This week, the Biden administration made a significant but understated move by publishing a memo from the Justice Department and Federal Trade Commission outlining new standards for assessing the legality of corporate mergers. While not the most exciting piece of reading material, it has the potential to shape the future of American economic policy.
To understand the impact of this move, we have to go back to the New Deal and postwar years when the US government took a strong stance against mergers. It was understood that concentrated economic power posed a threat to fundamental American values and may have even contributed to the Great Depression. However, this consensus began to shift in the 1970s with the arrival of the Reagan era. The Reagan administration issued its own merger guidelines in 1982, marking a shift away from aggressive antitrust enforcement.
The consequences of this policy shift, combined with court rulings that limited the scope of antitrust law, have been significant. Over the past four decades, the American economy has become increasingly concentrated, with a small number of players dominating industries such as airlines, banks, tech companies, and pharmaceutical firms. This concentration of power has given corporate giants undue influence over the political process, stifled competition from startups, and often led to a disregard for consumer welfare. Corporate concentration has been identified as a contributing factor to many of the dysfunctions in American economic life.
So why did the Reagan administration make this shift? They were captivated by the idea that the sole objective of economic policy should be efficiency, defined narrowly as maximizing output at the lowest prices. They believed that Big Business inherently embodied efficiency. This belief became entrenched and guided competition policy for two generations, irrespective of which political party was in power. Concerns about the impact of monopoly power on workers, small businesses, and democracy itself were no longer given priority. The Obama administration’s 2010 guidelines, for example, exempted even more mergers from review and praised corporate deals for their potential to generate efficiencies and enhance competitiveness.
The Biden administration has shown a willingness to challenge this obsession with efficiency, and the new merger guidelines are a clear indication of that. They seek to address the substitution of libertarian economic preferences for the laws passed by Congress. While the guidelines still recognize the importance of economic analysis, their underlying principle is to prevent corporations from acquiring the type of power that leads to abuses, even if some efficiency gains are promised by econometric models.
If these new standards were applied retroactively, it is likely that many high-profile mergers of recent years would have faced scrutiny and possible rejection. Deals like Exxon and Mobil, United and Continental, and Amazon and Whole Foods may not have been allowed without a fight. Even smaller deals would have come under scrutiny, as the guidelines acknowledge that a series of smaller mergers can accumulate to create monopoly power over time. For example, Facebook’s acquisition of Oculus and Google’s consolidation of the digital-advertising market might have been challenged.
One notable feature of the new guidelines is their recognition that mergers can harm not just consumers but also workers. This stems from the Justice Department’s recent successful lawsuit to block Penguin Random House from acquiring Simon & Schuster. The government argued that the merger would result in smaller advances for authors, as there would be one less publisher competing for their work. The impact on writers was considered more significant than any supposed efficiencies gained from industry consolidation.
In an era of polarization, both political parties have learned to utilize the power of the executive branch to achieve their goals when the divided Congress becomes ineffective. Administrations rely on executive actions, which can be easily reversed by the next administration. However, well-crafted policies have the potential to withstand legal challenges and become ingrained in the civil service culture. The merger guidelines seek to sustain their impact by presenting themselves as a modest interpretation of existing law, rooted in judicial precedent. They aim to restore the original intent and language of antitrust laws, accusing market fundamentalists from the Chicago school of economics of distorting competition policy.
Whether these new guidelines will succeed depends on several factors. They do not hold the force of law, and the fate of a merger challenge is often determined by federal judges. Critics will argue that the framework disregards economic reality and may lead to higher prices. However, focusing solely on price effects misses the point. Efficiency was a cold metric that reduced Americans to mere consumers, prioritizing cheap goods above all else. The new guidelines inject a human element into the decision-making process, questioning not just whether something is efficient, but whether it is right.
In conclusion, the Biden administration’s publication of new merger guidelines marks a significant departure from the efficiency-driven approach of the past. It recognizes the dangers of concentrated economic power and aims to prevent corporations from acquiring excessive influence. By prioritizing both consumer and worker welfare, these guidelines seek to restore balance and ensure that economic decisions align with broader societal values. While their impact may face legal challenges and potential reversals in the future, they represent a shift towards a more holistic and thoughtful approach to competition policy.
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