Commentary
Just about everyone, left and right, is alarmed by consolidation in industry. This goes for them all: tech, media, medical, communications, and more. For the better part of a century, the go-to solution for reformers has been antitrust. These are actions by the federal government to discern the existence of monopolistic behavior and bring about solutions in the form of breaking up companies.
Antitrust seems like an easy choice. Certain companies are too big and too powerful, and too influential over politics and public opinion. They are blocking competition or they eat up their competitors with nonstop buyouts. This is what Google does. Once an innovation comes along to challenge its position, Google, flush with capital, simply pays off its owners. In fact, this is the basis for vast amounts of small startups, the hope of an eventual buyout.
The power of these companies has been abused to censor, manipulate, push some voices over others, and skew results. The answer in free enterprise is competition, but it seems like competition can never really get going under these conditions.
Antitrust, at least on paper, seems like a good solution. Stop the vertical and horizontal integration and split up a single company into multiple companies while forcing them to compete with each other. This seems like a path toward establishing a kind of fairness that benefits everyone.
As with all such plans, it’s good to look beyond the models and consider the realities.
There are five main problems with the antitrust route toward establishing competition.
1. Grows government power
Remember that you will not be in charge. Bureaucrats will be. The people who do not like monopolies are applying a general intuition against the abuse of power, which they rationally believe should not be consolidated. But by favoring government intervention in market activity, they are choosing one form of power over another, with no assurance that the costs and benefits will work out in their favor.Putting the government in charge of anything is always risky because the government has its own interests. It too wants to grow. It wants money. It wants control. Antitrust grants to the government what it presumably takes away from the market, which could make the results even worse. You could be left with ruined industrial structures and overweening power of the state, which is pretty much the whole history of antitrust.
2. The agencies are captured
The experts in any field—whether transportation, pharmaceuticals, agriculture, or finance—come not from government as such but from industry. In fact, the etymology of the word expert shares a root with experience; that is, actually doing the real thing in order to gain knowledge over how it is done. It makes sense that the regulators themselves would have such experience, but this also creates a revolving door between agency and industry.Observers have noted this problem in every single government agency, which undertakes its activities to the advantage of the dominant players in the industry it regulates. The problem is well known in pharmaceuticals, but it also exists in energy, transportation, agriculture, finance, labor relations, and law.
Every agency is effectively run by and for the largest corporate players. It stands to reason—and history backs this up—that the industry itself becomes a major decision-maker in how antitrust works in practice. Empirical analyses of who brings antitrust cases reveal the key: It is nearly always people within industry. They are merely calling for the government to do to others what they cannot do themselves.
3. Investigation is too slow and without standards
The time between the start of an investigation and its final end often means that the final judgment is completely out of touch with existing conditions in industry. The Microsoft case that began in 1994 and again in 1998 was not finally settled until 2011, which was an eternity in the fast-moving tech market. The final judgment was to separate the operating system from the browser, a point that was initially raised by the competitive browser Netscape that was long out of business by the time of the settlement. In fact, Google had invented a browser that itself became an operating system, while Microsoft’s browser was eventually retired entirely.In other words, the government and industry spent 16 years litigating a point while squandering countless billions in tax funds and lawyer fees for a result that was irrelevant toward prevailing market conditions.
This is not at all unusual. The same has happened throughout the history of antitrust. By the time the government renders a judgment and enforces an action, it is mostly irrelevant to prevailing market conditions. Markets and private industry specialize in pivoting and adapting, and they do so under threat of regulatory intervention. The target is always on the move, leaving the modeling regulators in the dust. By the time the antitrust actions arrive, they have missed the moment.
4. Enforcement is a form of central planning
The core problem with all forms of centralized industrial planning is one of knowledge. How can the government know precisely the best form that industry should take? You can run all the mathematical models you want, but there is simply no way that a bureaucratic army can outsmart the unrelenting movement of markets themselves, which are fueled largely by decentralized decisions.Central planning has never worked in any country at any time. Markets always outsmart planners. In the case of antitrust, models have long used consumer welfare as a standard for deciding when to break up companies, but current tech models challenge those old assumptions. It’s difficult to show, for example, that consumers are made worse off by Google’s free products or Amazon’s fast delivery. That means that the planners lack the mechanisms to demonstrate the necessity of their actions.
The impulse toward antitrust mostly stems from intuition, but policy must be rooted in facts and law. This has always been the issue in forcing industrial dissolutions. The facts and the law rarely align with the intuitions of the planners, leaving too much room for arbitrary actions that undermine property rights and the rule of law.
5. It misses the key problem
The key to realizing genuinely competitive markets (genuinely, not perfectly competitive as you see in models) is low barriers to entry. I don’t just mean costs. I mean especially artificial barriers. Those mostly consist of high compliance costs stemming from mandates and regulations. Intellectual property barriers are also hugely significant.Government funding matters here too. A government that does not want an Amazon or a Google to have a monopoly might first consider cutting off their government funding! After that, the best path to authentically competitive markets is to establish a level playing field in every industry, and that means getting rid of regulations that inhibit the prospects for startups and for widespread service of the consumer.
Every lasting monopoly in history has benefited from some or another form of government protection. Take that away and you make huge strides to achieving the goal. It makes no sense to pursue antitrust as a means of imposing rivalry when simply eliminating existing government interventions will achieve that without violence to industrial structures.
If you are interested in this topic, I highly recommend digging into the origin of antitrust with the Sherman Antitrust bill during the Progressive Era. That legislation and the actions that followed were carefully examined by the historian Gabriel Kolko in his book “The Triumph of Conservatism.” He shows that it was largely the most powerful corporate players that dictated these policies in their own industrial interests.
That period realized not progress but revanchism in service of powerful people. The book is utterly mind-blowing and deeply disturbing for anyone who thinks that antitrust or any other government action is some magic solution to the problem of wealth inequality and industrial concentration. The result has always been the opposite.
There are other ways forward with reform than the ham-handed and largely compromised tool of antitrust. Competitive markets are best formed and protected by free markets, not agency actions. There are many ways in which policy can adapt to revive rivalry and the competitive spirit, simply by choosing freedom over control. The antitrust option is mostly a distraction from that reality.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
