The fear of concentrated power is embedded in the American DNA. Every law student understands that Constitutional Law safeguards our system of divided power – including federalism, separation of powers, a bicameral legislature, judicial review, and much more – that our Founders devised so that too much governmental power is not in a single set of hands.
But government power is not the only power in America. Should we not be concerned about consolidated commercial power too? If so, what field of law ensures that commercial power is at least reasonably dispersed?
The field of law originally charged with this mission was antitrust. While the Founders did not write an antitrust provision into the Constitution, the dangers that flowed from powerful corporations and monopolies were well understood at the birth of our Republic. Americans knew how the British East India Company had grown powerful through monopolies granted by the Crown, and how company executives amassed personal fortunes through all manner of abuses of power – including extortion and terror in India – and how the company successfully resisted regulation by corrupting government officials. For example, the company often required that its large debtors borrow money at usurious rates from key members of Parliament, thereby indirectly buying the loyalty of those legislators. That was crony capitalism, 18th-century style.
Americans took note when, in April of 1773, Edmund Burke rose on the floor of the House of Commons in London and declared that unless Parliament controlled the East India Company, “this cursed Company would at last, viper, be the destruction of the country which fostered it in her bosom.” Ten months later, Americans dressed as Native Americans raided an East India Company ship in Boston harbor and threw its tea overboard. They were, in part, protesting taxation without representation, but they were not then protesting a high tax on tea. Just the opposite. Parliament had permitted the East India Company to drastically cut the price of its tea in order to reduce a bloated inventory. Although the company had a legal monopoly on tea, American merchants nonetheless competed with East India by smuggling – and were often considered heroes for it. Americans viewed the slashed price of tea as predatory pricing by a monopolist.
Burke waged a fourteen year campaign to force Parliament to bring the East India Company to heel. He was ultimately be unsuccessful. The giant company’s hold on English government was too strong. But Americans paid attention. When Maryland and North Carolina adopted state constitutions in 1776, both included provisions banning monopolies and declaring them contrary to free government. Notice the concern expressed: free government. Other states later followed suit. Antitrust became part of American state constitutional and common law.
The industrial revolution created corporations of unprecedented size and power. As had the East India Company a century earlier, the new corporate giants found many ways to purchase political influence in the state capitols. It was a time, writes historian H.W. Brands, when “capitalism threatened to eclipse democracy.” Since the large corporations effectively overwhelmed state governments, in 1890 Congress federalized antitrust by enacting the Sherman Act. Congress hoped that armed with this new legislation, the United States Department of Justice and the federal courts would effectively restrain both the growth and predatory practices of corporate giants.
Those hopes appeared to be dashed soon. One company purchased all of the sugar refineries in the nation save one, thereby amassing a 98% share of sugar refining. The United States sued to force this great sugar “trust” – as the huge companies created through mergers and acquisitions were then called – to disgorge the last four companies it had devoured. But the United States lost. The Supreme Court held that the Sherman Act could not apply to manufacturing because that was a purely intrastate activity.
The sugar trust decision was a green light for more mergers. Before long more than two hundred trusts dominated a host of industries, including oil, coal, railroads, farm equipment, beef, and whiskey, to name a few. The largest was the steel trust. In 1901, J.P. Morgan, John D. Rockefeller, and other moguls formed United States Steel Corporation, which was a combination of 180 previously-independent firms.
In the election of 1912, the two leading presidential candidates engaged in an historic debate about antitrust. Theodore Roosevelt, running on the Progressive Party ticket, argued that antitrust law should curb abuses practiced by large corporations but should not curb corporate size. The nation needed big companies to do big things, Roosevelt believed. He wanted a national government that was strong enough to rigorously regulate big business. Woodrow Wilson, the candidate for the Democratic Party, argued that if corporate size were not constrained, big business would wind up controlling government. “Don’t you see that they must capture government, in order not to be restrained too much by it?” Wilson asked. Wilson won in a landslide. Two years later, with the help of then Boston lawyer Louis D. Brandeis, Wilson persuaded Congress to strengthen the antitrust laws by enacting the Clayton and the Federal Trade Commission Acts.
Congress strengthened the antitrust laws again in 1950 with the Celler-Kefauver Act. “Shall we permit the economy of the country to gravitate into the hands of a few corporations?” asked Senator Estes Kefauver. And for a while, antitrust law was viewed as a tool for constraining corporate size and power.
But beginning in the 1970s a group known as the Chicago School transformed thinking about antitrust. Adherents of the Chicago School believed that antitrust should be exclusively concerned with consumer welfare. No matter how large a corporation might be, it should be permitted to merge with or acquire other companies as long as the new entity would not have the market power to raise prices and reduce total industry output (which are two sides of the same coin). According to Chicago School thinking, broader concerns with corporate size and industry consolidation are too subjective and value-laden, and thus illegitimate.
The Chicago School vison prevailed. Today there is a general consensus that antitrust should not be concerned that:
– bigger is more powerful, and corporate behemoths use their political power to obtain government subsidies and favors;
– local communities are diminished when local businesses are vacuumed up by a corporations headquartered far away;
– the freedom and welfare of workers are diminished when mergers reduce the number and diversity of potential employers;
– innovation is reduced when large companies do not have to engage in research and development themselves but can instead simply acquire other firms that develop new products; and
– economists’ predictions about whether merged companies will have sufficient market power to raise prices and reduce total production are often wrong.
We are today living in a new Gilded Age. The reasons for this are many, but surely one (mostly overlooked) reason is the rapidly increasing corporate size and industry consolidation as a result of mergers and acquisitions. In 1999, there were $1.475 trillion in mergers in acquisitions. It was a stunning number – triple that of just three years earlier. But 2015 set a new record with $4.7 trillion in announced mergers and acquisitions. It is one thing when a corporation grows large by producing better products or doing so more efficiently than its rivals; but it quite different when companies become giants by swallowing other companies. It is, therefore, time to overthrow the current consensus and to revive and modernize original visions of antitrust.
So here is something every Harvard law student should know: How we envision antitrust law has a profound effect on how America is organized. Students who are concerned about consolidated commercial power and its ramifications on our nation’s economy, politics, and society should take an interest in antitrust law – and consider joining an important battle.
Carl T. Bogus is a professor of law at Roger Williams University and the author of “The New Road to Serfdom: The Curse of Bigness and the Failure of Antitrust,” 49 University of Michigan Journal of Law Reform 1 (2015).
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