[The final post in Truth on the Market‘s digital symposium “FTC Rulemaking on Unfair Methods of Competition” comes from Joshua Wright, the executive director of the Global Antitrust Institute at George Mason University and the architect, in his time as a member of the Federal Trade Commission, of the FTC’s prior 2015 UMC statement. You can find all of the posts in this series at thesymposium page here.]
The Federal Trade Commission’s (FTC) recently released Policy Statement on unfair methods of competition (UMC) has a number of profound problems, which I will detail below. But first, some praise: if the FTC does indeed plan to bring many lawsuits challenging conduct as a standalone UMC (I am dubious it will), then the public ought to have notice about the change. Providing such notice is good government, and the new Statement surely provides that notice. And providing notice in this way was costly to the FTC: the contents of the statement make surviving judicial review harder, not easier (I will explain my reasons for this view below). Incurring that cost to provide notice deserves some praise.
Now onto the problems. I see four major ones.
First, the Statement seems to exist in a fantasy world; the FTC majority appears to wish away the past problems associated with UMC enforcement. Those problems have not, in fact, gone away and pretending they don’t exist—as this Statement does—is unlikely to help the Commission’s prospects for success in court.
Second, the Statement provides no guidance whatsoever about how a potential respondent might avoid UMC liability, which stands in sharp contrast to other statements and guidance documents issued by the Commission.
Third, the entire foundation of the statement is that, in 1914, Congress intended the FTC Act to have broader coverage than the Sherman Act. Fair enough. But the coverage of the Sherman Act isn’t fixed to what the Supreme Court thought it was in 1914: It’s a moving target that, in fact, has moved dramatically over the last 108 years. Congress in 1914 could not have intended UMC to be broader than how the courts would interpret the Sherman Act in the future (whether that future is 1918, much less 1970 or 2023).
And fourth, Congress has passed other statutes since it passed the FTC Act in 1914, one of which is the Administrative Procedure Act. The APA unambiguously and explicitly directs administrative agencies to engage in reasoned decision making. In a nutshell, this means that the actions of such agencies must be supported by substantial record evidence and can be set aside by a court on judicial review if they are arbitrary and capricious. “Congress intended to give the FTC broad authority in 1914” is not an argument to address the fact that, 32 years later, Congress also intended to limit the FTC’s authority (as well as other agencies’) by requiring reasoned decision making.
Each of these problems on its own would be enough to doom almost any case the Commission might bring to apply the statement. Together, they are a death knell.
A Record of Failure
As I have explained elsewhere, there are a number of reasons the FTC has pursued few standalone UMC cases in recent decades. The late-1970s effort to reinvigorate UMC enforcement via bringing cases was a total failure: the Commission did not lose the game on a last-second buzzer beater; it got blown out by 40 points. According to William Kovacic and Mark Winerman, in each of those UMC cases, “the tribunal recognized that Section 5 allows the FTC to challenge behavior beyond the reach of the other antitrust laws. In each instance, the court found that the Commission had failed to make a compelling case for condemning the conduct in question.”
Since these losses, the Commission hasn’t successfully litigated a UMC case in federal court. This, in my view, is because of a (very plausible) concern that, when presented with such a case, Article III courts would either define the Commission’s UMC authority on their own terms—i.e., restricting the Commission’s authority—or ultimately decide that the space beyond the Sherman Act that Congress in 1914 intended Section 5 to occupy exists only in theory and not in the real world, and declare the two statutes functionally equivalent. Those reasons—and not Chair Lina Khan’s preferred view that the Commission has been feckless, weak, or captured by special interests since 1981—explain why Section 5 has been used so sparingly over the last 40 years (and mostly just to extract settlements from parties under investigation). The majority’s effort to put all its eggs in the “1914 legislative history” basket simply ignores this reality.
Each of these documents is designed (at least in part) to help market participants understand what conduct might or might not violate one or more laws enforced by the FTC, and for that reason, each document provides specific examples of conduct that would violate the law, and conduct that would not.
The new UMC Policy Statement provides no such examples. Instead, we are left with the conclusory statement that, if the Commission can characterize the conduct as “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power” or “otherwise restrictive or exclusionary,” then the conduct can be a UMC.
What does this salad of words mean? I have no idea, and the Commission doesn’t even bother to try and define them. If a lawyer is asked, “based upon the Commission’s new UMC Statement, what conduct might be a violation?” the only defensible advice to give is “anything three Commissioners think.”
Ahistorical Jurisprudence
The third problem is the majority’s fictitious belief that Sherman Act jurisprudence is frozen in 1914—the year Congress passed the FTC Act. The Statement states that “Congress passed the FTC Act to push back against the judiciary’s open-ended rule of reason for analyzing Sherman Act claims” and cites the Supreme Court’s opinion in Standard Oil Co. of New Jersey v. United States from 1911.
It’s easy to understand why Congress in 1914 was dissatisfied with the opinion in Standard Oil; reading Standard Oil in 2022 is also a dissatisfying experience. The opinion takes up 106 pages in the U.S. Reporter, and individualparagraphs are routinely three pages long; it meanders between analyzing Section 1 and Section 2 of the Sherman Act without telling the reader; and is generally inscrutable. I have taught antitrust for almost 20 years and, though we cover Standard Oil because of its historical importance, I don’t teach the opinion, because the opinion does not help modern students understand how to practice antitrust law.
This stands in sharp contrast to Justice Louis Brandeis’s opinion in Chicago Board of Trade (issued four years after Congress passed the FTC Act), which I do teach consistently, because it articulates the beginning of the modern rule of reason. Although the majority of the FTC is on solid ground when it points out that Congress in 1914 intended the FTC’s UMC authority to have broader coverage than the Sherman Act, the coverage of the Sherman Act has changed since 1914.
This point is well-known, of course: Kovacic and Winerman explain that “[p]robably the most important” reason “Section 5 has played so small a role in the development of U.S. competition policy principles” “is that the Sherman Act proved to be a far more flexible tool for setting antitrust rules than Congress expected in the early 20th century.” The 10 pages in the Statement devoted to century-old legislative history just pretend like Sherman Act jurisprudence hasn’t changed in that same amount of time. The federal courts are going to see right through that.
What About the APA?
The fourth problem with the majority’s trip back to 1914 is that, since then, Congress has passed other statutes limiting the Commission’s authority. The most prominent of these is the Administrative Procedure Act, which was passed in 1946 (for those counting, 1946 is more than 30 years after 1914).
There are hundreds of opinions interpreting the APA, and indeed, an entire body of law has developed pursuant to those cases. These cases produce many lessons, but one of them is that it is not enough for an agency to have the legal authority to act: “Congress gave me this power. I am exercising this power. Therefore, my exercise of this power is lawful,” is, by definition, insufficient justification under the APA. An agency has the obligation to engage in reasoned decision making and must base its actions on substantial evidence. Its enforcement efforts will be set aside on judicial review if they are arbitrary and capricious.
By failing to explain how a company can avoid UMC liability—other than by avoiding conduct that is “coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power” or “otherwise restrictive or exclusionary,” without defining those terms—the majority is basically shouting to the federal courts that its UMC enforcement program is going to be arbitrary and capricious. That’s going to fail for many reasons. A simple one is that 1946 is later in time than 1914, which is why the Commission putting all its eggs in the 1914 legislative history basket is not going to work once its actions are challenged in federal court.
Conclusion
These problems with the majority’s statement are so significant, so obvious, and so unlikely to be overcome, that I don’t anticipate that the Commission will pursue many UMC enforcement actions. Instead, I suspect UMC rulemaking is on the agenda, which has its own set of problems (not to mention the fact that the 1914 legislative history points away from Congress intending that the Commission has legislative rulemaking authority). Rather, I think the value of this statement is symbolic for Chair Khan and her supporters.
When one considers the record of the Khan Commission—many policy statements, few enforcement actions, and even fewer successful enforcement actions—it all makes more sense. The audience for this Statement is Chair Khan’s friends working on Capitol Hill and at think tanks, as well as her followers on Twitter. They might be impressed by it. The audience she should be concerned about is Article III judges, who surely won’t be.
This post is the third in a three-part series. The first installment can be found here and the second can be found here.
As it has before in its history, liberalism again finds itself at an existential crossroads, with liberally oriented reformers generally falling into two camps: those who seek to subordinate markets to some higher vision of the common good and those for whom the market itself is the common good. The former seek to rein in, temper, order, and discipline unfettered markets, while the latter strive to build on the foundations of classical liberalism to perfect market logic, rather than to subvert it.
This conflict of visions has deep ramifications for today’s economic policy. In his classic text “The Antitrust Paradox,” Judge Robert Bork deemed antitrust law a “subcategory of ideology” that “connects with the central political and social concerns of our time.” Among these concerns, he focused specifically on the eternal tension between the ideals of “equality” and “freedom.” In recent years, that tension has been exemplified in competition-policy debates by two schools of thought: the neo-Brandeisians, whose jurisprudential philosophy draws from the progressive U.S. Supreme Court Justice Louis Brandeis, and another group represented by the Chicago School and other defenders of the consumer-welfare standard.
But this schism resembles similar divides that have played out countless times over the history of liberalism, albeit under different names and banners. Looking back on the past century and a half of economic and philosophical thought can help us to make sense of these fundamentally opposed visions for the future of both liberalism and antitrust. This history can also help us to understand how these ideologies have sometimes failed to live up to their ambitions or crumbled under the weight of their own contradictions.
In this final piece in the political philosophy series, I explain the genesis, normative underpinnings, and likely outcome of the current “battle for the soul of antitrust.” The broader point that I have tried to make throughout this series is that this confrontation hinges on ethical and deontological considerations, as much as it does on “hard” consequentialist arguments. Put differently, how we decide to resolve foundational and putatively “technical” questions regarding the goals, standards, and enforcement of antitrust law ultimately cannot help but reflect our underlying views about the values and ideals that should guide a liberal society. In this vein, I argue that there are compelling non-utilitarian reasons to prefer a polity with an in-built bias for negative freedom and that is guided by a narrow economic-efficiency criterion, rather than the apparently ascendant alternatives.
The Birth of Neoliberalism
The clearest articulation of the philosophical schism between the two visions of liberalism that we see today came with the 1937 publication of “The Good Society” by American author and journalist Walter Lippmann. Lippman—who, like Brandeis, came out of the American Progressive Movement and had been an adviser to progressive U.S. President Woodrow Wilson—sparked the birth of “neoliberalism” as a separate strand of liberal political philosophical thought. The book invited readers to critically reexamine and, where appropriate, update the tenets of classical liberalism with a view toward “stabilizing and consolidating the course of an intellectual tradition that was otherwise bound to tumble straight into oblivion” (see here).
This was the objective of the “neoliberal collective,” a loose affiliation of liberally oriented thinkers who convened for the first time at the Walter Lippmann Colloquium in 1938 to discuss Lippmann’s seminal book, and from 1947 onwards more formally under the auspices of the Mont Pelerin Society.
Neoliberals grappled with questions that went to the very heart of liberalism, such as how to adapt traditional small-scale human societies to the exigencies of ever-widening markets and economic progress; the causes and consequences of industrial concentration; the appropriate role and boundaries of state intervention; the ability of markets to address the “social question”; the interplay between freedom and coercion; and the tension between the individual and the collective. Like Lippmann, the neoliberals were convinced that the failure to reckon with such fundamental issues would result in the inevitable displacement of liberalism by some form of “authoritarian collectivism,” which they believed provided emotionally appealing (but ultimately illusory) solutions to the full range of liberal problems.
It quickly became apparent, however, that there existed two main currents of neoliberalism.
The first, which I will call “left neoliberalism,” was a relatively conciliatory version that sought to strike a “mostly liberal” balance with socialism and collectivism. It postulated that markets are embedded in a broader social and political context that may include a strong and activist state, aggressive antitrust policy, robust social rights, and an emphasis on positive freedom. In this respect, their views resembled those of the Progressive Movement of Wilson and Brandeis, which was carried on into the mid-20th century in the United States by such figures as President Franklin Roosevelt, historian Arthur M. Schlesinger, and economist John Kenneth Galbraith. The “left neoliberals,” however, were primarily European, and included the likes of Wilhelm Röpke, Walter Eucken, Franz Bohm, Alexander Rüstow, Luigi Einaudi, Louis Rougier, Louis Marlio, and Jacques Rueff (and, arguably, Lippmann himself).
Adherents to the other strand, “right neoliberalism,” were more conservative and less willing to compromise. They championed a strong but minimal state tasked with (and limited by) facilitating efficient markets, posited a lean antitrust policy, and emphasized negative liberty. Thinkers like Friedrich Hayek, Milton Friedman, Lionel Robbins, James Buchanan and, arguably, the more libertarian Ludwig von Mises and Bruno Leoni would fall into this group.
The Price Mechanism and the State
The two groups of neoliberals shared several basic postulates.
First and foremost, they agreed that any revision of Adam Smith’’s “invisible hand” had to respect the integrity of the price mechanism (what Wilhelm Röpke referred to as the “sacrosanct core of liberalism”). The argument rested on utilitarian, but also political and ethical grounds. As Friedrich Hayek argued in “The Road to Serfdom,” the substitution of the free market for a centrally planned economy would lead to the loss of economic freedom, and eventually all other freedoms, as well. This meant that neoliberals were, on principle, harsh critics of any type of state intervention that distorted the formation of prices through the forces of supply and demand.
At the same time, however, neither strand of neoliberalism professed a doctrine of statelessness. To the contrary, the state may, in hindsight, be neoliberalism’s greatest conquest. The question at hand is what kind of state is optimal.
For the left neoliberals, a strong state was needed to resist capture by interest groups. It also had to exercise good political leadership and discretion in juggling goals and values (markets, after all, had to be “embedded” in the social order). These views were underpinned by a relatively sanguine set of expectations the left neoliberals had of the state’s willingness and capacity to protect the general interest, as well as their shared belief that the core institutions of liberalism (including self-regulating markets) were prone to degeneration and in need of constant public oversight. The state, not the private sector, was the ultimate ordering power of the economy. As Alexander Rüstow said:
I am, indeed, of the opinion that it is not the economy, but the state which determines our fate.
The right neoliberal position was more ambivalent, due to its heightened skepticism toward state power. The bigger threat to freedom was not unfettered private power, but public power. As Milton Friedman put it in “Capitalism and Freedom”:
Government is necessary to preserve our freedom […] yet by concentrating power in political hands, it is also a threat to freedom. […] How can we benefit from the promise of government while avoiding the threat to freedom?
The answer was a revamped Smithian nightwatchman that acted more as an umpire determining “the rules of the game” and overseeing free interactions between individuals than as a helmsman tasked with channeling society toward any particular variety of teleological goals. Like the left neoliberal position, this one, too, rests on a set of theoretical underpinnings.
One is that public actors are not any less self-interested than private ones, with the corollary that any extension or deepening of the powers of the state must be well-justified. The idea relied heavily on the public choice theory developed by James M. Buchanan, a member of Mont Pelerin Society and its president from 1984 to 1986. Thus, left and right neoliberals advanced almost completely opposite responses to the problem of capture. While left neoliberals believed in strengthening the state relative to private enterprise, the right’s critique led them to want precisely to limit state power and reshape institutional incentives.
This is not surprising, as right neoliberals were also more optimistic about the potential of markets and deontologically more preoccupied with negative freedom, a combination that added another layer of suspicion to any putatively progressive measures that involved wealth redistribution or meticulous administration of the market by the state.
Economic Concentration and Competition
Another important difference lay in the two sides’ views on economic concentration and competition. Some left neoliberals, particularly in Europe, internalized much of the Marxist and fascist critiques of capitalism, including the belief that markets naturally tended toward economic concentration. They argued, however, that this process could be reversed or prevented with robust antitrust and de-concentration measures. While essentially conceding Marxian arguments about the intrinsic tendency of competition to degenerate into monopoly—thereby fostering inequality and “proletarizing” the masses—they denied the ultimate implications upon which Marx had insisted—i.e., the inevitable “cannibalization” of capitalism through its inherent contradictions.
Right neoliberals, by contrast, insisted that, where economic concentration was not fleeting, it was generally the result of state action, not state inaction. As Mises argued, cartels were a consequence of protectionism and the artificial partitioning of markets through, e.g., tariffs. Similarly, monopolies formed and persisted because of “anti-liberal policies of governments that [created] the conditions favorable” to them. This implied that antitrust had a secondary position in securing competitive markets.
Each strand’s reasoning as to why competition was worthy of protection also differed. For the right neoliberals, who saw the legitimate goals and boundaries of public policy through the lenses of economic efficiency and negative freedom, the case for competition was principally a utilitarian one. As Hayek wrote in “Individualism and Economic Order,” state-backed institutions and laws (including antitrust laws) that “made competition work” (by which he meant, made competition work effectively) were one of the ways in which right neoliberals improved on the classical liberal position.
Left neoliberals added political, social, and ethical layers to this argument. Politically, they shared the standard Marxian view that concentrated markets facilitated the capture of the state by powerful private interests. Marxists had, e.g., always asserted that Nazism was the product of “monopoly capitalism” and that the Nazis themselves were the tools of big business (the idea of “state monopoly capitalism” stems from Lenin). Left neoliberals largely agreed with this view. They also counseled that a centralized industry was more readily prone to takeover by an authoritarian state. In addition, they rejected “bigness” because they considered it an unnatural perversion of human nature (though such critiques surprisingly did not seem to translate to the state). As Wilhelm Röpke notes in “A Humane Economy”:
Nothing is more detrimental to a sound general order appropriate to human nature than two things: mass and concentration.
“Bigness,” Roepke thought, had come about as a result of one particularly harmful but pervasive trend of modernity: “economism,” a frequent target of left neoliberals that refers to a fixation with indicators of economic performance at the expense of deeper social and spiritual values.
But it would be a mistake to conclude that left neoliberals viewed competition as a panacea. Private property, profit, and competition (the foundations of liberalism) were as socially corrosive as they were beneficial. They were, according to Wilhelm Röpke:
justifiable only within certain limits, and in remembering this we return to the realm beyond supply and demand. In other words, the market economy is not everything. It must find its place within a higher order of things which is not ruled by supply and demand, free prices, and competition.
The perceived failures of liberalism guided the contrasting notions of what a reformed neoliberalism should look like. On the one hand, European left neoliberals and American progressives thought that liberalism suffered from certain inherent deficiencies that could not be resolved within the liberal paradigm and that called for mitigating policies and social-safety nets. Again, these resonated with familiar criticisms levied by the right and the left, such as, e.g., excessive individualism; the loss of shared values and a sense of community; a lack of “social integration”; worker alienation (in an essay titled “Social Policy or Vitalpolitik (Organic Policy),” Alexander Rüstow starts by citing Friedrich Engels’ 1945 “The Condition of the Working-Class in England”); and the socially explosive elements of competition and markets. These spiritual dislocations arguably weighed more than any material or economic shortcomings, and were at the root of the liberal debacle. As Walter Eucken argued:
Quite obviously, the reasons for the anti-capitalistic attitude of the masses cannot be found in any deterioration of the living conditions brought about by capitalism. […] The turning of the masses against capitalism is rather a phenomenon that can only be understood in terms of the sensibilities of modern man.
In response, the left neoliberals called for an “organic policy” that would approach markets and competition as not purely an economic, but also a social phenomena (a similar view was expressed by Justice Brandeis). In this new hybrid vision of liberalism, “there would be counterweights to competition and the mechanical operation of prices.” Competition and the market’s other imperatives would be tempered by balancing considerations and subordinated to “higher values” that were beyond the law of supply and demand—and beyond mere economic utility. As Wilhelm Röpke summarizes:
Competition, which we need as a regulator in a free market economy, comes up on all sides against limits which we would not wish to transgress. It remains morally and socially dangerous and can be defended only up to a point and with qualifications and modifications of all kinds.
Conversely, right neoliberals believed that the downfall of liberalism had been the result of a fundamental misunderstanding of its true ethos and an overabundance of conflicting rules and policies. It was not the inevitable upshot of liberalism itself. As Lionel Robbins posited:
It is not liberal institutions but the absence of such institutions which is responsible for the chaos of today.
Classical liberalism had stopped short on the road to exploring the full range of laws and institutions needed to sustain and perfect the “natural order.” But the prevalent social malaise—which had, no doubt, been adroitly instigated and exploited by collectivist demagogues—was not the result of some innate incompatibility between markets and human society. It had instead come about because of the failure to properly adjust the latter to the exigencies of the former.
Additionally, right neoliberals rejected “organic” or “third way” policies of the sort favored by the left neoliberals, because they believed that it was not within the remit of public policy to answer existential questions or to provide “meaning” or “social integration.” Granting the state the power to decide on such matters was a slippery slope that required it to override the preferences of some with its own. As such, it got dangerously close to the sort of collectivism that neoliberals rallied in opposition to in the first place. They also doubted the state’s ability to resolve such complex, value-laden questions. It was insights such as these that underpinned Friedrich Hayek’s theory of the gradual march towards serfdom and Ludwig von Mises’ quip that there is no such thing as a “third way” or a mixed economy.
In consequence, the solution was not to restrain, mollify, or limit the spread or depth of markets in order to align them with some past ideal of parochial life, but to improve markets and to acclimatize societies to their workings through better laws and institutions.
Two Different Visions for Liberalism For Two Different Visions of Antitrust
In keeping with the theme of this series, the prescriptions for antitrust policy made by each strand of neoliberalism are not doctrinally extrapolated from their broader vision of society.
Left neoliberals and American progressives took Marxist and fascist attacks on liberalism seriously, but sought to address them through less radical channels. They wanted a “mostly liberal” third-way social order, in which markets and competition would be tempered by a host of other social and political considerations that were mediated by the state. This meant opposing “big business” as a matter of principle, infusing antitrust law with a host of non-economic goals and values, and granting enforcers the necessary discretion to decide in cases of conflict.
Right neoliberals, on the other hand, sought to improve on the classical-liberal position through a more robust legal and institutional framework that operated primarily in the service of a single goal: economic efficiency. Economic efficiency—itself not a value-free notion—was, however, seen as a comparatively neutral, narrow, and predictable standard that, in turn, cabined enforcers’ scope of discretion and minimized the instances in which the state could override business decisions (and thus interfere with negative liberty). In the context of antitrust law, this tethered anticompetitive conduct and exemptions to the threshold requirement to find harms to consumers or to total welfare.
Conclusion
The pendulum of neoliberalism has swung in the past, with momentous implications for antitrust. The “Chicagoan” shift of the 1970s, for instance, was a move toward right neoliberalism, as was the “more economic approach” of EU competition law in the late 1990s. Conversely, more recent calls for the condemnation of “big business” on a range of moral and political grounds; “polycentric competition laws” with multiple goals and values; and the widening of state discretion to lead market developments in a socially desirable direction signal a move in the opposite direction.
How should the newest iteration of the neoliberal “battle for the soul of antitrust” be resolved?
On the one hand, left neoliberalism—or what Americans typically just call “progressivism”—has intuitive and emotional appeal, particularly in a time of growing anti-capitalistic fervor. Today, as in the 1930s, many believe that market logic has overstepped its legitimate boundaries and that the most successful private companies are a looming enemy. From this perspective, a “market in society” approach—in which the government has more leeway to restrain corporate power and reshape markets in accordance with a range of social or political considerations—may sound more humane to some.
If history teaches us anything, however, this populist approach to regulating competition is problematic for a number of reasons.
First, the overly complex web of mutually conflicting goals and values will inevitably require enforcement agencies to act as social engineers. In this position, they may use their enhanced discretion to decide whom or what to favor and to rank subjective values pursuant to personal moral heuristics. Public-choice theory and historical examples of state-led collectivist projects, however, counsel against assuming that government is able and willing to exercise such far-reaching oversight of society. In addition, as enforcers inevitably prove unfit to discharge their new role as philosopher-kings, and as their contradictory case law increasingly comes under contestation, activist attempts to widen the scope of antitrust law likely will be checked by the courts.
Second, like the non-economic arguments against concentration raised today by progressives such as Tim Wu and Lina Khan, the left neoliberal position is largely based on aesthetic preference and intuition—not fact. Röpkean complaints about big business ruining the bucolic landscape where men are “vitally satisfied” in their small, tight-knit communities rests on a very idiosyncratic vision of the good life (left neoliberals romanticized Switzerland, for instance), and it’s one many do not share in the 21st century. Equally particular were Justice Brandeis’ own yeoman sensibilities, which led him to reject bigness as a matter of principle (unlike today’s neo-Brandeisians, however, he was also skeptical of big government).
As to the persistent argument to curb “bigness” on political grounds: this would be more convincing if there was a clear, unambiguous relationship between market concentration or company size and the quality of democracy. This does not appear to be the case. In fact, the case for incorporating democratic concerns into antitrust seems unwittingly to rely on discredited Marxist theories about the relationship between German big business and the rise of Hitler. Unfortunately, these ideas have been so aggressively peddled by Marxists—who had a vested ideological interest in demonstrating that private corporations were the main culprits behind Nazism—during the 1960s and 70s that today they enjoy the status of dogma.
Alternatively, one might argue that the very existence of large concentrations of private economic power is antithetical to democracy because having the potential to exercise private power over another (without any actual interference) is anti-democratic (see here). But this lifts a particularistic vision of democracy—so-called republican democracy—over others. According to the more mainstream notion of liberal democracy, which gives precedence to negative freedom, any such interference with property rights may, in fact, be seen as deeply illiberal and undemocratic, especially as the inherent ambiguity of the “democracy” standard is likely to invite reprisals against political opponents.
Alas, right neoliberalism appears to be falling out of favor, as anti-market rhetoric seeps into the mainstream and politicians and intellectuals look to the past to find alternatives to a neoliberal system seen as too narrow and economistic. Ultimately, however, this may be precisely what we want public policy to be in a liberal world: focused on predictable and quantifiable standards that subject enforcers to the rigorous discipline of economic theory and leave them little space to act as social engineers or to exercise arbitrary authority. More than a century of intellectual effervescence and dangerous intellectual escapades has proven this to be the superior way to achieve both measurable policy outcomes that improve on the classical-liberal position and to avoid the Charybdis of state collectivism. In antitrust law, it has meant embracing economic analysis of the law and a narrow consumer-welfare standard to discern anticompetitive from procompetitive conduct.
In the end, today’s “battle for the soul” of antitrust is a proxy for a much wider conflict of visions. Changing the consumer-welfare standard and the architecture of antitrust enforcement along lines preferred by progressives and left neoliberals would be both a symptom and a cause of a broader philosophical shift toward a worldview that makes some of the same deleterious mistakes it purports to correct: excessive government discretion in overseeing the economy; the subordination of individual freedom to an array of collectivist goals mediated by a public aristocracy; and the substitution of evidence-based policy for emotional impetus.
While the inherent contradictions and incongruence of that vision mean that the pendulum is likely to eventually swing back in the right direction, the damage will already have been done. This is why we must defend the consumer-welfare standard today more vigorously than ever: because ultimately, much more than the future of a niche field of law is at stake.
In the battle of ideas, it is quite useful to be able to brandish clear and concise debating points in support of a proposition, backed by solid analysis. Toward that end, in a recent primer about antitrust law published by the Mercatus Center, I advance four reasons to reject neo-Brandeisian critiques of the consensus (at least, until very recently) consumer welfare-centric approach to antitrust enforcement. My four points, drawn from the primer (with citations deleted and hyperlinks added) are as follows:
First, the underlying assumptions of rising concentration and declining competition on which the neo-Brandeisian critique is largely based (and which are reflected in the introductory legislative findings of the Competition and Antitrust Law Enforcement Reform Act [of 2021, introduced by Senator Klobuchar on February 4, lack merit]. Chapter 6 of the 2020 Economic Report of the President, dealing with competition policy, summarizes research debunking those assumptions. To begin with, it shows that studies complaining that competition is in decline are fatally flawed. Studies such as one in 2016 by the Council of Economic Advisers rely on overbroad market definitions that say nothing about competition in specific markets, let alone across the entire economy. Indeed, in 2018, professor Carl Shapiro, chief DOJ antitrust economist in the Obama administration, admitted that a key summary chart in the 2016 study “is not informative regarding overall trends in concentration in well-defined relevant markets that are used by antitrust economists to assess market power, much less trends in concentration in the U.S. economy.” Furthermore, as the 2020 report points out, other literature claiming that competition is in decline rests on a problematic assumption that increases in concentration (even assuming such increases exist) beget softer competition. Problems with this assumption have been understood since at least the 1970s. The most fundamental problem is that there are alternative explanations (such as exploitation of scale economies) for why a market might demonstrate both high concentration and high markups—explanations that are still consistent with procompetitive behavior by firms. (In a related vein, research by other prominent economists has exposed flaws in studies that purport to show a weakening of merger enforcement standards in recent years.) Finally, the 2020 report notes that the real solution to perceived economic problems may be less government, not more: “As historic regulatory reform across American industries has shown, cutting government-imposed barriers to innovation leads to increased competition, strong economic growth, and a revitalized private sector.”
Second, quite apart from the flawed premises that inform the neo-Brandeisian critique, specific neo-Brandeisian reforms appear highly problematic on economic grounds. Breakups of dominant firms or near prohibitions on dominant firm acquisitions would sacrifice major economies of scale and potential efficiencies of integration, harming consumers without offering any proof that the new market structures in reshaped industries would yield consumer or producer benefits. Furthermore, a requirement that merging parties prove a negative (that the merger will not harm competition) would limit the ability of entrepreneurs and market makers to act on information about misused or underutilized assets through the merger process. This limitation would reduce economic efficiency. After-the-fact studies indicating that a large percentage of mergers do not add wealth and do not otherwise succeed as much as projected miss this point entirely. They ignore what the world would be like if mergers were much more difficult to enter into: a world where there would be lower efficiency and dynamic economic growth because there would be less incentive to seek out market-improving opportunities.
Third, one aspect of the neo-Brandeisian approach to antitrust policy is at odds with fundamental notions of fair notice of wrongdoing and equal treatment under neutral principles, notions that are central to the rule of law. In particular, the neo-Brandeisian call for considering a multiplicity of new factors such as fairness, labor, and the environment when enforcing policy is troublesome. There is no neutral principle for assigning weights to such divergent interests, and (even if weights could be assigned) there are no economic tools for accurately measuring how a transaction under review would affect those interests. It follows that abandoning antitrust law’s consumer-welfare standard in favor of an ill-defined multifactor approach would spawn confusion in the private sector and promote arbitrariness in enforcement decisions, undermining the transparency that is a key aspect of the rule of law. Whereas concerns other than consumer welfare may of course be validly considered in setting public policy, they are best dealt with under other statutory schemes, not under antitrust law.
Fourth, and finally, neo-Brandeisian antitrust proposals are not a solution to widely expressed concerns that big companies in general, and large digital platforms in particular, are undermining free speech by censoring content of which they disapprove. Antitrust law is designed to prevent businesses from creating impediments to market competition that reduce economic welfare; it is not well-suited to policing companies’ determinations regarding speech. To the extent that policymakers wish to address speech censorship on large platforms, they should consider other regulatory institutions that would be better suited to the task (such as communications law), while keeping in mind First Amendment limitations on the ability of government to control private speech.
In light of these four points, the primer concludes that the neo-Brandeisian-inspired antitrust “reform” proposals being considered by Congress should be rejected:
[E]fforts to totally reshape antitrust policy into a quasi-regulatory system that arbitrarily blocks and disincentivizes (1) welfare-enhancing mergers and (2) an array of actions by dominant firms are highly troubling. Such interventionist proposals ignore the lack of evidence of serious competitive problems in the American economy and appear arbitrary compared to the existing consumer-welfare-centric antitrust enforcement regime. To use a metaphor, Congress and public officials should avoid a drastic new antitrust cure for an anticompetitive disease that can be handled effectively with existing antitrust medications.
Let us hope that the serious harm associated with neo-Brandeisian legislative “deformation” (a more apt term than reformation) of the antitrust laws is given a full legislative airing before Congress acts.
Admirers of the late Supreme Court Justice Louis Brandeis and other antitrust populists often trace the history of American anti-monopoly sentiments from the Founding Era through the Progressive Era’s passage of laws to fight the scourge of 19th century monopolists. For example, Matt Stoller of the American Economic Liberties Project, both in his book Goliath and in other writings, frames the story of America essentially as a battle between monopolists and anti-monopolists.
According to this reading, it was in the late 20th century that powerful corporations and monied interests ultimately succeeded in winning the battle in favor of monopoly power against antitrust authorities, aided by the scholarship of the “ideological” Chicago school of economics and more moderate law & economics scholars like Herbert Hovenkamp of the University of Pennsylvania Law School.
It is a framing that leaves little room for disagreements about economic theory or evidence. One is either anti-monopoly or pro-monopoly, anti-corporate power or pro-corporate power.
What this story muddles is that the dominant anti-monopoly strain from English common law, which continued well into the late 19th century, was opposed specifically to government-granted monopoly. In contrast, today’s “anti-monopolists” focus myopically on alleged monopolies that often benefit consumers, while largely ignoring monopoly power granted by government. The real monopoly problem antitrust law fails to solve is its immunization of anticompetitive government policies. Recovering the older anti-monopoly tradition would better focus activists today.
Common Law Anti-Monopoly Tradition
Scholars like Timothy Sandefur of the Goldwater Institute have written about the right to earn a living that arose out of English common law and was inherited by the United States. This anti-monopoly stance was aimed at government-granted privileges, not at successful business ventures that gained significant size or scale.
For instance, 1602’s Darcy v. Allein, better known as the “Case of Monopolies,” dealt with a “patent” originally granted by Queen Elizabeth I in 1576 to Ralph Bowes, and later bought by Edward Darcy, to make and sell playing cards. Darcy did not innovate playing cards; he merely had permission to be the sole purveyor. Thomas Allein, who attempted to sell playing cards he created, was sued for violating Darcy’s exclusive rights. Darcy’s monopoly ultimately was held to be invalid by the court, which refused to convict Allein.
Edward Coke, who actually argued on behalf of the patent in Darcy v. Allen, wrote that the case stood for the proposition that:
All trades, as well mechanical as others, which prevent idleness (the bane of the commonwealth) and exercise men and youth in labour, for the maintenance of themselves and their families, and for the increase of their substance, to serve the Queen when occasion shall require, are profitable for the commonwealth, and therefore the grant to the plaintiff to have the sole making of them is against the common law, and the benefit and liberty of the subject. (emphasis added)
In essence, Coke’s argument was more closely linked to a “right to work” than to market structures, business efficiency, or firm conduct.
The courts largely resisted royal monopolies in 17th century England, finding such grants to violate the common law. For instance, in The Case of the Tailors of Ipswich, the court cited Darcy and found:
…at the common law, no man could be prohibited from working in any lawful trade, for the law abhors idleness, the mother of all evil… especially in young men, who ought in their youth, (which is their seed time) to learn lawful sciences and trades, which are profitable to the commonwealth, and whereof they might reap the fruit in their old age, for idle in youth, poor in age; and therefore the common law abhors all monopolies, which prohibit any from working in any lawful trade. (emphasis added)
The principles enunciated in these cases were eventually codified in the Statute of Monopolies, which prohibited the crown from granting monopolies in most circumstances. This was especially the case when the monopoly prevented the right to otherwise lawful work.
This common-law tradition also had disdain for private contracts that created monopoly by restraining the right to work. For instance, the famous Dyer’s case of 1414 held that a contract in which John Dyer promised not to practice his trade in the same town as the plaintiff was void for being an unreasonable restraint on trade.The judge is supposed to have said in response to the plaintiff’s complaint that he would have imprisoned anyone who had claimed such a monopoly on his own authority.
Over time, the common law developed analysis that looked at the reasonableness of restraints on trade, such as the extent to which they were limited in geographic reach and duration, as well as the consideration given in return. This part of the anti-monopoly tradition would later constitute the thread pulled on by the populists and progressives who created the earliest American antitrust laws.
Early American Anti-Monopoly Tradition
American law largely inherited the English common law system. It also inherited the anti-monopoly tradition the common law embodied. The founding generation of American lawyers were trained on Edward Coke’s commentary in “The Institutes of the Laws of England,” wherein he strongly opposed government-granted monopolies.
This sentiment can be found in the 1641 Massachusetts Body of Liberties, which stated: “No monopolies shall be granted or allowed amongst us, but of such new Inventions that are profitable to the Countrie, and that for a short time.” In fact, the Boston Tea Party itself was in part a protest of the monopoly granted to the East India Company, which included a special refund from duties by Parliament that no other tea importers enjoyed.
This anti-monopoly tradition also can be seen in the debates at the Constitutional Convention. A proposal to give the federal government power to grant “charters of incorporation” was voted down on fears it could lead to monopolies. Thomas Jefferson, George Mason, and several Antifederalists expressed concerns about the new national government’s ability to grant monopolies, arguing that an anti-monopoly clause should be added to the Constitution. Six states wanted to include provisions that would ban monopolies and the granting of special privileges in the Constitution.
Coinciding with the Industrial Revolution, liberalization of corporate law made it easier for private persons to organize firms that were not simply grants of exclusive monopoly. But discontent with industrialization and other social changes contributed to the birth of a populist movement, and later to progressives like Brandeis, who focused on private combinations and corporate power rather than government-granted privileges. This is the strand of anti-monopoly sentiment that continues to dominate the rhetoric today.
What This Means for Today
Modern anti-monopoly advocates have largely forgotten the lessons of the long Anglo-American tradition that found government is often the source of monopoly power. Indeed, American law privileges government’s ability to grant favors to businesses through licensing, the tax code, subsidies, and even regulation. The state action doctrine from Parker v. Brown exempts state and municipal authorities from antitrust lawsuits even where their policies have anticompetitive effects. And the Noerr-Pennington doctrine protects the rights of industry groups to lobby the government to pass anticompetitive laws.
As a result, government is often used to harm competition, with no remedy outside of the political process that created the monopoly. Antitrust law is used instead to target businesses built by serving consumers well in the marketplace.
Recovering this older anti-monopoly tradition would help focus the anti-monopoly movement on a serious problem modern antitrust misses. While the consumer-welfare standard that modern antitrust advocates often decry has helped to focus the law on actual harms to consumers, antitrust more broadly continues to encourage rent-seeking by immunizing state action and lobbying behavior.
Following is the (slightly expanded and edited) text of my remarks from the panel, Antitrust and the Tech Industry: What Is at Stake?, hosted last Thursday by CCIA. Bruce Hoffman (keynote), Bill Kovacic, Nicolas Petit, and Christine Caffarra also spoke. If we’re lucky Bruce will post his remarks on the FTC website; they were very good.
(NB: Some of these comments were adapted (or lifted outright) from a forthcoming Cato Policy Report cover story co-authored with Gus Hurwitz, so Gus shares some of the credit/blame.)
The urge to treat antitrust as a legal Swiss Army knife capable of correcting all manner of social and economic ills is apparently difficult for some to resist. Conflating size with market power, and market power with political power, many recent calls for regulation of industry — and the tech industry in particular — are framed in antitrust terms. Take Senator Elizabeth Warren, for example:
[T]oday, in America, competition is dying. Consolidation and concentration are on the rise in sector after sector. Concentration threatens our markets, threatens our economy, and threatens our democracy.
According to critics, these firms impose all manner of alleged harms — from fake news, to the demise of local retail, to low wages, to the veritable destruction of democracy — because of their size. What is needed, they say, is industrial policy that shackles large companies or effectively mandates smaller firms in order to keep their economic and political power in check.
But consider the relationship between firm size and political power and democracy.
Say you’re successful in reducing the size of today’s largest tech firms and in deterring the creation of new, very-large firms: What effect might we expect this to have on their political power and influence?
For the critics, the effect is obvious: A re-balancing of wealth and thus the reduction of political influence away from Silicon Valley oligarchs and toward the middle class — the “rudder that steers American democracy on an even keel.”
But consider a few (and this is by no means all) countervailing points:
To begin, at the margin, if you limit firm growth as a means of competing with rivals, you make correspondingly more important competition through political influence. Erecting barriers to entry and raising rivals’ costs through regulation are time-honored American political traditions, and rent-seeking by smaller firms could both be more prevalent, and, paradoxically, ultimately lead to increased concentration.
Next, by imbuing antitrust with an ill-defined set of vague political objectives, you also make antitrust into a sort of “meta-legislation.” As a result, the return on influencing a handful of government appointments with authority over antitrust becomes huge — increasing the ability and the incentive to do so.
And finally, if the underlying basis for antitrust enforcement is extended beyond economic welfare effects, how long can we expect to resist calls to restrain enforcement precisely to further those goals? All of a sudden the effort and ability to get exemptions will be massively increased as the persuasiveness of the claimed justifications for those exemptions, which already encompass non-economic goals, will be greatly enhanced. We might even find, again, that we end up with even more concentration because the exceptions could subsume the rules.
All of which of course highlights the fundamental, underlying problem: If you make antitrust more political, you’ll get less democratic, more politically determined, results — precisely the opposite of what proponents claim to want.
Then there’s democracy, and calls to break up tech in order to save it. Calls to do so are often made with reference to the original intent of the Sherman Act and Louis Brandeis and his “curse of bigness.” But intentional or not, these are rallying cries for the assertion, not the restraint, of political power.
The Sherman Act’s origin was ambivalent: although it was intended to proscribe business practices that harmed consumers, it was also intended to allow politically-preferred firms to maintain high prices in the face of competition from politically-disfavored businesses.
The years leading up to the adoption of the Sherman Act in 1890 were characterized by dramatic growth in the efficiency-enhancing, high-tech industries of the day. For many, the purpose of the Sherman Act was to stem this growth: to prevent low prices — and, yes, large firms — from “driving out of business the small dealers and worthy men whose lives have been spent therein,” in the words of Trans-Missouri Freight, one of the early Supreme Court decisions applying the Act.
Left to the courts, however, the Sherman Act didn’t quite do the trick. By 1911 (in Standard Oil and American Tobacco) — and reflecting consumers’ preferences for low prices over smaller firms — only “unreasonable” conduct was actionable under the Act. As one of the prime intellectual engineers behind the Clayton Antitrust Act and the Federal Trade Commission in 1914, Brandeis played a significant role in the (partial) legislative and administrative overriding of the judiciary’s excessive support for economic efficiency.
Brandeis was motivated by the belief that firms could become large only by illegitimate means and by deceiving consumers. But Brandeis was no advocate for consumer sovereignty. In fact, consumers, in Brandeis’ view, needed to be saved from themselves because they were, at root, “servile, self-indulgent, indolent, ignorant.”
There’s a lot that today we (many of us, at least) would find anti-democratic in the underpinnings of progressivism in US history: anti-consumerism; racism; elitism; a belief in centrally planned, technocratic oversight of the economy; promotion of social engineering, including through eugenics; etc. The aim of limiting economic power was manifestly about stemming the threat it posed to powerful people’s conception of what political power could do: to mold and shape the country in their image — what economist Thomas Sowell calls “the vision of the anointed.”
That may sound great when it’s your vision being implemented, but today’s populist antitrust resurgence comes while Trump is in the White House. It’s baffling to me that so many would expand and then hand over the means to design the economy and society in their image to antitrust enforcers in the executive branch and presidentially appointed technocrats.
Throughout US history, it is the courts that have often been the bulwark against excessive politicization of the economy, and it was the courts that shepherded the evolution of antitrust away from its politicized roots toward rigorous, economically grounded policy. And it was progressives like Brandeis who worked to take antitrust away from the courts. Now, with efforts like Senator Klobuchar’s merger bill, the “New Brandeisians” want to rein in the courts again — to get them out of the way of efforts to implement their “big is bad” vision.
But the evidence that big is actually bad, least of all on those non-economic dimensions, is thin and contested.
While Zuckerberg is grilled in Congress over perceived, endemic privacy problems, politician after politician and news article after news article rushes to assert that the real problem is Facebook’s size. Yet there is no convincing analysis (maybe no analysis of any sort) that connects its size with the problem, or that evaluates whether the asserted problem would actually be cured by breaking up Facebook.
Barry Lynn claims that the origins of antitrust are in the checks and balances of the Constitution, extended to economic power. But if that’s right, then the consumer welfare standard and the courts are the only things actually restraining the disruption of that order. If there may be gains to be had from tweaking the minutiae of the process of antitrust enforcement and adjudication, by all means we should have a careful, lengthy discussion about those tweaks.
But throwing the whole apparatus under the bus for the sake of an unsubstantiated, neo-Brandeisian conception of what the economy should look like is a terrible idea.
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