Time for a New Antitrust?

This piece was co-written with Shawn Bayern, visiting Assistant Professor of Law at Duke University. Professor Bayern teaches business associations.

We now have an economy that we don't understand and can't seem to control even when we want to. Having created corporations, we have let some of them become "too big to fail"--a dangerous state of affairs, both economically and politically. Perhaps there are some companies that are simply too big to exist.

One way to avoid a similar problem in the future could be an antitrust law that limits how big corporations can become. This is not a new idea; at the time the modern antitrust statutes took shape in our country about a century ago, political leaders were concerned directly with corporate size and power. In the last several decades, however, legal economists have sharply narrowed antitrust law, leaning heavily on the assumption that larger companies can be more efficient. This view has some merit; after all, efficient companies can produce cheaper consumer products, and everyone shares in the savings. But the recent crisis should make us consider whether these economists have been leading us astray.

There are many reasons a "too big to exist" conception of antitrust law makes good sense for a democracy. Perhaps most importantly, large companies have proven to have disproportionate power over the political process. Concentrated financial power often leads to concentrated political power; if you have a lot of cash, one of the most efficient uses of it to maximize profits is to petition the government to change the rules in your favor. Economies of scale might work all too well when it comes to influencing government.

Big-company money spent on sustained lobbying and media campaigns has often led Congress to pass non-responsive legislation--for instance, legislation that gives dangerous environmental licenses to favored industries or tax breaks to those who least need it.

Even Milton Friedman, a devout defender of markets, recognized the dangers of corporate power over the political process. "If the rules of the game are that you go to Washington to get a special privilege," Friedman wrote, "I can't blame [a corporate manager] for doing that. Blame the rest of us for being so foolish as to let him get away with it."

There are also reasons to think an antitrust policy focused on size and power makes good economic sense. Despite economic theorizing, bigger companies are not always more efficient companies. And even if they were, there are important societal efficiencies that go beyond whether individual companies operate cheaply or produce low-cost products. As Bert Foer of the American Antitrust Institute recently testified before Congress, we can choose to use competition policy to help prevent much of the systemic risk that has crippled our economy. By focusing more on size and concentration, we might be able to avoid collapse, unplanned nationalization, and bailouts.

More generally, the world is both harder to predict and richer than an economic worldview usually supposes. Recent economic troubles should have taught us that using narrow economic thinking to make broad policy pronouncements will often get us into trouble. Indeed, in today's economy (and ecology), it may even be worth questioning whether a focus on efficiently producing consumer products remains an effective way to promote economic activity that Americans value.

We don't mean to suggest that corporate size is all that matters, and we obviously don't believe that one size fits every industry or circumstance. But focusing on manageable scale can help us achieve both democratic and economic goals. To achieve these goals, we should be debating structural changes rather than getting stuck on conventional and short-term fixes. The artificial quarantine of "economics" into a sphere distinct from politics, separate from collective decisions about fairness and value, does not serve us well.