Christopher Hayes: Hello and welcome back to The Breakdown, Week 51, Episode 51, in a collector series. This week we have a question from a listener who did not give his or her name. The listener writes in with the simple question: “Could you explain our antitrust laws and why they don’t seem to apply to anyone anymore?” It’s a very good question, I think mostly likely prompted by the news in the past week that AT&T was going to purchase T-Mobile which is one of the other major carriers, further consolidating the market for cell phone carriage down so that there’ll only be three major carriers left. A lot of people think Sprint, which is the third, will probably be absorbed at some point too, and we may be headed toward a future in which we have only two major cell phone carriers. My sense is that people aren’t particularly happy with their cell phone service and are scratching their heads as it appears as though there’s going to be regulatory permission for this merger to happen. I happen to have a great guest for this topic which is partly why I want to do this question.
Barry Lynn is director of the Markets, Enterprise, and Resiliency Initiative and senior fellow at the New America Foundation. He recently wrote just a tremendously interesting book called Cornered: The New Monopoly Capitalism and the Economics of Destruction, which I recommend to anyone listening to this. It’s a really eye-opening book, and Barry, it’s a pleasure to have you on The Breakdown.
Barry C. Lynn: It’s great to be here today, Chris.
OK, so maybe—this is obviously a broad question and we only have a little bit of time—so let’s start with this: tell us what antitrust laws are. Just kind of define the concept in the legal terrain, and then maybe we’ll step through a little bit of the history.
We’ve been told that antitrust is sort of a technical issue and we use these laws to engineer competition and ensure that we have healthy competition in our economy. The origins of antitrust are really quite different, however. Anti-monopoly law, which is really a better way to understand what antitrust is, is fundamentally a set of political laws. The purpose of these laws was originally to ensure that we didn’t have concentrations of political power—people using their control over something we need (e.g., grain, transportation, etc.) to enrich themselves and raise themselves up above their fellow citizens politically.
So the context for this in its modern incarnation is sort of late-nineteenth-century industrial capitalism, a time in which a number of extremely profitable, important, emerging industries (e.g., the railroad and Standard Oil run by Rockefeller) were basically monopolies. Basically my understanding of how Rockefeller operated in Standard Oil was that there really was just one oil company in America and this gave rise to a response—a backlash—right? That’s the sort of origin of antitrust law. What’s the political context of the first antitrust laws and what is the first antitrust law?
To understand this we actually have to go back to 1773 and the original Tea Party. Because people have been saying the original Tea Party was about standing up against taxation without representation. That was an important issue, but the main purpose of the Tea Party was actually people standing up against monopolization of commerce within the colonies by a single foreign company, which was the British-East India Company. So in some ways America was born out of a rebellion against commercial monopolization—
—And we actually continued to have very strong anti-monopoly law on the books at the local and state level right up through the Civil War in the United States. We did a very good job of preventing monopolies in the United States in the first half of the century without federal intervention. What happened after the Civil War is that were somewhat empowered during that war kind of escaped the control of the state. It was at that point that these guys sort of used these corporations to basically roll up control over all of the industrial activities that had been spread out across the United States and concentrate the control in the hands of one or a few people.
It was at that point that we realized we also needed to get the federal government involved, and we started doing that in the 1880s. Now, it didn’t really come to real fruition until about 1913 or so when you had the Wilson administration.
So you get the Wilson administration and you also get, if I’m not mistaken, the Sherman Antitrust Act, right?
Yeah, the Sherman Antitrust Act was 1890. The trouble with the Sherman Antitrust Act—which was actually the first federal antitrust legislation—was that it wasn’t very precise and almost immediately after it was put into effect, it was used by the rich to control the regular folks.
Right. I mean, it was used against labor unions, right?
Yeah, it was used against labor unions, farmers, cooperatives, etc. So we didn’t really get that law under control and make it useful for the people themselves for another twenty years.
So you have the Wilson administration that also passes some other antitrust legislation. Describe antitrust from that kind of Progressive era through—as I understand it in your book—the New Deal and into, say, the 1960s and 1970s, that sort of chunk of time. Describe the characteristic of our antitrust regime—is it well-enforced, is it effective, etc.
The modern antitrust regime really finally came into its contemporary iteration under the second New Deal in the mid-1930s. If we go back and look at the New Deal it’s a little confusing because initially it was this fantastically huge crisis that the Roosevelt administration was facing and one of the first things they did was suspend the enforcement of antitrust law. They thought that one way to deal with this crisis was to get labor, management, the state, and everyone into the same room, and somehow they were going to plan an economic outcome, set prices, and engage in what we would now call corporatist planning, and that somehow this was going to work out. It didn’t work out and it was also called radically, extremely illegal by the Supreme Court. It was at that point that we really entered the modern era of antitrust.
In the modern era, there’s really three key elements. One was you have a natural monopoly—like with utilities—and the people, the public, somehow, some way, should regulate that monopoly directly or indirectly. In cases where you need some kind of concentration—say with the making of chemicals or say with automobiles where you have to have sort of big armies of people under the command of a few managers—there the idea was rather than having a monopoly, you should have what the call oligopolistic competition. You should have at least three or four or five companies competing to make the same basic product.
In the rest of the economy—whether they were services or retail or farming—what the New Dealers wanted was they wanted to distribute power and property as widely as possible. The idea there was to prevent any kind of large corporation (in agriculture, in retail, etc.) and they did a really good job of that.
How long does that sort of late New Deal regime last?
It started to fall apart, started to be taken apart, in the 1970s. The first group of people that started taking it apart were folks in the Carter administration, and if you look back at it now they seem to be kind of confused at what they were aiming at. They made some mistakes. They had some good goals that they were seeking and they didn’t quite know how to get there.
Where it really saw a major, radical, revolutionary change was when Reagan came to power in 1981. One of the very first things the Reagan administration did was they went to Congress and said: “We are changing the way we enforce the anti-monopoly, antitrust laws. No longer are we going to seek to have competition for the sake of competition. No longer are we going to seek to distribute power to prevent the concentration of power. What we’re going to do now is we’re going to allow people to concentrate power because it’s going to be more efficient and it’s going to help the consumer in this country. Because of the power that’s concentrated, these guys are going to use it to drive down the price of what we buy, you know, at the store.”
So you make this point really wonderfully in the book that the previous regime of antitrust—the sort of late New Deal through late-Carter and Reagan—views competition, distribution, and relative smallness as ends in and of themselves, whereas the later regime says: “No, the end is just low prices for consumers and if concentration brings low prices, great, if concentration is going to harm low prices, then we’ll intervene and induce competition.”
So then they said that, OK, if that’s the key thing under this contemporary regime, which is that we are going to intervene if we can see from a technical point of view that some action is going to lead to higher prices. That’s pretty much the only actionable violation. And it’s really hard today when there’s a proposed merger like that between AT&T and T-Mobile to prove that this is going to lead to higher prices. You can prove it’s going to lead to less competition, but that’s not illegal under the present regime. So basically, the change in 1981 kind of made almost any merger legal. And that’s what we’ve seen in the past thirty years—this radical consolidation in almost every corner of the US economy.
Is there empirical support for that? I mean, obviously it does seem like there’s more consolidation, but if you sort of graph the number of antitrust lawsuits brought by the DOJ or enforcement citation violations—I’m not sure technically what the thing you track is—but do we see a decline post-Reagan?
Yeah, we see a decline in almost every place. You actually won’t see it in the number of lawsuits that are brought because the number of lawsuits are guided by the understanding of how we’re going to enforce the law. Reagan changed how we enforce the law, but Clinton didn’t change it back and Obama hasn’t changed it back. The regime that we see today is the regime that was put in place by Reagan. The other thing that Reagan did was there were all sorts of ways that we used to track concentration in the economy and there was all this information collected by the government, and one of the first things they did was they eliminated the collection of that data because if you don’t have the data, it makes it a lot harder to prove the existence of the problem.
And that data was what? I mean, the number of farmers selling wheat? The number of people making widgets?
Yeah, there’s actually a very careful definition of what is an independent farmer, what is an independent retailer, etc. So one of the things we see is there’s been a radical fall off of the number of small businesses in this country. We can’t see it when we drive around, but we know it to be true—
—It’s a lot harder to start a small business or a farm than it was a generation ago. But the numbers don’t show that, the numbers don’t reflect that. The data was highly corrupted and it’s kind of worthless now, the data that the government collects.
Finally, I want to end on this, which is, my big takeaway from your book Cornered, the original motivation of antitrust legislation was actually political concerns rather than economic ones. It was about the distorting effects of the consolidation of economic power on the political system. And our current understanding of antitrust is sort of solely economic impacts (e.g., what price is the consumer going to pay?). What are the effects of that in terms of what our political economy looks like now?
Well, you know, this goes back to the very beginnings of the United States. There was this battle in the early years between the Jeffersonians (e.g., Jefferson and Madison) and the Hamiltonians. The basic conflict was Hamilton really wanted what he saw as an aristocratic republic (i.e., democracy among rich people), kind of like what existed in Athens a couple of millennia ago. You have a bunch of folks who entirely sit above society, they were the lords of the local domain, but among themselves there was no king. They were equal, the gathered together. They came together and engaged in a democratic process of deciding what to do with the nation.
Madison and Jefferson imagined, by contrast, what they called a Democratic Republic. The idea was that every citizen would have property, every citizen would have a vote, every citizen would be roughly equal, every citizen would have a stake in running the economy—
Every white citizen, it should be known.
That’s right. So that’s been the conflict that we’ve seen played out in this country ever since. We saw for most of the nineteenth century, at least among the white folks, we had a Democratic Republic. Then for seventy years or so we had massive concentration during the Plutocratic years, right up really to the New Deal. Then, in the New Deal we had kind of this second American Revolution in which we actually took the power that had been concentrated and we distributed it out among ourselves. And then what we had thirty years ago when Reagan came to power was another reaction, an overthrow of the Democratic Republic. And now what we have today is the fight—it’s the final fight—to restore the Democratic Republic. If we don’t do it now—and one of the key elements is to ensure that the economic system itself is not concentrated, that power itself is not concentrated in the economic system that leads to concentration of power in the political system—if we don’t fix it now, we’re in deep trouble for a very long time.