Book Reviews

Antitrust Deficit

The current paradigm isn’t working. At this potentially exciting moment, we need a much stronger approach.

By Zephyr Teachout

Tagged AntitrustMonopolies

The Antitrust Paradigm: Restoring a Competitive Academy By Jonathan B. Baker • Harvard University Press • 368 pages • $45

Remember the first bill Barack Obama signed? The new President, looking serious and energetic, surrounded by women wearing red, brought his new presidential pen to the Lily Ledbetter Fair Pay Act. The bill was a rejoinder to bad Supreme Court practice. In 2007, the Court had interpreted Title VII of the Civil Rights Act of 1964 to mean that the 180-day statute of limitations for bringing an equal pay lawsuit begins on the date of the first discrimination, making it hard for many people to sue. Two years later, Obama and Congress asserted their power with Lily Ledbetter, making clear that the clock on bringing an equal pay case resets at every pay check that has been impacted by discriminatory action.

This is how things work in almost every area of federal legislation. When the Supreme Court interprets a statute in a way that advocates, lawyers, and law professors find problematic, they explain why the Court’s decision was wrong or dangerous. They then propose legislation to overturn or supersede it. Sometimes the legislation has to be reintroduced for years, but everyone understands that it is there, ready to go when the politics makes it possible. The fact of the bill itself becomes a source of public education. When it comes to everything except the Constitution, the Court has its role, but Congress has a bigger role.

Everything, that is, except antitrust law, as illustrated by Jonathan Baker’s timely, in-depth, and maddening book, The Antitrust Paradigm, on the state of modern antitrust and what he thinks we—by which he means judges, not the public—should do about it. Baker spends 200 pages explaining why he thinks the Supreme Court’s antitrust decisions of the last 40 years are problematic, and require “urgent” action, but you would have to hunt to find what Congress could do. A footnote to a sentence three pages before the end of the book, for instance, includes an intriguing list of legislative opportunities, including overturning bad Supreme Court precedent with legislation, a la Lily Ledbetter. It is a rare moment in an otherwise technocratic vision.

The Antitrust Paradigm is aptly named. Baker, a Research Professor of Law at American University and former Director of the Bureau of Economics at the Federal Trade Commission, is at the top of his field, and his book reveals the way that current antitrust scholars think. Even as the book calls for reform—in some cases, substantial changes in the way we treat presumptions—it starts from two key premises that undermine reform’s chances.

First, Baker endorses the modern antitrust bar’s view that courts, relying on professional economists for direction, are the correct institutions for making the most vital decisions about the shape of power in our economy. Second, he argues that the purpose of antitrust law should be maximizing efficiency and keeping low consumer prices. These two key tenets of the current antitrust paradigm are the reason that so many antitrust debates operate within a microscopic Overton window heavily guarded by a small club of economists.

Baker is at the apex of his profession. He teaches at American University, but he is no ivory tower academic: He has worked at the beating heart of antitrust in two Democratic administrations. He was the Chief Economist at the FCC for President Obama, the Director of the Bureau of Economics at the FTC under Bill Clinton, the co-author of an antitrust casebook, the former Chair of Antitrust Law Journal, and a member of the Council of the American Bar Association’s Section of Antitrust Law. He got his law degree from Harvard and his Ph.D. in economics from Stanford University. And while he argues that we must act quickly to overhaul antitrust, he does not want to disturb the prevailing answer to the most fundamental question: Who makes policy about the shape of power in society? His answer: modern professional economists.

However, for most of American history, the answer was “the public.” One hundred years ago, people understood that antitrust policy was as essential as tax policy to a politician’s economic vision, and as essential as campaign finance reform to a vision of democracy. The 1912 presidential campaign was defined by four different visions of antitrust. Consolidation and its virtues and discontents was a topic debated in every home. Even after FDR’s New Deal antitrust experiment proved wildly effective, everybody understood that a strong antitrust policy was Congress’s job. The civil rights icon Phil Hart, the Michigander who became known as the “Conscience of the Senate,” went to his death bed working on antitrust. One of his last acts was cosponsoring a major antitrust bill giving state attorneys general power to bring antitrust lawsuits. In 1979, Ted Kennedy proposed a bill that would have prohibited mergers between companies with assets or sales exceeding $2 billion, or $6 billion in today’s dollars. It was a hot topic. Economists had a role, but as advisors, not deciders. Kennedy wasn’t about to defer to courts, which in turn were deferring to economists, without a big public debate. Antitrust was made for the people, by the people’s representatives.

Antitrust’s Lily Ledbetter problem, exemplified by the Baker paradigm, is that antitrust, and antimonopoly policy more broadly, have been triply de-politicized in the last 40 years. The mainstream antitrust bar does not seriously recognize antitrust as a site for congressional action. We have almost a cognitive failure, an inability to even imagine Congress in the driver’s seat. As a result, we don’t tend to talk about new antitrust laws. Instead, there is an almost sacred treatment of the Sherman Act, Clayton Act, and Hart-Scott-Rodino Act—a sacredness that approaches that of the Constitution. Debate about change happens assuming that interpretation of existing statutes changes, not that legislation changes. This leads to the first depoliticization: When Baker talks about economist-led antitrust, these economists are not advising members of Congress, i.e. the peoples’ representatives, but judges. The paradigm bleeds into state legislatures, who have independent authority to pass antitrust laws, but instinctively defer to federal judicial interpretation of federal statutes.

The second depoliticaliziation is the crowning of economists as the deciders, an act that shuts the public out of debates about their own economy, because the language, as Baker recognizes, is highly technical. The third depoliticization is the work that Robert Bork, Richard Posner, and the Chicago School did in excising the political goals of antitrust from the beloved old statutes, despite all the history showing that they were designed to protect against oligarchic power.

As a result of the triple depoliticization, people don’t protest mergers, don’t ask candidates about antitrust. Take the wildly unpopular Bayer-Monsanto merger: One poll showed that more than 90 percent of farmers were concerned about prices, data, control, and the new behemoth using its power in one sector to dominate another. But when the merger was waived through by the FTC, no Senator proposed the “Monsanto/Bayer Antitrust Modernization Act of 2018,” overhauling merger standards.

Fortunately, this all has been changing in this year’s presidential campaign, where Elizabeth Warren proposed significant legislative changes to the antimonopoly laws governing Big Tech, Amy Klobuchar has introduced antitrust legislation, and John Hickenlooper savaged existing antitrust law in a Medium post, promising to “support legislation to restore the Clayton Anti-Trust Act to its original purpose of encouraging competition.” Klobuchar, Warren, and Bernie Sanders have all talked about changing antitrust laws with reference to agricultural consolidation. Baker seems more worried than enlivened by these new challenges to the status quo. While Baker has many incisive criticisms of particular features of judicial precedent, he fundamentally supports antitrust’s depoliticization in a way that labor law experts, family law experts, immigration law experts, and tax law experts do not. In all of those fields, by contrast, the leading experts propose legislation, or take views on proposals. Baker accepts, but does not explore, why the antitrust paradigm for congressional change is so different than these other fields.

To be fair, Baker doesn’t lay the entire responsibility of reform on judges, and also sees the essential role antitrust agencies can play in enforcing of antitrust laws. I agree with him here. Congress created the FTC as a rebuke to what it saw as a power grab by the courts. With an engaged Congress, and the antitrust agencies can be a useful tool in democratic-antitrust, and previously played a critical institutional role, applying broad standards to quickly-changing on-the-ground facts.

Baker explains his preference for courts over an engaged Congress and engaged public in part by recognizing the institutional flexibility of courts, but mostly by worrying about politics. Laws that are too strong could lead to backlash. He argues that big donors have so much power that it is unlikely that Congress will act. “Noninterventionism will continue to win the lion’s share of campaign-finance support, as large donors and their firms tend to benefit from hands-off market-power regulation,” he writes. One can hardly imagine a labor lawyer using the same justification for legislative changes to the Federal Arbitration Act; realism need not mean defeatism.

Let us examine what Baker’s anti-politics antitrust means in practice. In 1993, the Supreme Court made up a new concept regarding predatory pricing. The new framework was not in the history or text of the Sherman Act, but based in economic theory. In the wake of the new rule, it has become almost impossible to bring a predatory pricing claim, at the same time as the existing rule makes it way too easy for firms–especially information technology platforms–to engage in a form of unfair competition that ends up hurting consumers and prices. As a result, predation has become far more routine. Baker sees the problem, and thinks that “the price-cost safe harbor strikes an inappropriate error-cost balance and should be abandoned or modified.” But he does not propose legislation; instead, “courts should employ or modify presumptions.”

Baker’s thesis is pro-political in one sense: He sees antitrust as a successful bargain between “consumers and producers” who came to a “political equilibrium that increased their joint surplus.” He sees his reforms as essential to restoring that equilibrium. But in fact, they are even more profoundly anti-political. He explicitly argues for a “technical, economic-oriented analysis” instead of what he calls “progressive” or “populist” “antitrust.” Baker’s clarion call for reform comes not from fear of plutocracy, but fear of inefficiency, and a fear of politics. The “urgent” need for new antitrust enforcement flows from the fact that the existing market power problems could lead to a public demand for draconian action, which in turn could lead to companies being designed as public utilities, which would produce “dramatic efficiency declines.”

In taking this posture, Baker joins a longstanding debate about the purposes of antitrust law. On the one side are Bork and Posner and 40 years of leading thinkers; on the other are Brandeis and FDR and more than a 100 years of thinking. Because of the increasing oligarchy and monopoly-driven inequality in our country, the camp that sees antitrust as a critical tool to preserve our political institutions is quickly growing in strength. Concentrated economic power becomes a form of government in and of itself, the thinking goes, and both corrupts our democratic institutions and replaces them. I am firmly in this camp; am writing a book about it; and am cited in passing in Baker’s book.

Baker thinks this approach is wrong and dangerous. Defeating this argument is a central part of his introduction, and he devotes a chapter to it, called “preventing the political abuse of antitrust.” Baker argues that antitrust law may incidentally serve the ends of protecting political institutions, but as lawyers we ought not see such protection as one of antitrust laws’ purposes. For instance, bribery laws are “political” in that they serve the ends of protecting democracy: No one would care if in a particular case a bribe “improved efficiency.” So too do campaign finance limits and reporting requirements. He argues that antitrust should not join with these statutes in the category of “laws that protect democracy.”

His arguments in this section are all a little strange. First, he argues that structural antitrust didn’t work when it existed before. Here he is simply unpersuasive and if anything only accidentally creates arguments for a stronger structural antitrust than that which existed through the 1970s. He argues that deconcentration efforts (that is, breaking up big companies) between the 1940s and 1970s were not that successful, and while the old rules “presumably deterred anticompetitive combinations, they did not prevent the growth of large conglomerates.” But he is simply wrong here, and knows it: As he himself details elsewhere, the economy is far more concentrated now than in the 1970s. And the fact that a few big fish got away is not a good argument against a fishnet, it is an argument for a stronger fishnet. Second, he argues that treating antitrust as a key democratic tool could invite more criticism and a stronger backlash in the Chicago realm. This claim is essentially an appeal to fear masked as an appeal to strategy; if we act to constrain power, the powerful forces will surely try to stop us. He argues that a return to the political roots of antitrust is superfluous, because laws wouldn’t be written differently if they had different goals: This doesn’t hold water. Those who argue for a democratic role for antitrust also argue for stronger laws.

His final argument is his weakest—that there is a risk that a populist understanding of antitrust would lead to judges making individual political judgments in individual cases. He acknowledges that this didn’t happen in the 1940s-1970s, and today no one advocates for it—least of all those, like me, who believe that antitrust serves democratic ends. If a President directs antitrust agencies to punish enemies and reward friends, we all agree that is an antitrust disaster. But the right response to a fear of political decision-making is congressional intervention to write better laws, not to get rid of the purpose of the laws.

While I found Baker unconvincing on his major theses, the book is nevertheless an extremely valuable contribution to what he rightly notes is one of the most compelling current debates. One of the great services Baker performs in this book is in showing how the current paradigm fails even on its own terms. He concludes, bluntly, that the Bork/Posner approach is “no longer credible.” If, in the current antitrust paradigm, laws should serve efficiency, which should result in low consumer prices, and neither is achieved, then we have a significant problem. Baker deftly summarizes the growing evidence from within the prevailing economic academy: Business investments are down, we are facing a four-decade decline in start-ups; and while the most profitable firms are making far larger profits, the least profitable ones are making less. Innovation is threatened. Lobbying is up. Hospital consolidation is leading to rising prices in health care. And consolidation is happening rapidly across the board. He points out that markets are highly concentrated, and he acknowledges that there is ample reason to think that tacit collusion between big firms that dominate markets is routine, leading to higher prices. Recent evidence shows that current law has systematically allowed mergers that have led to post-merger price-hikes. Moreover, he points out that large investors, like BlackRock, routinely have significant stakes in multiple companies in a single, concentrated market; the kind of stakes that would mean management would have to return their phone calls. He points out that we should be skeptical that these investors are genuinely interested in the companies competing against each other on all valences. Finally—and he spends time unraveling this, and the dangers of tech, in more detail—the tech sector is heavily concentrated, and has ample opportunity for serving itself at the expense of consumer price. In a later chapter, he effectively debunks arguments against a tougher, more interventionist antitrust.

When it comes down it, the heart of Baker’s argument goes something like this: We should maintain the efficiency paradigm of modern (1980-present day) antitrust, while changing the legal presumptions in several cases; but we should not change the presumptions so much that we return to a structural approach. Modern antitrust has failed on its own terms, so let us keep the governing principle (efficiency) but recover some of the old tools that will help us get there. Judges, listening to economists, should lead the charge.

The book is a valuable compendium of an array of other, more technical arguments that I will not engage here, including a valuable discussion of tech platforms. I recommend it to anyone who wants to understand the best version of how efficiency-based antitrust works, and could work better. While I deeply disagree with Baker’s approach, I always learn from it.

Clearly, we are in a new, exciting antitrust moment in America. Four years ago antitrust wasn’t even on the Democratic Party platform; today it is at the heart of dozens of challenging debates. The ideas of this book will likely show up in the 2020 presidential debates as all candidates face having to get beyond platitudes about monopoly and explain what they think antitrust is for and how it should be enforced. And who, accountable to whom, is responsible for reform.

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Zephyr Teachout is an Associate Professor at Fordham Law School, the author of Break ‘em Up: Recovering our Freedom from Big Ag, Big Tech, and Big Money and Corruption in America: From Benjamin Franklin’s Snuff Box to Citizens United. She is the former candidate for New York State Attorney General, a former National Director of the Sunlight Foundation, and serves on the Board of CREW.

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