The Curse of Bigness: Antitrust in the New Gilded Age

by Tim Wu

The better lesson from the twentieth century is that less angry alternatives work: programs to aid the unemployed and the aged, to protect workers and labor, and other efforts to blunt the harshness and disparity inherent to unrestrained capitalism. And in the United States, there was born a different movement and a different approach to tackling the structural origins of accumulated private power, named after its target, the trusts—hence the “antitrust” laws.

It would be an exaggeration to suggest that antitrust provides a full answer to either inequality or other economic woes. But it does strike at the root cause of private political power—the economic concentration that facilitates political action.

During just one decade, from 1895 to 1904, at least 2,274 manufacturing firms merged, leaving behind 157 corporations, most of which dominated their industries.* By the early 1900s, nearly every major industry in the United States was either already controlled by, or coming under the control of, a single monopolist.

To be fair, he and other Social Darwinists did lend support in one form of state intervention: eugenics campaigns meant to cull the physically and mentally disabled, and thereby help speed up the coming of the new age. John D. Rockefeller, Jr., would personally fund an initiative to sterilize some 15 million Americans, for, as Spencer put it, “The forces which are working out the great scheme of perfect happiness… exterminate such sections of mankind as stand in their way, with the same sternness that they exterminate beasts of prey and herds of useless ruminants.”

it also led to the passage of the first antitrust law, the Sherman Act, enacted in 1890, during the first furious wave of reactions to the rise of the trusts. The law was named after its original sponsor, Senator John Sherman, an Ohio Republican who was the younger brother of the Civil War general William Tecumseh Sherman. While it was clear that the law was meant to address the “Trust Problem,” like many laws, the reasons stated for its passage were many and varied, reflecting a then-recent debate over tariff policy, as well as the interests of small producers, farmers, and others, as modified by the usual dealmaking and compromises. The language of the law is extremely broad. In section one it bans “every contract, combination in the form of trust or otherwise … in restraint of trade.” In section two it declares that “every person who shall monopolize, or attempt to monopolize … any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.”

He put it this way in 1911: “We are in a position, after the experience of the last twenty years, to state two things: In the first place, that a corporation may well be too large to be the most efficient instrument of production and of distribution, and, in the second place, whether it has exceeded the point of greatest economic efficiency or not, it may be too large to be tolerated among the people who desire to be free.”

As he said: “The ‘right to life’ guaranteed by our Constitution” should be understood as “the right to live, and not merely to exist. In order to live men must have the opportunity of developing their faculties; and they must live under conditions in which their faculties may develop naturally and healthily.”

But it also meant freedom from industrial domination, exploitation, or so much economic insecurity that one could not really live without fear of unemployment and poverty. “Men are not free,” he wrote, “if dependent industrially on the arbitrary will of another.” Economic security was a foundation on which one could really be free in a meaningful sense—hence the importance of steady but not oppressive work, of education, time and space for leisure, parks, libraries, and other institutions.

What Brandeis noticed is something we often ignore. We like to speak of freedoms in the abstract, but for most people, a sense of autonomy is more influenced by private forces and economic structure than by government. For many if not most people, the conditions of work determine how much of life is lived—such basic matters as the length of hours worked, the threat of being fired, harassment or mistreatment by a boss, and for some jobs, questions as fundamental as personal safety or access to a bathroom. Beyond work, our daily lives are shaped profoundly by economic matters like rent, access to transportation or groceries, and health insurance, even more so than any abstract freedoms. That is why Brandeis saw real freedom as freedom from both public and private coercion.*

If he had a unifying principle, politically and economically, it is what we have said: that concentrated power in any form is dangerous, that institutions should be built to human scale, and that society should pursue human ends. Every institution, public and private, runs the risks of taking on a life of its own, putting its own interests above those of the humans it was supposedly created to serve.

antitrust law was serving as a new kind of limit: a check on private power, by preventing the growth of monopoly corporations into something that might transcend the power of elected government to control. His pursuit of this goal makes it fair to call Roosevelt the pioneer of political antitrust.

The trusts seemed to come with a new system—a “dual morality,” which arguably came to its fullest flower later in the writings of novelist Ayn Rand. It was a morality that would come to celebrate brutality in commerce, and the holding of one set of ethical or moral rules for personal dealings, and another very different set of rules for business.

Justice Harlan concurred in the dissolution of Standard Oil, but was incensed by the Court’s implicit holding that a “reasonable” conduct might not be condemned. In memorable fashion, he restated the origins and purposes of the Sherman Act: All who recall the condition of the country in 1890 will remember that there was everywhere, among the people generally, a deep feeling of unrest. The nation had been rid of human slavery, fortunately, as all now feel—but the conviction was universal that the country was in real danger from another kind of slavery sought to be fastened on the American people; namely, the slavery that would result from aggregations of capital in the hands of a few individuals and corporations controlling, for their own profit and advantage exclusively, the entire business of the country, including the production and sale of the necessaries of life. Such a danger was thought to be then imminent, and all felt that it must be met firmly and by such statutory regulations as would adequately protect the people against oppression and wrong.

As a business gets larger, it begins to enjoy a different kind of advantage having less to do with efficiencies of operation, and more to do with its ability to wield economic and political power, by itself or in conjunction with others. In other words, a firm may not actually become more efficient as it gets larger, but may become better at raising prices or keeping out competitors.

Reflecting the mood, President Kennedy’s antitrust chief, Lee Loevinger, would testify before Congress as follows: “The problems with which the antitrust laws are concerned—the problems of distribution of power within society—are second only to the questions of survival in the face of threats of nuclear weapons.”

Hitler’s rise and exercise of power were facilitated by the German Republic’s tolerance of monopolies in key industries, including the Krupp armaments company, Siemens railroad and infrastructure, and, most of all, the I.G. Farben chemical cartel. As a report by the Secretary of War concluded: “Germany under the Nazi set-up built up a great series of industrial monopolies in steel, rubber, coal, and other materials. The monopolies soon got control of Germany, brought Hitler to power, and forced virtually the whole world into war.” That conclusion came from the observation that the main German monopolists, over the 1930s, threw their weight behind the Nazi regime when it lacked support among other key groups, and that each ultimately became deeply allied with and enmeshed in the German war effort.

As Senator Estes Kefauver put it: I think we must decide very quickly what sort of country we want to live in. The present trend of great corporations to increase their economic power is the antithesis of meritorious competitive development … Through monopolistic mergers the people are losing power to direct their own economic welfare. When they lose the power to direct their economic welfare they also lose the means to direct their political future.

As Donald Dewey writes, “not a single American-trained economist of any prominence questioned the desirability of antitrust in the interwar years.” Given this baseline, the fact that mainstream antitrust economics would come to tolerate and even celebrate monopoly makes for an extraordinary tale.

Bork’s signal contribution was this. He took Director’s “consumer welfare” idea—that antitrust was intended only to lower prices for consumers—and argued that it was not merely what an economist like Director thought the law should do, but that it had been, all along, the actual intent of the laws. Working with his Chicago allies, he then created a fully formed alternative account of what the antitrust laws should do and not do, in a book entitled The Antitrust Paradox. In 1964, when he first presented the thesis, it was considered absurd and even insane. But within twenty years he’d manage to convince a majority of the Supreme Court to adopt his position.

That was a tone set by AT&T’s first true ruler, Theodore Vail, who had made his reasoning moralistic: Competition was giving American business a bad name. “The vicious acts associated with aggressive competition are responsible for much, if not all, of the present antagonism in the public mind to business, particularly to large business.”

Jumping from theory to reality in a novel way, the Chicago School then asserted that that which did not exist in theory probably did not exist in practice. Robbing banks is economically irrational, given security guards and meager returns; ergo bank robbing does not happen; ergo there is no need for the criminal law. Exaggerated only slightly, this premise has been at the core of Bork-Chicago antitrust for more than thirty years.

After pausing briefly to settle the Microsoft case, the Bush Justice Department proceeded to bring a grand total of zero anti-monopoly antitrust cases over a period of eight years, and did not block any major mergers.

If one wanted to mark a point as the fall of Brandeisian antitrust, it would be 2004, when the Supreme Court, under Justice Antonin Scalia, elevated what was once called “the evil of monopoly” to something different: an essential motivating factor within the American economy. In an unnecessary aside, Scalia wrote: The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth.

First and most importantly, IBM dropped its practice of bundling (or tying) its software with hardware. That is broadly understood, even by IBM’s own people, to have kickstarted the birth of an independent software industry. Second, the IBM litigation also affected the development of the personal computer industry in the late 1970s and early 1980s. The IBM PC, developed while the lawsuit was still pending, was antitrust proof: IBM went with an extremely open design and declined to buy or exert excessive control over the firms who made the components, including Intel, Seagate, and Microsoft, among others. IBM actually entered the personal computer market gingerly, and separately from its other products.

The man who described the mood was author John Perry Barlow, who in the 1990s implored those interested in cyberspace to “imagine a place where trespassers leave no footprints, where goods can be stolen an infinite number of times and yet remain in the possession of their original owners, where businesses you never heard of can own the history of your personal affairs, where only children feel completely at home, where the physics is that of thought rather than things, and where everyone is as virtual as the shadows in Plato’s cave.”

In total, Facebook managed to string together 67 unchallenged acquisitions, which seems impressive, unless you consider that Amazon undertook 91 and Google got away with 214 (a few of which were conditioned). In this way, the tech industry became essentially composed of just a few giant trusts: Google for search and related industries, Facebook for social media, Amazon for online commerce. While competitors remained in the wings, their positions became marginalized with every passing day.