AAI releases The Federal Antitrust Commitment: Providing Resources to Meet the Challenge, a 40 page report on the funding of antitrust

Mar 23 1999
Testimony and Interventions

The Federal Antitrust Commitment: Providing Resources to Meet the Challenge

Albert A. Foer
American Antitrust Institute

You can download a complete version of The Federal Antitrust Commitment: Providing Resources to Meet the Challenge here in Adobe Acrobat format.

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EXECUTIVE SUMMARY

The modern American political economy is based on the idea of competition. But competition does not automatically occur and it cannot be maintained without a national competition policy and appropriate institutions for sustaining competition. The primary tools for maintaining competition are the antitrust laws, primarily enforced by the Antitrust Division of the Department of Justice and the Federal Trade Commission.

The federal antitrust laws were first established in 1890, with the Sherman Act's enactment. By 1914, with passage of the Clayton Act and the Federal Trade Commission Act, the institutional structure was in place and it has remained relatively stable, despite amendments, variations and fluctuations with the coming and going of national security crises, depressions, and periodic deviations over the years. In general, the antitrust laws have proven to be economically effective and politically resilient, a broadly accepted bipartisan alternative to forms of direct government regulation.

Antitrust institutions generally grew stronger from the arrival of Thurman Arnold at the Antitrust Division in 1937 through the late 1970's. The election of President Reagan was accompanied by a decisive reorientation of antitrust under the influence of the "Chicago School" of economics and law. The federal antitrust resources and the mission of antitrust were dramatically reduced during the Reagan years, only to be restored in a slow but steady way under the administrations of President Bush and President Clinton.

Circumstances have changed since the Reagan era in at least six important ways, requiring a significant expansion of the antitrust budget.

First, we are in the midst of a merger wave of unprecedented size and scope, which is rapidly restructuring the American and the world economy. The federal antitrust agencies are understaffed to deal with this fundamentally important development.

Second, we have advanced a long way in the deregulation movement that began in the mid-1970's. Today we see that the promise of more competition in place of government regulation is not being fulfilled, because the role of antitrust has been too small.

Third, the economy has become more of a global marketplace, changing the modes and challenges of antitrust, and adding to the enforcement workload. Even as some markets become freer and more competitive, others are ruled by international cartels.

Fourth, new technologies have created new antitrust issues, such as the potential of network effects creating persistent monopolies.

Fifth, a "post-Chicago" evolution in antitrust thinking has questioned parts of the Chicago School philosophy and popularized a broader view of antitrust that encompasses not only the Chicago objective of efficiency, but also traditional objectives such as innovation, competitive prices for consumers, and an array of consumer options.

And sixth, the political support for antitrust has been expanding. The large and long-lasting merger wave and the landmark Microsoft case have helped focus public attention on antitrust to a greater extent than at any time in a generation or more. A range of interests (consumer and public interest organizations, unions, and businesses that have to live with monopolists) now recognize the relevance of antitrust and want the government to increase its commitment to competition.

In recognition of these changes, it has become a matter of urgency to expand the resources available to the federal antitrust mission. The President's Budget for F.Y. 2000 would increase the Antitrust Division from $98 million to $114 million (16.3%) and increase the FTC from $119 million to $134 million (12.6%). Among the reasons to support this increase are the following:

+In 1998 there were 4,728 reportable U.S. merger transactions-compared to 3,087 in 1996 and 1,529 in 1991. The total value of U.S. mergers completed in 1998 exceeded $1.2 trillion - in an economy with a gross domestic product of $8.4 trillion!

+Mergers, which must be dealt with under a statutory time frame, have taken over the workload of the antitrust agencies. Merger investigations increased from 36% of the Antitrust Division's caseload in 1970 to 76% in 1998, driving out much of the non-merger law enforcement.

+Resources have not kept pace with the growing economy. Between 1977 and 1997, the total budgets of the FTC and the Antitrust Division decreased by 7% in constant dollars while the GNP grew by 112%. Mergers have increased by 550% since 1992.

+Even with the White House budget, authorized workyears will trail the 1980 levels. The Antitrust Division would get an increase in FTE's from 819 to 943, still below the 1980 level of 982. FTC workyears would increase from 900 to 1,042 (compared to 1,719 in 1980!).

+Many antitrust challenges remain. Health care is not sufficiently competitive. Airlines monopolize hub terminals and other deregulated and deregulating industries are becoming more concentrated rather than more competitive. International cartels cost consumers dearly. Price fixing and bid rigging are a continual abuse of the system. New technologies are creating persistent monopolies that can control the global flow of information. Agricultural and meatpacking industries are unduly concentrated. And mergers are restructuring the economy without sufficient oversight.

+A single antitrust case can save consumers millions of dollars. E.g., when the FTC stopped the Staples/Office Depot merger, economists calculated the savings at $200 million per year (approximately the combined federal antitrust budget last year).

+Antitrust is a great public bargain. Because funding of the agencies will be 100% paid for by premerger filing fees paid by merging companies, money for antitrust does not displace expenditures for other public programs. The agencies also generate millions of dollars for the treasury in the form of criminal and civil penalties.

Antitrust has served the American public well for over a hundred years. The need for antitrust has not declined. We still need to work at maintaining competitive markets, perhaps more than ever as the economy continues to change. Yet today's federal antitrust mission is substantially underfunded and understaffed. The President has proposed a budgetary increase, which should be taken as the starting point for a longer-term commitment to rebuilding the FTC's and the Antitrust Division's capability for dealing with today's challenges, and tomorrow's.


You can download a complete version of The Federal Antitrust Commitment: Providing Resources to Meet the Challenge here in Adobe Acrobat format.

You can download Adobe Acrobat Reader from Adobe.