FTC:WATCH No. 635 July 12, 2004
History of an American Triumph: A Review of Antitrust & The Formation of the Postwar World
Reviewed by Albert A. Foer
Antitrust & The Formation of the Postwar World
By Wyatt Wells
New York: Columbia University Press, 2002 276 pp., paperback
If there is anything that is universally accepted in the antitrust community, it is that cartels are evil. We forget that it wasn’t always this way. Auburn University’s Wyatt Wells has written a compelling history of the rebirth of anti-cartelism under Thurman Arnold and how America’s leadership contributed to turning this ideology into a fundamental feature of the world economy. We should think about anti-cartelism in the same light as jazz and basketball as one of this nation’s most magnificent creative contributions to the modern world.
For the half-century before World War II, “the world backed away from the idea that economic competition necessarily promoted the common good.” By 1939, cartels had become a major factor in the world economy. Businesses operating across national borders had lived, Wells writes, with a basic contradiction: “the laws of most industrial countries tolerated and even encouraged cartels, whereas the statutes of the United States, the world’s largest economy, banned them.” For the most part, the contradiction could be finessed, largely because the US did not actively pursue international cartels. Indeed, President Roosevelt himself bought into the cartel ideal as part of his program for national recovery.
What was so compelling about the cartel idea? Wells associates cartels with hard times when industries face excess capacity or falling demand and when nations do not feel they can withstand the risks inherent in competition. Many people saw cartels as a “higher” form of organization, promising to be, as one economist wrote, “efficient instruments for superseding the ‘anarchical’ state of competing middle-sized enterprises against being overwhelmed by the competitive power of large concerns.” Some of the many valuable insights in this book are found in Wells’ careful exploration of the widespread appeal of the cartel ideal. As Wells himself says, “International cartels represented one of the most ambitious undertakings in economic history.”
The failure of the National Recovery Act and the appointment of Thurman Arnold need no rehashing here. What I found particularly interesting was the interplay between foreign policy and antitrust that became increasingly important as the nation began to mobilize for war. Arnold used the mobilization as an opportunity to focus public attention on international cartels and in particular on the large American corporations such as Standard Oil of New Jersey that were intricately tied to German companies and their cartels. This strategy worked splendidly for a while, but mobilization eventually overtook reform. The need to win the war, requiring trust in big business, put antitrust on the back burner, and when Arnold didn’t “get” it, Roosevelt shunted him off to the federal judiciary.
A dynamic very much like the battle between reform and mobilization also receives fascinating treatment in Wells’ discussions of postwar American policy toward the defeated Germans and Japanese. In both cases, the policy was initially driven by a strong desire to break up substantial repositories of the enemy’s economic power and to impose antitrust rules for the future. Wells shows how the proponents of these policies (many of them came from the Antitrust Division) got off to a fast start, advocating structural reform programs far beyond anything that had ever been accomplished in the US, but they were soon overtaken by the realists, who prevailed by emphasizing the need to rebuild devastated economies and to convert enemies into allies, in order to deal with the Soviet Union in the on-coming Cold War. In the case of Germany, some deconcentration succeeded and an effective anti-cartel law was passed. In Japan, the results were less positive. Zaibatsus were broken up, but allowed to reform as Keritsus. A Fair Trade Commission was established, but was for many years a cipher. Meanwhile, the growth of a large single market in Europe in an environment of expansion reduced the risk of competition and anti-cartelism, urged on by the US, became increasingly the norm.
The history of international oil has been treated more completely elsewhere, but Wells shows how in 1944 the Roosevelt Administration tried to establish an international oil cartel with Britain and was forced to back away by opposition from both the left and the right, including the independent oil sector. Meanwhile, the international oil cartel, without the US, reorganized itself after World War II, coming to rely on the joint control of production instead of the regulation of price. The FTC reported on this cartel in 1952 and the Antitrust Division decided to challenge it. What came next may throw light on current efforts to pass “NOPEC” legislation that would in effect require the Antitrust Division to sue OPEC.
First, the Division’s prosecution “horrified the national security establishment” which predicted adverse effects upon the interests of the US. “The British and Dutch governments were furious about the impending actions against their companies.” When the Antitrust Division held firm to its belief in the sanctity of its mission, “President Truman knew what he had to do.” He ordered the Antitrust Division to suspend the criminal investigation of the seven sister oil companies. The Division filed a civil suit against the five American members of the cartel in 1953. President Eisenhower “neutralized the prosecution,” forcing the Division to drop the parts of its case dealing with production agreements in the Middle East. “In 1968, Justice finally bowed to reality and suspended the prosecution.”
Wells has spun a fascinating history that speaks to the present. One can only imagine what would happen if the NOPEC legislation passes and Hew Pate files suit against OPEC. First, the foreign policy parts of the Executive branch go ballistic. Stock prices plummet in expectation of retaliation in the Middle East even as oil prices shoot upward. The President has a phone in his ear, explaining to other world leaders why an Assistant Attorney General is suing OPEC and how they should view this as good for the world economy, peace, and the ideal of competitive markets. No, no, no. When Wells says, “It is hard to blame the Truman and Eisenhower administrations for ignoring [antitrust violations by the international oil cartel],” he is telling us a truth that is comparable to saying that war is too important to be left to the generals. There is nothing to be gained and much to be lost if antitrust is placed on a pedestal above global politics. A NOPEC initiative makes sense only if the White House and Congress are thoroughly committed to supporting antitrust in the face of the inevitable countermoves and pressures that it will spawn. Does anyone believe they are?
Albert A. Foer is President of the American Antitrust Institute, www.antitrustinstitute.org