focused on the power of the corporation. Restraint of trade under the Sherman Act shifted this to the conduct of the firm. By placing the emphasis on consumer welfare – an outcome – Bork put to the side the idea that we might value competitive rivalry for its own sake, that we might want to challenge power itself purely on grounds of economic imbalance or corruption, regardless of efficiency.16 If the goal is dispersal of power, you may need to cut down big entities or introduce new firms into the market. But if the goal is efficiency, this could theoretically be achieved even through monopoly, as long as prices are low ‒ which, handily, Bork always assumed them to be.
It is not only power that was removed from the equation. Anything that could be considered as external to the market – the subversion of democracy, a rise in inequality, pollution – was similarly minimized. These issues are not deemed to matter to consumers – if they did, the consumer would pay to be rid of them.
Bork subscribed to the myth that companies are inherently efficient (Myth #2), and big companies doubly so, because they are able to achieve ‘economies of scale’ – cost savings per unit, resulting from having large-scale operations, like being able to buy or produce in bulk. Zooming in on the welfare of consumers naturally drew attention away from the power of such companies and its potential harm (Myth #3). The transfers between your pocket and the monopolist disappear on this analysis, and so too does the monopolist’s attempts to use the additional profits to shore up its power.
For thinkers like Robert Bork, monopoly power was either fleeting or justified ‒ either the monopolist was the most efficient firm or its monopoly profits would be competed away by new entrants to the market. It is on the basis of these presumed efficiencies that mergers are given the go-ahead, monopolies are excused and any concern with bigness melts away. But viewed through the lens of shareholder value, and the duty to maximize returns for shareholders, it becomes less believable that efficiencies will be passed on to consumers, because they are, in fact, earmarked within the company structure for shareholders.
Bork established what is today the gold standard of competition law – the ‘consumer welfare’ test. But under this test, whatever happened in big companies was assumed to be good.17 The powerful deserve their power and, somehow, in ways not clearly articulated, this situation was assumed, invisibly, to also serve the powerless. Meanwhile, the shareholders of monopolistic companies, and other powerful individuals, receded quietly into the background.
For decades, this thinking has shaped competition law enforcement (or lack of enforcement) in favour of big companies. Enforcers, lawyers, economists ‒ even companies ‒ are kept busy going through the motions, as if we are vigilantly taking corporate power to task. But it is just a mirage. It is as if the antitrust community donned a pair of anti-competition infrared goggles but switched the detection mode from ‘power’ to ‘price’. The law, as critic Tim Wu remarks, has ‘grown ambivalent’ towards monopoly, and ‘sometimes even celebrates the monopolist ‒ as if the “ anti ” in “ antitrust ” has been discarded’.18 Or as antitrust advocate Lina Khan writes: the ‘suspicion of concentrated power is replaced with reverence for it’.19
What has for decades obscured this ideological bias from general scrutiny is the purposefully confusing and misleading language Bork used to describe this neoliberal antitrust.20 Against the backdrop of rising consumerism, as people were called upon to express themselves not just in the ballot boxes as citizens but also at the checkout as consumers, Bork’s labelling of his pro-corporation, pro-big business brand of antitrust as supportive of ‘consumer welfare’ decisively removed any residual concern with corporate power from the antitrust agenda. The public interest would no longer feature directly in antitrust analysis, in a serious way, for it was assumed to be captured through consumer welfare and the efficiency of the market.
Hayek, a European, had a huge impact on how antitrust would evolve in the US. Eventually, that influence would boomerang back to Europe, only a couple of decades later. It is generally understood that, when it comes to antitrust, things are done differently in Europe (it is even called something different outside the US: ‘competition law’ as opposed to antitrust). The European competition project has very different origins to the US antitrust legislation. In the US, the Sherman Act was adopted amidst a battle for power between citizens and business, and the conflicts inherent in curtailing business dominance. The competition laws in Europe, by stark contrast, were adopted as part of developing the European single market, and thus have the integration project at their heart, giving greater prominence to issues of fairness and responsibility.
The attitude to competition in the EU was also initially shaped by a rival school of thought to the neoliberals: the German ‘ordoliberal’ school. Whereas neoliberals held faith in the invisible hand of the free market, the ordoliberals believed in the need for a strong government to create a framework of rules to order the economy, including strong antitrust to contain corporate power. The Freiburg School of ordoliberalism was suspicious of both unrestrained private power – the monopolies and cartels that had characterized Nazi Germany ‒ as well as of unrestrained public power.
But the neoliberal influence of the Chicago School has been discernible in EU competition policy at least since the 1990s,21 when then Competition Commissioner Mario Monti, the first economist to be appointed to that role, imported the consumer welfare approach into EU competition law and created the office of the Chief Economist within Europe’s competition regulator.fn2 In 2001 he declared: ‘[T]he goal of competition policy, in all its aspects, is to protect consumer welfare by maintaining a high degree of competition in the common market.’22 Vice-President Almunia said in 2010: ‘[A]ll of us here today know very well what our ultimate objective is: competition policy is a tool at the service of consumers. Consumer welfare is at the heart of our policy and its achievement drives our priorities and guides our decisions.’23
As we shall see, the EU Treaties can be interpreted much more broadly than this, but practitioners in Europe have generally adopted the narrower, Chicagoan view.24 In Europe this has come to be known as the adoption of a ‘more economic approach’ to competition enforcement, but this unassuming phrase belies the revolution that took place under the surface of EU competition law, in which fairness ‒ previously a core principle of the law ‒ was substantially jettisoned in favour of economic efficiency.25
Despite having an established legal framework tailored to rooting out anti-competitive behaviour, corporate power continues to elude us. We have seen how the framework has changed from the original – more effective – corporate law model, and how the Chicago School altered and diluted the interpretation of the ‘restraint of trade’ principle, enfeebling antitrust enforcement with an oxymoronic bias towards the interests of big business.
The global competition authorities remain extremely busy, but many cases that should be brought are not, and some that should not be prosecuted are. In the former category, few challenges to vertical mergers – between suppliers, manufacturers and distributors at different levels of the supply chain – are brought, on the assumption by the authorities that such arrangements reduce Coasian ‘transaction costs’ and are thus beneficial, even if they create a risk of competitors getting locked out of distribution channels or losing access to critical suppliers. The Hollywood ‘Studio System’ of movie production, with vertically integrated movie studios, film writers and producers, distributors, cinemas and even actors, was once broken up in the 1940s but now seems to be back in the form of Netflix Originals and Amazon Prime Video.
Whilst mergers between horizontal rivals at the same level in the supply chain are challenged, this is often only once the market has consolidated down to four, three or two players already. Other big companies often bring complaints that trigger investigation of some industry tie-ups and monopolistic practices, but workers and smaller suppliers have rarely been protected from market power wielded against them.fn3 Powerful employers, for example, can depress the wages of workers, like in a town where almost all low-skilled jobs are at the one big grocery store or factory, but this kind of power has not featured particularly in antitrust reviews. By one estimate, monopsony power reduces output and employment in the US economy by 13 per cent and reduces labour’s share of national income by 22 per cent.26 Although the UK Competition and Markets Authority ultimately blocked the acquisition of Walmart-owned Asda by rival grocery chain Sainsbury’s, the authority explicitly stated that the possible impact of the merger on the thousands of retail employees of the two companies would not be a factor in its assessment.27
This concentration of buying power hits the poorest workers hardest, and they are the least empowered to persuade the competition authorities to act. One of the most insidious examples of buyer power is the practice of tying workers to non-compete clauses so they cannot go to work for a competitor if they quit. Similarly, McDonald’s was challenged for imposing ‘no poach’ clauses on its franchisees, effectively preventing a worker from leaving one McDonald’s for a higher paying job at another McDonald’s.
But the grand irony of modern antitrust enforcement is shown best through its treatment of excessive prices. Despite the prima facie obsession with prices and harm to consumers, competition law is loath to intervene to protect consumers from high prices directly. Competition law will, somewhat reluctantly, act to increase competition in a market in the hope that low prices will follow. But even though the textbook case against the monopolist is the charging of higher prices to consumers and the lowering of product quality, very few cases are brought against exploitative practices like this. High consumer prices, employment contracts with forced arbitration clauses,28 the extraction of excessive data by online platforms – these transgressions mostly go unchallenged.
At the same time as going easy on big businesses, in recent years the authorities have been accused of targeting the little guys, prioritizing cases against consortia of piano teachers, ice skating coaches, and church organ players, whilst allowing the biggest companies to get bigger and bigger through voracious merger sprees.29 So, instead of cracking down on Uber’s bargaining power against its workers, and its dubious tactics to dominate local markets by ignoring local regulations, the US antitrust agencies have instead turned against the drivers, siding with the Seattle Chamber of Commerce’s argument that, in granting drivers the right to collectively bargain, the City of Seattle had facilitated a cartel.30
The authorities have also been targeting other forms of cooperation, even where the goal of the agreement has been to foster sustainability or pro-social outcomes. One such arrangement was an agreement between several Dutch energy companies to accelerate the decommissioning of five coal power plants which accounted for approximately 10 per cent of the Dutch generating capacity. The Dutch competition authority – known as the ACM ‒ stated that closing down the power plants would raise energy prices and therefore harm consumers, and maintained that the environmental benefits of the agreement were insufficient to offset the harm.31 In particular, whilst the world at large would enjoy cleaner air, it would be Dutch consumers who would pay the price of higher energy costs.
Another notable Dutch case is known as the ‘Chicken of Tomorrow’.32 The case involved Dutch supermarkets, chicken farmers and chicken meat processors, who responded to a public outcry against the poor living conditions of chickens in factory farms by making arrangements to sell chicken meat produced under enhanced animal welfare conditions. Critically it was agreed that supermarkets should remove regular chicken meat from their shelves – a measure designed to push consumers into purchasing higher welfare chicken and to limit competition from regular chicken. The prices of happier chickens would be higher, but the critical question was: would the trade-off be worth it to consumers? As part of its investigation the ACM used consumer surveys to establish the monetary value of animal welfare, determining that some customers were willing to pay more for higher welfare chickens (up to €0.82 extra, per kg) but that the costs of the system would exceed that (the price increase was predicted to be €1.46/kg). The ACM would not approve the scheme.33
What is perhaps most odd about these sustainability cases is that the competition authorities find themselves in the position of blocking agreements, according to the current understanding of the law, that we can imagine not only being permitted but actually being required in the very near future. Of course it would be simpler for the government to just prescribe higher welfare chicken and to decommission coal plants, and this would be going through the proper political channels instead of requiring the competition agency to do it through the back door. But the competition authorities in these cases are not requiring anyone to do anything, they are cracking down on those who took the initiative themselves.
The aspects of the agreements that the agencies object to are the price-fixing, competition-limiting arrangements, but these tend to be necessary to limit the first-mover disadvantage that comes from doing good on your own when your competitors are eager to undercut you. This is the rationale for mandatory minimum wages – many well-meaning employers would like to pay their employees decently, but until everyone is forced to do so they would find it hard to sustain their business. They could instead form an agreement with their competitors to raise prices to accommodate higher wages, but that would be illegal ‒ criminally so, in some jurisdictions. And yet once minimum wage laws come in, it is not only encouraged but legally required.
Companies say that the competition rules prevent or discourage them from engaging in more sustainability initiatives that require some element of cooperation with competitors. Some argue that this is just a convenient excuse – that if companies really wanted to transition to sustainable business practices, they would find a legally compliant way to do it. But even if this is the case, competition law, as it is currently enforced, provides this convenient excuse, as authorities’ resources are tied up going after even this benign or positive cooperation when it happens.
Antitrust, under the old corporate law model, tied corporate power to corporate responsibility through the company’s charter. These sustainability cases are at the fringe of modern competition law but they speak to the heart of the matter – the tension sitting within the discipline. What kind of behaviour do we expect from corporate citizens, and is competition law encouraging or discouraging it?
The overall theme of modern competition law, following Bork, has been non-intervention: leave the markets alone and they will self-correct, should market power arise. Over the last few decades, antitrust agencies have overseen an enormous wave of consolidation across a growing number of sectors including farming, healthcare, media, publishing, advertising and pharmaceuticals.34 Today, in the US alone, there are around 14,000 mergers per year, that is almost 40 a day, as opposed to 2,000 a year in 1980, more like 5 a day.35
Businesses seeking more power face a friendly system of regulation, with almost 90 per cent of mergers closing with little or no regulatory hold-up, and most of the remaining 10 per cent failing mostly due to managerial cold feet.36 Very few deals are blocked. In America, the regulators asked for more information in only 45 out of 2,111 reported mergers in 2018.37 Only 39 were actually challenged, of which 20 cases were settled and 9 abandoned. The European Commission also clears the overwhelming majority of deals without conditions. Between 1990 and 2019 the European Commission rendered over 7,000 merger decisions, blocking only 30 – less than 0.05 per cent of deals.38 It is not that the regulators have been negligent – they are restrained by the web of free market myths that have found their way into the prevailing interpretation of the law. The regulators represent the silent, but busy, mouthpiece of society that has only recently begun to find its voice.
Merger activity in the tech sector is one example. The tech behemoths have between them acquired a jaw-dropping 400 companies over the last decade,39 including some transactions that should really have raised more alarm bells, like the acquisition by Google of its main competitors in advertising (AdMob and DoubleClick), in video (YouTube), in maps (Waze); the snapping up of Instagram by Facebook (deemed not to be a competitor because picture-taking functionality was not considered important to monetization, and Instagram wasn’t deemed to be a social network) and of WhatsApp; and the absorption by Amazon of Zappos, Soap.com and Whole Foods Market. The authorities barely batted an eyelid at the time.
As critic Tim Wu has commented: ‘It takes many years of training to reach conclusions this absurd. A teenager could have told you that Facebook and Instagram were competitors ‒ after all, teenagers were the ones who were switching platforms.’40 It is only under the narrow Chicago School view that it is possible to ignore the obvious – that Instagram posed an existential threat to Facebook, as Facebook itself was well aware.
The focus on price is part of the mischief. The prices offered by these firms are, on the face of it, either very low or non-existent. It can therefore be a tough case to make that these innovative, cutting-edge, market-leading companies are anything but good for the consumer and for the economy. This is how companies like Amazon, according to critic Lina Khan, with ‘missionary zeal for consumers’ have ‘marched toward monopoly by singing the tune of contemporary antitrust’.41
The causal link between the lax enforcement by the antitrust regulators and the growing levels of industry concentration remains contested – with other factors such as globalization and technological change also driving consolidation. But regardless of the origins of market power, it is the role of antitrust to shape how such consolidation emerges and manifests itself, and the enforcement agencies have been hampered from truly serving the public or even the consumer interest by the myth that competition will bubble up spontaneously, without assistance, and power will not be able to subvert it.42
The role of big companies in shaping our current industrial landscape is perhaps obvious, but the role of the regulators themselves, and the theories of regulation that they have applied, has been underappreciated. Whilst no one was watching, corporate regulation flipped 180° from combating corporate power to acquiescing to it. Meanwhile, the responsibilities of big companies were reduced to a responsibility to compete to make as much money as possible, with a strong prevailing faith that low prices would automatically appear, despite rising levels of concentration.
For a long-ignored discipline, antitrust has had a disproportionate impact on the state of the global economy. Now people are asking how this could have happened, and what antitrust can do about inequality and protecting democracy and privacy. It is as if there has been a program running in the background of our operating system, and a bug in the code allowed the different bits of software to grow bigger and bigger and consume more and more memory and computing resources. Our vital systems have started crashing so we have finally woken up to the need to reboot. But first we must update our virus detection software and relearn how to see a problem we have forgotten how to diagnose.
‘The central values of civilisation are in danger,’ one paper reads. It continues:
Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy. The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power.43
This is from the founding document of the Mont Pelerin Society, in 1947, and it warned of unrestrained state power. But it is a description that could well apply today ‒ against corporations, not governments.
By 1993, in the new introduction to the second edition of The Antitrust Paradox, Bork welcomed the early signs of the success of his anti-antitrust campaign. Bork and others effectively rewrote the antitrust laws without touching a statute, and without the messy business of legislating, by influencing the evolution of judge-made law, the interpretation of that law, and by crippling the right of private parties to enforce it.
It may seem strange, given the economists’ usual reverence for the ideal of perfect competition and the price system, that a policy designed to enforce competition and remove market distortions came to be so loathed by economists and, turning the world upside down, monopoly so lionized. This change did not come about due to some scientific breakthrough in the economic discipline – although this was how it was sometimes presented by Bork and his colleagues. Instead, funded by generous corporate sponsors, the Chicago School was transformed into a mouthpiece for pro-monopoly interests, and many of its members would go on to win Nobel prizes for their contributions towards building the intellectual framework in which the invisible hand could happily operate for decades after.
Chicago Antitrust, from its inception, was orchestrated to protect particular interests. Friedrich Hayek coordinated the foundation of two key projects at Chicago University in the late 1940s and early 1950s – the ‘Free Market Study’ and the ‘Antitrust Project’, of which Bork was a part – both of which were funded by the William Volker Fund, the charitable arm of a national furniture distribution company and window shade manufacturer, located in Kansas City, Missouri.44 The president of the company ‒ Harold Luhnow ‒ is mostly unknown, even in antitrust circles, but it was his single-minded focus that led to the establishment of the Chicago School.
Between Hayek and Luhnow’s persistence, the Volker Fund’s financial assistance, and Friedman’s tireless promotion of free market ideals, the Chicago School was able to capture the attention of policymakers in the 1970s, desperate to fix lagging economic performance, and national leaders, especially Ronald Reagan and Margaret Thatcher, in the 1980s. These politicians implemented and disseminated the neoliberal world vision. Friedman clung to these ideas until the end. A few years before he died, he said, ‘I have gradually come to the conclusion that antitrust does far more harm than good and that we would be better off if we didn’t have it at all, if we could get rid of it.’45 Antitrust has been so handicapped by the ideology of Bork and his allies that we might as well have.
Antitrust was originally broadly conceived as the challenge to big and powerful business for the threat it posed to economic and political democracy. If we are to return to more robust enforcement, we must certainly expand our notion of harm beyond the adopted concepts of efficiency and consumer welfare. But we can also confront corporate power at a fundamental level – limiting the scope of the corporation, imposing responsibilities so that its power is wielded for the public benefit, and ultimately revoking the privilege of incorporation for companies that stray beyond the bounds of public control and public interest.
It is now clearer than ever that monopolistic companies set not just the prices in their markets but the trajectory of innovation and the balance of social harm and benefit. We may not be able to fully wind back the concentration, but it is high time to bring antitrust back in line with our new social, environmental and political reality and to face head on, and without flinching, the true power of corporate interests. In doing so we may bear in mind the ominous warning of Norbert Wiener, in 1948:
Whether we entrust our decisions to machines of metal, or to those machines of flesh and blood which are … corporations, we shall never receive the right answers … unless we ask the right questions … [T]he hour is very late, and the choice of good and evil knocks on our door.46
Myth #4: We already control corporate power with antitrust.
Reality: Modern antitrust condones corporate power.