The Double Standard of Antitrust Law

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Employees walk through a lobby at Amazon's headquarters in Seattle. 

This article appears in the Summer 2019 issue of The American Prospect magazine. Subscribe here.

Antitrust law, established originally to limit corporate power, has become its friend. Think about the following anomalies:

• If a group of independent truck drivers forms an association to jointly bargain their prices, that combination is a cartel: automatically illegal, perhaps criminal. But if the same truck drivers go to work for a company that charges customers for their services on a single price schedule, there is no antitrust violation, even though this arrangement suppresses price competition precisely to the same extent. What is illegal outside a corporation is legal within it.

• If a group of small suppliers gets together to jointly bargain with Amazon for a better deal, that too is an illegal cartel. But if Amazon contracts with them and charges the same price for their goods, there is nothing illegal about it.

• If drivers for Uber join in an association to demand higher pay, the competition authorities currently assume that their joint action is illegal. But Uber itself has evaded antitrust scrutiny even though it fixes the prices that customers pay for the drivers’ services.

All these anomalies stem from the same double standard. Antitrust law has come to reinforce the power of large business firms, while preventing workers, small producers, and micro-enterprises from exercising collective power. Markets and economic activity can be coordinated in a variety of ways—in fact, economic coordination of one kind or another is inevitable. Under prevailing legal doctrine, however, the courts have made the large corporation the principal means of economic coordination and excluded other forms, putting aside all considerations of fairness.

By preventing associations of workers or small producers from coordinating their activities, the evolution of antitrust has contributed significantly to the rising inequalities of the past half-century. Millions of people now work as independent contractors and suppliers who in the past would have been employees. But if they try to organize, they run afoul of the antitrust laws.

Antitrust law today defines a variety of worker and producer associations as cartels and assumes that they lack “productive efficiencies”—yet it automatically imputes these efficiencies to business firms that dominate markets. Consequently, the law grants economic coordination rights to firms that it denies to other forms of association. In addition, when firms seek to merge with one another, the law permits them to prove that the merger will have social and economic benefits or even assumes those benefits. That opportunity to demonstrate advantages, however, is denied to an otherwise similar economic association of individual or small producers, service providers, or firms.

The business firm has long enjoyed a kind of “exemption” from antitrust. But over time, the attitude of antitrust authorities toward other forms of economic coordination has hardened, while their attitude to the firm itself has softened. At its root, this special treatment reflects a preference for economic coordination through hierarchical authority.

Antitrust authorities have come to favor top-down corporate organization without being required to demonstrate its advantages empirically, much less to defend the political and moral choice that preference represents. Maybe some top-down command relationships are cost-minimizing; maybe they are not. Maybe other sorts of economic organization, more democratically and equitably organized, can be cost-minimizing in similar ways while also supplying other social and economic benefits.

Antitrust law has never addressed these questions because it has not grappled with the fact that economic coordination is inescapable. Instead, both the antitrust establishment and even some of today’s antitrust reformers suppose that the ideal of pure competition supplies all necessary criteria to resolve rival claims, while remaining blind to the special treatment given inherently competition-suppressing corporations. If we have any hope of rectifying the inequalities in today’s economy, we need to re-examine antitrust and rethink how it should work.

 

How Antitrust Was Turned Upside Down

Although federal antitrust law has become a means for the strong to dominate the weak, it was originally enacted to help balance power in society. Its legislative and popular purpose was to deconcentrate economic power. Legislators at the time the antitrust laws were originally enacted did wish to preserve competition in the sense of healthy business rivalry. But they had no concept of ideal prices as defined by a perfectly competitive market and sought to balance the power of business with other democratic interests.

The popular anti-monopoly movement that ultimately produced the Sherman Act of 1890 comprised both small farmers and wage workers organized in the Knights of Labor, the major American labor organization of the time. Contrary to an influential misreading of the legislative history, the intent of Congress was not to promote low consumer prices as such. Legislators were worried about the subjection of ordinary people, as both consumers and producers, to the power of the newly emerging business corporations. When Senator John Sherman introduced the bill, he described it as a means of addressing the “inequality of condition, of wealth, and opportunity that has grown within a single generation out of the concentration of capital into vast combinations to control production and trade.” Legislators did not intend to prohibit economic cooperation among workers, small farmers, and other small producers. 

Nevertheless, the courts went on to use the statute to punish and inhibit labor strikes and other expressions of solidarity almost as soon as it was passed, ruling them conspiracies in restraint of trade. The often-terrifying “government by injunction” to which American working people were subjected undermined the nascent labor movement. In the same era, federal courts also struck down publicly legislated forms of market coordination such as wage-and-hour laws on the grounds that they violated individual freedom of contract. Ironically, the same judges twisted the antitrust law in order to subvert workers’ rights to contract freely through their own voluntary associations.

The New Deal order only partially and temporarily rectified this situation. With the National Labor Relations Act in 1935, Congress recognized workers’ right to organize unions and bargain collectively, thereby extending to working people a voice in economic coordination. But in 1947, when it passed the Taft-Hartley Act, Congress imposed several critical limitations on unions, including a ban on secondary boycotts, outlawing the community-wide expressions of solidarity that had led to the recognition of unions and union contracts in the first place.

Meanwhile, antitrust law in the New Deal era became more committed to the aim of dispersing private power. Yet even liberal policymakers and judges also gradually adopted the framework of the competitive order associated with neoclassical economic theory. Meanwhile, during the mid-20th century, a group of lawyers and economists—many of them at the University of Chicago and hence known as the Chicago school—were busy figuring out how to reverse New Deal policies in antitrust and other areas with arguments that they claimed to draw from economic theory. The Chicago school finally succeeded in implementing that vision beginning in the 1970s, in antitrust and beyond.

Robert Bork, a professor at Yale Law School and later a federal judge, exerted the most influence among Chicago school theorists upon antitrust law. For Bork, the ultimate purpose of antitrust law was consumer welfare, though his writing on the subject is ambiguous about the meaning of that standard. Consumer welfare, as he used that concept, could refer to either lower consumer prices or competitive prices, which may not be the same thing. This basic ambiguity persists today.

According to the Chicago school, any cooperation between economic equals or participants in the same market distorts the competitive order. That understanding was imported into antitrust in the form of a much stronger rule against economic cooperation among relative equals, even individuals and workers, than courts previously imposed. Bork admitted that mergers among big firms were even more competition-suppressing than combinations of small producers. But he argued that antitrust law ought to be much more tolerant of market concentration and large firms, including those formed through mergers and acquisitions. His rationale was that firms enjoy economies of scale and other cost advantages and would pass those savings on to consumers.

Antitrust policy, Bork contended, had long made an exception for economic coordination by firms—and he was not wholly wrong. But earlier understandings of antitrust limited how far that exception could be taken. Bork effectively magnified the firm exception by insisting that the benefits of firm-based coordination outweighed the dangers of market concentration. These claims have no basis in economic theory itself; they are debatable empirical claims. Yet Bork traded on the intellectual prestige of mainstream economics in order to turn these defenses of big business into uncontested legal rules. He also passed off as a neutral social-scientific principle what was essentially a political choice, in favor of corporate hierarchy over democratic cooperation.

The effects of defining economic associations among small players as per se illegal have become especially stark with the breakdown of labor unions and traditional employment today. Many working people, driven out of unions and even out of statutory employment relationships, seek to coordinate directly among themselves as individual service providers or producers, only to have those organizations prosecuted or threatened with prosecution as cartels. Antitrust has prevented numerous individual service providers and small producers in trade associations, guilds, and similar organizations from engaging in coordination. The Federal Trade Commission, for example, has recently investigated and prosecuted guilds and associations of piano teachers, ice-skating instructors, and church organists. Many more don’t bother to try to engage in cooperation at all, for fear of antitrust prosecution.

Deemed independent entrepreneurs by firms like Uber and Lyft, the drivers in the app-based ride services sector are among those presumptively denied the right to organize collectively under the antitrust laws. When the city of Seattle recently sought to give them a right to collective bargaining, business interests immediately challenged the ordinance in court as preempted by federal antitrust law. After an unfavorable court ruling, Seattle removed payments to drivers—the key issue and the determinant of other working conditions—from the ordinance’s subjects of collective bargaining. That case did not reach the merits of antitrust liability for collective action. But as long as federal law views associations of independent workers and suppliers as cartels, local measures that seek to help them defend their interests face an uphill battle at best.

 

What Is the Alternative?

“Antitrust,” Bork wrote, “is a subcategory of ideology, and by the time a once militant ideology triumphs … its adherents are likely long since to have left off debating first principles.” That is exactly what has happened under Bork’s influence. Aided by a complex technical apparatus, Bork’s ideological recasting of antitrust successfully cut off debate about first principles and masked political choices as neutral economic ones.

While public interest in limiting monopoly power has been on the rise, proposals to reform antitrust have, at least until recently, generally stopped short of questioning the idea that its primary function is to promote competition. Progressive antitrust reformers have mainly wanted to see antitrust laws enforced more vigorously against big business.

But while antitrust law ought to be more aggressive in some respects, it should be less aggressive in others. Rather than automatically barring associations of independent contractors and other small suppliers, the law should be open to democratic forms of economic coordination. Such forms of coordination ought to be accepted when they confer social benefits without creating undue power imbalances. Those social benefits include not only healthy business rivalry but also living wages for workers, sustainable returns for businesses, and human and ecological flourishing.

This more balanced approach could address the anomalies I mentioned at the outset. A joint-bargaining agency of independent truck drivers ought to be no less eligible than a trucking firm for recognition as a legitimate form of economic coordination. Such an association could confer many of the social benefits typically claimed for firms as well as benefits that they fail to provide. For example, such associations might avoid firms’ one-sided devotion to short-term shareholder interests that has eroded patient investment in technology, workers, and communities.

Of course, not all coordination, even relatively democratic coordination between smaller players, is always good. Coordination that results in undue power over other groups—consumers, workers, or other producers—should not be permitted. To help determine the benefits and disadvantages in particular cases, the Federal Trade Commission ought to take up the task it was originally given of studying various markets and sectors.

The central reality is this: Economic life requires coordination and therefore antitrust law is unavoidably involved in allocating and regulating economic coordination rights. Governments can do that job efficiently or inefficiently, justly or unjustly. But they must do it, and therefore they should try to do it fairly, balancing power in society. That was the original purpose of antitrust law, and we ought to recover that tradition and build on it to deal with the inequalities we confront today.  

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