Book Review: Concentration, Mergers, And Public Policy by Yale Brozen
FEBRUARY 01, 1983 by WILLIAM H. PETERSON
(Macmillan Publishing Co., Inc., 866 Third Avenue New York, N.Y. 10022), 1982 • 456 pages • $29.95 cloth
“The Darwinian jungle is not guaranteed to produce a happy ending. Influencing and corrupting governments may be the only thing conglomerates are better at—as is suggested by the IT&T scandals during the Allende Chile takeover and the Nixon Administration . . . . The Sherman and Clayton Acts, and most of the antitrust laws have contributed enormously toward improving the degree of competition in our system. All who value social reliance on decentralized markets and economic efficiency should applaud this kind of public intervention, which helps to lessen the imperfections of competition.”
So writes Nobel Laureate Paul A. Samuelson in his 10th edition of Economics, a widely translated college textbook which since 1948 has molded the thinking of literally millions of students, many of them now in high places, around the globe.
The Samuelson evaluation of antitrust is, sadly, conventional wisdom. And with America much in need of guidance and fundamental public policy reform to lead us out of the morass of interventionism, it is refreshing to welcome Yale Brozen’s Concentration, Mergers, and Public Policy, a carefully researched, evenhanded book which deals a body blow to antitrust theory and practice.
One pet antitrust dogma, for example, is concentration. Concentration, also known as oligopoly, reflects fewness of sellers. It also reflects bigness. Fewness and bigness, however, supposedly represent “restraint of trade” and “predatory power,” against which government agencies, chiefly the Federal Trade Commission and the Antitrust Division of the Justice Department, have spent a lot of money and energy. And these antitrusters have much to show for it: They have won a host of major antitrust suits, clubbing down bigness again and again.
The question is: Who won what? Certainly not the American consumer who’s seen competition not thus enhanced but, rather, set back. The Brozen work raises more interesting questions: Do large firms in a concentrated industry (frequently defined as four or fewer firms having 50% or more of the market share) really have the market power attributed to them? Are big corporations—the Fortune 500—less competitive and productive than smaller firms? Is the long-held animus of American government toward Big Business compatible with the optimum choices confronting the nation in the 1980′s? In particular, does antitrust really aid the search for solutions to the problems of growth, productivity, the efficient utilization of resources—of getting the country moving again? Answers, as clearly implied in this volume: No.
Brozen’s evidence is overwhelming. And notwithstanding scores if not hundreds of muckrakers like Ida Tarbell and Lincoln Steffens and innumerable economist-disciples of Joan Robinson (The Economics of Imperfect Competition) and Edward Chamberlain (The Theory of Monopolistic Competition), the evidence goes all the way back to the time of the passage of the Sherman Antitrust Act in 1890.
For example, that evil trust, Standard Oil, had an 88% market share in 1899 but this share was whittled down by competition to 67% in 1909, two years before the Supreme Court dismembered John D. Rockefeller’s giant. Again, American Sugar Refining’s 95% market share in 1892 was down to 49% in 1907 and to 28% in 1917. International Paper’s 66% share in 1898 slipped to 30% in 1911 and 24% in 1928. And U. S. Steel’s 66% share in 1901 fell to 33% in 1934 to 24% in 1968 and is down to around 19% today.
The steel market—once considered the exclusive province of steel giants—is itself a lesson in the undoing of antitrust mythology. Today the steel market, which is of course a far larger market than it was in 1901, is besieged by small streamlined “minimills” such as Nucor in Charlotte, North Carolina and Florida Steel in Tampa, by Japanese, Korean and European steel producers, and by, perhaps most interesting of all, producers of substitute materials such as aluminum, cop per, magnesium, glass, plastics, concrete (reinforced and prestressed), plywood and even impregnated cardboard.
Fortunately the lessons of multi-faceted competition are beginning to sink in here and there. In early 1982, for example, Assistant Attorney Genera] for Antitrust William Baxter withdrew the Justice Department’s case against IBM. The lawsuit, which had dragged through the courts for more than a decade, has cost the taxpayers millions of dollars and untold headaches for IBM, whose only crime was, apparently, bigness.
Concludes Yale Brozen in this perceptive work:
“To attack any firm at any time for expanding capacity stands antitrust on its head. To attack proposed conglomerate mergers on the ground that the capacity of the acquisition will be expanded by the acquiring firm is to attack the essence of what makes some conglomerate mergers desirable. Such attacks restrain trade. They are, themselves, a violation of the spirit of the antitrust laws. It is entry that destroys undetected collusion and polices entrepreneurial or managerial sloth. Entry barriers are the appropriate arena for antitrust action. The antitrust agencies are to be commended for beginning action in this arena in the last decade. Again, however, there is much confusion in the agencies and in the courts (and among economists) as to what constitutes a barrier. The only significant barriers are those administered by regulatory agencies and licensing authorities. Praise is due the antitrust agencies for beginning to move on these.”
Dr. Peterson is the director of the Center for Economic Education and the Scott L. Probasco Jr. Professor of Free Enterprise at the University of Tennessee at Chattanooga.