Americans can be forgiven for feeling a bit out of the loop when it comes to the recent resurgence of the antitrust conversation.
Antitrust lost popularity decades ago, and the federal government hasn’t won a case against a company since Microsoft in 2001. Still, as populists on the Left and Right are increasingly gunning for more control of private companies and turning to antitrust as their weapon of choice, it’s important that we educate ourselves on the history of this policy so we aren’t tricked into supporting ideas that would ultimately harm our economy.
Consider this your primer on the history of antitrust, how it is applied, and the capitalist argument against it.
What They Say vs. What They Do
Politicians claim antitrust is meant to protect competition in the market and guard against monopolies. That’s one reason this issue can be such a pitfall, it sounds pro-capitalism. But, as is so often the case when it comes to government, a closer look at the subject reveals ulterior motives.
For over 100 years, the US did not have antitrust laws at all. However, it must be said, that while our founders intended to create a system that upheld free-market capitalism, they didn’t do enough.
And at times, they actually opened the door for the massive infringements we’ve endured in the market by our government. Such is the case with the Commerce Clause, a part of the Constitution that gives Congress the power to regulate commerce with foreign nations and amongst the states.
We could probably have debates around whether or not the Commerce Clause has any standing in a capitalist worldview whatsoever, at the very least it was far too broad. But what is certain is that the courts have used this clause to uphold Congress’s many crony expansions of government power into the market.
The Sherman Act
Such was the case in 1890, when Congress passed the Sherman Act, which outlawed “every contract, combination, or conspiracy in restraint of trade,” and any “monopolization, attempted monopolization, or conspiracy or combination to monopolize.”
This law was upheld by—you guessed it—the Commerce Clause.
Coincidentally, though, Senator Sherman, who championed the law, was a very pro-tariff guy (you know, the little thing the government uses to actually hinder free trade and competition). And many believe Sherman was actively seeking to distract from Congress’ very high tariffs at this time.
The Cato Institute says:
“The Sherman Act was bad law. It not only preserved the nation’s high tariff policies by diverting attention away from the root restraint of trade; it greased the wheels for another tariff law later the same year. The McKinley Tariff Act of 1890. With tariffs and antitrust, the government at best was trying to undo with one hand what it was doing with the other. But at worst, as applications of the law would demonstrate, the Sherman Act discouraged scale economies that promoted lower costs and prices, penalized successful market entrepreneurship, and rewarded the political entrepreneurship of less-efficient business rivals.”
So there were…problems. Right out the gate.
Antitrust Was Never Necessary
Here’s the second problem with antitrust: There’s really no proof it was ever needed in the first place.
Monopolies rarely exist. When they do, it is almost always thanks to government subsidies or regulations that gave them an unfair market advantage in the first place. And even then, creative destruction usually means that those at the top rarely maintain their dominant market position for long.
Capitalism works, if you let it.
This is evident in a closer examination of the history of the application of antitrust in this country. Very rarely have these laws been used to actually break up companies. More often, they’re merely used to give the government more regulatory control of an industry, and often the companies targeted as monopolies in lawsuits have lost their market position by the time the dust is settled in the case.
Take the film and camera company Kodak.
They were targeted by the government in the 1920s when they held a 96% share of the market and again in the 1950s (both times resulted in a consent decree where they agreed to give up a component of their business). But today, they would never be mentioned in antitrust discussions as smartphones made much of their business irrelevant.
Or, take the government’s last successful case against Microsoft.
The US government began pursuing antitrust litigation against the company under President Bill Clinton for the high crime of packaging its Internet Explorer as a not-uninstallable feature of its Windows operating system. But even though the government won its case, by the time the courts decided it, Microsoft had lost its dominant market position. George W. Bush was in office, and the company was ultimately not broken up because of these changes.
Competition springs up naturally and will eat the dinosaurs in an industry that fail to innovate or meet consumer demands. It is inevitable. Those who are at the top can only stay there through government assistance or through providing products that keep up with consumer demand. This means we should really be concerned with ending government subsidies, bailouts, and regulations that create an unfair playing field.
Further Problems with Antitrust
Two federal agencies govern antitrust laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ). That means unelected bureaucrats in Washington DC have a lot of control over the market. (That’s not capitalism, for those keeping count).
And it’s important to remember that although most enforcement actions are civil, the Sherman Act is also a criminal law, and individuals and businesses that violate it may be prosecuted by the Department of Justice.
“Run things the way we want you to or we will fine you millions of dollars and maybe even take away your company or put you in jail.” That’s essentially the system we have under antitrust.
And that means that the government can get away with a lot under this loophole. They don’t have to actually pass unjust laws, which could be overturned by the courts. Instead, they can merely threaten antitrust and make companies comply.
Take the recent example of the Biden Administration threatening tech companies over misinformation. If the government actually passed laws that demanded companies censor speech in a way that met their standards the companies could easily sue and likely win on the grounds of the First Amendment. But when the government threatens to use antitrust or regulations against them unless they comply, the companies are left with few recourses to protect themselves.
There’s no unjust law for them to sue over, nothing to lobby against. There’s merely the threat of being regulated or broken up if they do not comply, and so ultimately, most comply. There’s nothing free market about this scheme. This is why you’ll often see companies begging for—and even outright lobbying for—more regulations.
They don’t want to run afoul of the government and get fined or broken up, and they know that their industry insiders can help craft the laws and regulations in such a way that it insulates them and actually harms their smaller competitors who can’t afford all the red tape to be in business.
This is what’s currently happening with Facebook’s campaign to reform Section 230. The government has gone after them over and over for misinformation, so now they’re actively working for a regulatory scheme that will safeguard them and hurt competitors. This has happened throughout our history.
It’s also important to remember who staffs these agencies: the party in power. That means the DOJ and FTC are currently crawling with far-left progressives who openly hate the free market system. Yet, shockingly, there are Republicans currently working to give them more power under antitrust expansions, like Senator Josh Hawley and Tom Cotton.
The ‘Golden Age’ of Antitrust to Now
The 1940s through 1970s are considered the “golden age of antitrust.” What this means is that the government was frequently suing companies under antitrust to break them up or seize regulatory control over them.
But by the 1970s things begin to cool off. Those on the Left will blame this on the increasing popularity of the free-market-leaning Chicago School of Economics and its prominence in the Reagan administration.
But others say this is because the proof was in the pudding. Just look at the 1970s economy…things were not great. There was rampant stagflation, which means the economy was stalled, innovation and growth were lagging, and prices were also rising.
This was, of course, due to many bad economic decisions and government policies, but antitrust was among them. It turns out, a business climate where titans of industry—you know the people who actually make stuff and create jobs—are constantly being stalked, threatened, and penalized for doing their jobs, that’s not so great of an environment for the economy. Shocker!
During this time, businesses also began to get some relief in the courts thanks to the emergence of the “consumer welfare standard.”
The Consumer Welfare Standard
When courts are evaluating cases, many judges do not go back and look at the original Constitution and base their decisions on what it says. Instead, they look back at previous, similar cases and the legal precedent, or decisions, that were made in that case. I’m not personally in favor of this legal theory, but it is known as stare decisis.
For decades, the prevailing precedent in US antitrust laws was based on not only whether a company was a monopoly, but whether it had used certain tactics to attain or preserve such position. But in the 1970s, the consumer welfare was developed by scholars at the University of Chicago and began to be championed by a conservative legal scholar named Robert Borke.
It essentially said that the precedent for antitrust cases should be built on the question of whether or not a company actually was a monopoly, whether it had used that monopoly power, and, whether it had used that monopoly power in a way that hurt consumers.
This slowly becomes the dominant legal precedent by the 1980s.
While I don’t agree with the use of antitrust laws at all, I think if we are to have them this is the correct way to evaluate when government should get involved in the market. If consumers are not harmed what is the case for action?
Unfortunately, much of the western world and China use a different standard. They usually just look to see whether a company has acted in “anti-competitive” ways. What does that even mean?
The very nature of being in business is competition and that means you want to see yourself do better than others in your market. And that drive is what makes people work harder to become better, win an audience, or develop a product. But in many countries, they penalize the actual competitive nature of business under antitrust.
There’s a little trick I’ve learned, when the government names a bill something or claims to be promoting some ideal through its actions, that bill or that action quite literally usually do the opposite. Such is the case with antitrust and claims it promotes competition.
And this is why you’ll see ridiculous things happen overseas, like Google getting fined millions of dollars for ranking its products first in search results. And again, the proof of antitrust’s failure is in the pudding. Look at Europe’s economy. Far less growth, innovation, and fewer companies.
Yet, there are many Democrat and Republican politicians who are actively seeking to remake our antitrust system. Senator Amy Klobuchar is currently rushing a bill through Congress that would eradicate the consumer welfare standard (which Congress has never baked into the law, it is merely legal precedent) and instead ensure courts evaluate antitrust claims on a basis similar to the one that China and Europe use.
That wouldn’t only stagnate our economy, it would actively hurt consumers. When Amazon Prime shows me cheaper products they make in my search results I benefit. I get a cheaper product.
Interestingly, Klobuchar’s bill is written in such a way that it would only impact Big Tech companies, leaving stores like Target (which just so happens to reside in her home state) untouched. So Target can make generic products and give them priority placement in their stores, but Amazon can’t?
That’s not equal application of the law, that’s not actually about competition, and it certainly isn’t free-market capitalism. This is just another example of the government picking winners and losers in the market—and of senators using their power to actively target companies they dislike.
The New Antitrust Era?
As you’ve surely noticed, people are mad at Big Tech.
Democrats think tech companies should censor people more, be able to stop the spread of “fake news” (which of course they want to be determined by their fact-checkers), and stop helping people they don’t like organize politically online. Republicans want the companies to censor less, to promote their political views, and as best I can tell, really want Donald Trump back on Twitter. An odd list of demands, but I’m just reporting what I see.
And to that end, there are numerous bad ideas flying around under the antitrust circus tent. The DOJ is currently investigating Google over the fact that too many people use its search engine and web browser.
There are literally dozens of search engines and web browsers we all have free and easy access to, including DuckDuckGo, Safari, and Firefox. But since a majority of Americans still choose Google, they’re on the chopping block.
For what? Offering fast, intuitive web browsers and search? Are you kidding? I unilaterally use Apply products, which come with Safari installed, yet on every single one I willingly seek out and download Chrome—because it is a better product.
This antitrust campaign is the epitome of a nanny state, seeking to tell consumers that the government knows better when it comes to what products they want to use. It’s honestly insulting.
Less pressing, but still out there, are things like the Ending Platform Monopolies Act, which is seeking a structural break-up of Amazon.
This one is honestly just ridiculous because Amazon is not even remotely a monopoly. Think of how many places you can go to shop for products and have them sent to your home—basically every company in existence these days, certainly any online company. Again, this has nothing to do with competition and everything to do with government power over the market.
There’s also something called the Platforms and Acquisitions Act, which basically seeks to stop things like Facebook from acquiring Instagram. This is again something that would actually stomp out real competition.
The ability to innovate and create in a space dominated by a larger company is provided for in part because start-ups and investors know they may be acquired if they create a product that’s good enough to compete with those currently at the top. This, again, benefits consumers who get better products along the way.
Worth noting, ad nauseam here is that none of these tech companies currently being targeted are monopolies. And as has always been the case throughout history, many of the tech companies that were in the top 15 years ago are now already chump change.
Think of MySpace, Nokia, Blackberry, and Netscape. These were once the “Big Tech” companies of their day, and not even two decades later they are barely relevant at all.
Even for those currently in existence, their market share often looks quite different than consumers imagine it. Do you know what the top three social media platforms are right now?
Go ahead. Name them. Say it out loud because I don’t want any liars around here.
They’re Facebook, YouTube, and WhatsApp. I know, I KNOW most of you had Twitter and Instagram in there instead. Instagram is #5. Twitter isn’t even in the top 10! Yet there are politicians who want you to believe it’s worth throwing the First Amendment and the free market out the window because a couple of well-known people got kicked off Twitter. You’re seriously getting played if you’re falling for this.
Companies die. Markets change. Innovation drives us forward, and most companies can’t be dominant for all that long. That’s a good thing for us, the consumers. It’s a good thing for society and evolution. And the beautiful thing is, under free-market capitalism, it happens organically.
The changes I’ve pointed out in the market over time occurred despite the fact that we hardly reside in a free market system. And yet, the market still handles these things faster and better than the government can. And it does so in an unbiased way that actually benefits the people vs. the politicians and crony industry insiders.
If we want to ensure competition we should end corporate welfare, all subsidies, all bailouts, all selective tax breaks, and practices like antitrust laws. Anything else is just the government picking winners and losers, and in that scenario, I promise you will always come in last place.