An abbreviated version of this op-ed appeared in The Hill on September 9, 1998--
What Greenspan Should Have Told Congress
[By Sen. Howard M. Metzenbaum (Ret'd) and Albert A. Foer. Metzenbaum is the former Chairman of the Senate Subcommittee on Antitrust, presently Chair of the Consumer Federation of America and on the Advisory Board of the American Antitrust Institute. Foer is President of the American Antitrust Institute.]
Federal Reserve Chairman Alan Greenspan has officially noticed what he called the "fifth major corporate consolidation of this century". But he doesn't want us to do anything about it. In prepared testimony before the Senate Judiciary Committee on June 16, 1998, he extolled the self-correcting virtues of free markets, leaving the impression that antitrust intervention really isn't necessary.
A few weeks later, Professor Richard Epstein of the University of Chicago wrote an op-ed for the Wall Street Journal titled "Monopoly Is Bad. Trustbusting Can Be Worse." His "Chicago School" point, obvious from the title, is that government is so incapable of improving markets that it is better to let nature take its course. This Libertarian thinking is out of step with traditional Republican, not to mention Democratic policies.
That a major restructuring is happening is certain. The same Judiciary Committee that heard Chairman Greenspan also received FTC Chairman Robert Pitofsky's report that the number of federal pre-merger filings has risen from 1,529 in 1991 to an estimated 4,500 this year, and that "the market value of merger transactions this year could exceed $2 trillion, compared to $600 billion for the peak year (1989) during the merger wave of the 1980's." Put differently, a lot of companies are rapidly growing dramatically larger; many companies are disappearing from the map; and some markets are becoming significantly more concentrated, hence easier targets for collusion and other forms of competition-reducing behavior.
Bigness, per se, Greenspan says, is not an issue for national economic policy. "Rather, it appears that bigness should be primarily the concern of shareholders whose returns could be muted by large company inefficiencies, and their customers who may face bureaucratic inflexibility." Many of the conglomerates created in an earlier merger wave have since fallen apart, but the laid-off workers, the shareholder losses, and massive market inefficiencies can never be undone.
Yet Greenspan is undoubtedly in tune with most economists, who say that the size of companies, in and of itself, is irrelevant. Indeed, mergers that contribute to aggregate concentration without endangering competition in particular markets are today perfectly legal. But at some point economics shades into politics. Can there be any doubt that the giants being created day after day, with their enormous discretion to generate and eliminate jobs, to make or break tax bases, to fund or ignore political campaigns and charitable causes, will stride across the landscape like dinosaurs in their time of glory? And should we be neutral, knowing what awaited the dinosaurs?
Government By Little Bo Peep
We do have laws aimed at stopping mergers that will tend to reduce competition within specific markets. But Greenspan (like Epstein) appears to be very skeptical about actually using the antitrust laws. Antitrust remedies, he says, tend not to be efficient. His attitude is, if we wait long enough, dominant companies (pointing to U.S. Steel, General Motors, and IBM as examples) will fall back into the pack-unless they maintain dominance through cost efficiencies and low prices, or unless they are protected in their dominance by government actions. This should be called the "Little Bo Peep School of Antitrust": leave them alone and they'll come home, wagging their tails behind them.
What is missing from this nursery picture?
First, as much as we admire efficiency, firms actually gain and maintain dominance in a variety of ways, including some that are traditionally viewed as illegal "unfair methods of competition". Efficiency is not the only value at stake: fairness is also important..
Second, efficiency itself has many meanings and is more mantra than manifest destiny. Claimed efficiencies usually are vastly overstated, and can often be obtained in ways other than by merger. Allowing rivals to disappear in the name of some short-term static efficiencies may entail a sacrifice of much more important long-term dynamic efficiencies-the ones that foster breakthrough innovations which keep the society flexible and responsive to change.
Third, even if dominant firms often decline over the long term, in the mean time the public suffers from higher prices, arrogance, and reduced innovation.
Fourth, some mergers may indeed enhance efficiency, but they may also be of questionable value to the public.
Fifth, self-correction doesn't always occur. At some point down the road, it may become necessary to fight a monopoly under the Sherman Act-which is much more difficult and disruptive than dealing with an incipient problem at the merger stage.
Where Are the Republicans?
As a result of attacks by conservative opponents of antitrust, one often wonders-where are the Republicans? The very first national antitrust law was sponsored by one who sat in the seat held by one of this article's co-authors, Senator John Sherman. It was signed into law by Benjamin Harrison, also a Republican, in 1890. Our early great trustbusting presidents, Teddy Roosevelt and William Howard Taft, were Republicans.
Republicans played an active, leading role in the various amendments that strengthened antitrust over the years. The Federal Trade Commission, which had fallen into a kind of bureaucratic stupor for many years, was reborn in the early 1970's under the aggressive leadership of two chairmen appointed by Richard Nixon. Another Republican, Janet Steiger, helped lead the FTC back from the abyss of the Reagan era. . The current premerger screening system, which had been urged by Republicans since the time of Teddy Roosevelt, was enacted by the Hart-Scott-Rodino Act in 1976. It could not have passed the Senate absent the leadership of Hugh Scott, the Republican Senate leader. Today, in the landmark battle between the Antitrust Division and Microsoft, such Republican stalwarts as Senator Hatch of Nevada and Robert Bork of the American Enterprise Institute, each of whom has criticized much about antitrust, have weighed in on the side of antitrust enforcement.
The Need for More Antitrust
In 1980, the Antitrust Division employed 456 attorneys and a total staff of 982.As the Reagan Revolution institutionalized the Chicago School's antitrust perspective, the number of attorneys and staff tumbled dramatically, hitting a low of 229 attorneys and 509 total staff in 1989. Only gradually have the numbers moved upward, to approximately 360 attorneys and 831 total staff in 1998. The Federal Trade Commission's Antitrust Mission showed a similar halving in the early '80's, but there has been much less rebuilding. Meanwhile, the amount of merger work, which takes up a large portion of the national antitrust resources, has increased explosively. The period from 1991 to 1997 saw a doubling in the number of premerger notifications filed. In the case of the FTC, which shares merger enforcement with the Antitrust Division, the workyears budgeted has remained flat. Since then, there has been a 30% increase in the merger workload in the current year, without additional resources from Congress.
What Chairman Greenspan, the self-declared guardian of free markets, should have told Congress is that our antitrust agencies, under the able leadership of Assistant Attorney General Joel Klein and FTC Chairman Robert Pitofsky, are doing extraordinary work, but they are overwhelmed by the tidal wave of mergers. We need to slow down the process and expand the antitrust resources so that the proper analyses can be made and anticompetitive mergers can be stopped. Greenspan has done a great job as Federal Reserve Chairman -but Alan, let the Department of Justice and the FTC do their jobs! The American people want-and deserve-no less.