This week, the Biden administration very quietly published a manifesto for a counterrevolution. It didn’t arrive trumpeted with flaming rhetoric. There was no televised speech or Oval Office photo op–just a draft memo from the Justice Department and Federal Trade Commission laying out the new standards they will use to assess the legality of corporate mergers. This is, to say the least, not the most scintillating piece of reading that will be released this year. But it may turn out to be one of the most consequential.
The revolution being countered started pretty quietly too. For most of the New Deal and postwar years, the U.S. government took an aggressive stance on mergers. Concentrated economic power was understood to threaten core American values, and even to have helped trigger the Great Depression. The antitrust agencies tended to be suspicious of corporate deals even when the parties involved were nowhere close to dominating the market. This consensus began to wobble in the 1970s; the arrival of the Reagan era flipped it on its head. In 1982, the administration issued its own merger guidelines making clear that the days of aggressive antitrust enforcement were over.
This was not huge news at the time. Kids today certainly don’t read about it in history class. And yet the impact of the policy shift, along with court rulings limiting the scope of antitrust law, has been enormous. In the four decades since, the American economy has grown dangerously concentrated, dominated by a shrinking number of airlines, banks, tech companies, and pharmaceutical firms (to name just a few examples). Corporate titans have amassed outsize influence over the political process, smothered start-ups, and often treated consumers with shocking indifference. Study any dysfunction in American economic life long enough–runaway health-care costs, baby-formula shortages, regional inequality–and you’re likely to find corporate concentration among the causes.
Why did the Reaganites do this? They were in thrall to the idea that the highest, in fact the only, valid goal of economic policy is efficiency–defined narrowly as the maximum output for the lowest prices. And they believed that Big Business was inherently efficient. They were devastatingly successful at entrenching that view. For two generations, their version of efficiency became the driving logic of competition policy (and other areas, including trade), regardless of the party in power. Concern for how monopoly power might affect workers, small-town businesses, or even democracy itself dropped out of the analysis. The Obama administration’s 2010 guidelines, for example, exempted even more mergers from review and praised corporate deals for their “potential to generate significant efficiencies and thus enhance the merged firm’s ability and incentive to compete.”
One of the most overlooked features of the Biden administration has been its willingness to challenge the efficiency fetish. The merger guidelines are its most frontal assault to date. In the view of Biden’s antitrust officials, Washington’s turn toward efficiency–a word that doesn’t appear in any antitrust statute–substituted the preferences of libertarian economics professors for the laws that Congress actually passed. The new guidelines seek to undo that. They don’t reject economic analysis. But their guiding theory is that corporations ought to be prevented from acquiring the kind of power that enables abuses, even if econometric models promise some sort of efficiency gain.
If the new standards were applied retrospectively, some of the splashiest mergers of recent memory would probably not have been allowed to happen, at least not without a fight. Think Exxon and Mobil, United and Continental, Amazon and Whole Foods, and so on. Smaller deals could have been challenged too, because the new guidelines recognize that a lot of little mergers can add up to monopoly power over time. Facebook might have been denied its purchase of the virtual-reality company Oculus. Google might not have been allowed to roll up the digital-advertising market.
Perhaps the clearest example of the new approach is the guidelines’ insistence that the government scrutinize how mergers might hurt workers, not just consumers. This builds on the Justice Department’s successful lawsuit to block Penguin Random House from acquiring Simon & Schuster. In that case, the government argued that the deal would have resulted in smaller advances for authors, because one fewer publishing firm would be competing for their talents. The effect on writers was more important than whatever supposed efficiencies might have flowed from the consolidation of the industry.
In the age of polarization, each political party has learned to exploit the power of the executive branch to the hilt. Unable to use the closely divided Congress to achieve their goals, administrations rely on the far flimsier power of fiat. In fact, the Reaganites helped pioneer the tactic of revolution by government memo. They saw their merger guidelines as a way to change the law without any actual legislation. As one concerned observer put it at the time, “Under the guise of regularizing discretion, the antitrust laws are being amended without benefit of congressional action.”
The flaw in this approach is obvious enough: Any executive action can be reversed by the next administration. But bureaucratic policies also have the potential to stick, if skillfully conceived. They can manage not just to survive legal challenges, but to become enmeshed in the culture of the civil service. In the case of the merger guidelines, there’s the further hope that the populist wing of the Republican Party might embrace the policy out of a shared concern with the power of Big Tech.
The Biden merger guidelines have been built to sustain future attempts at dislodging them. Despite their radical intentions, they pose as an act of modest interpretation of judicial precedent. Every new policy is presented as the faithful expression of existing law, amply footnoted. The implicit argument is that the discipline of antitrust has been eroded from within, captured and distorted by market fundamentalists from the Chicago school of economics. These guidelines present themselves as merely a reversion to the laws as originally conceived and written.
Will that gambit work? As the name implies, the guidelines don’t have the force of law. Ultimately, the fate of a merger challenge is usually decided by a federal judge. Just last week, the FTC lost its effort to stop Microsoft from closing its $69 billion deal for the video-game developer Activision. The federal judge who ruled against the agency is a Biden appointee.
Critics will also argue that the new framework is divorced from economic reality and warn that it will result in higher prices. In fact, efficiency-focused antitrust appears to have failed under its own terms: The leading analysis to date finds that mergers have been more likely to raise consumer prices than lower them. But on some level, to focus on price effects is to miss the point. Efficiency was the coldest metric for evaluating a merger. It reduced Americans into the stylized economic caricature known as the “consumer,” treating cheap goods as our highest and only aspiration. The new guidelines inject a bit of humanity back into the calculus. And they suggest that the ultimate question for government shouldn’t be whether something is efficient, but whether it’s right.
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