Evidence Card # 002

From Tom Meyer for use at Bainbridge College

After paired reading and sharing be sure to fill out  What do you think?  at the bottom of this webpage.

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A Culture of Law

In the US, the law is one of the main avenues in which social conflicts take place -- and get resolved.  Both businesses and individuals are far more likely to revert to the law to settle disputes.  One consequence of this is that the US has some of the strongest laws concerning competition of any industrialized country.

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The Strength Of One's Institutions

Under laws dating back to the 1890s, conspiracy and restraint of trade is a criminal offense -- and companies are treated like individuals, with their bosses personally responsible for their firm's actions.  But the strength of antitrust laws is also a reflection of the strength of business interests in a country which lacked other powerful groups, like the political elite, and beliefs which existed in Europe.

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A Long History of Strife Amid Progress

The antitrust laws currently struggling to regulate and control the excesses of big business are a product of 100 years of conflict.  In the late 19th century, the booming US economy entered a period of rapid consolidation.

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Do Trusts Concentrate Wealth?

A process for holding companies was created to bring together all the firms in a particular industry-- the sugar trust, the tobacco trust, the steel trust.  These trusts were vast enterprises that dominated their industry and in some cases, production worldwide.  No trust was bigger than standard oil owned by John D. Rockefeller.  In 1910 Mr. Rockefeller's net worth was equal to nearly 25% of the whole US economy, the equivalent of nearly $250 billion in today's terms, or at least twice as much as Bill Gates.

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Protesting the Price of Rail Transport

The opposition to trusts, particularly among farmers who prickled tested against the high cost of rail transport to take their products to the cities, led to the passage of the first antitrust law -- the Sherman act -- in 1890.

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Divisions and Mergers
The 7-Sisters Become Three

But it was more than 20 years later, after a campaign led by muckraking journalists with Standard Oil, before the matter was brought before the courts.  The historic 1911 decision, broke Rockefeller's company. into six main entities.  But in the oil business even the seven sisters, turned out to be marriage prospects.  First, Chevron acquired Gulf Oil in 1984 in what was then the largest corporate merger in US history.  That had an ironic twist, the 1990s has seen the oil industry come back together, with Exxon merging with Mobil, another part of the old Standard Oil empire, the former company twice as big as its nearest rival -- BP Amoco, which also consists of two old Standard Oil companies.  Privately Amoco / Standard Oil of Ohio has been trying to merge with the third Arco, formerly Atlantic Petroleum of Pennsylvania.  The big three oil companies now control almost as much of the market as Rockefeller did.  But the blocking of the deal to give BP Amoco control of America's largest oil field in Alaska, while acquiring Arco, shows that a backlash is beginning to bite.

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A Time When Big Is No Longer Bad

Trust busting went out of fashion in the middle years of this century.  The new deal encouraged big companies to combine in order to boost prices of output, although it did pass legislation forbidding holding companies of the sort that had created the early trusts.  The belief that big was beautiful in the corporate sector was given another boost by America's experience in World War II, when the big companies like Ford, GM and GE were seen to have helped win the war by their extraordinary increase in wartime production.

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So Goes GM, So Goes the Nation!

By the 1950s, the US secretary of defense, a former GM boss, could say "What was good for GM was good for the United States."  But by the 1960s, the change in the political climate, with the turmoil of the Vietnam War and the civil rights movements, opened the way for a new round of Government trust busting.

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New Anti-trust Targets - IBM and AT&T

This time, the targets were two of America's biggest companies -- IBM and ATT.  IBM, nicknamed "Big Blue" was the technology colossus of its day, as mainframes dominated the world of computers before the introduction of the PC.  AT&T, (Ma Bell), was the monopoly telephone supplier for almost every household in America.  But the two cases had very different outcomes.

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IBM Overtaken By Events, not Government

The government's slow moving case against IBM never made much headway before it was dismissed in 1982.  By that time, IBM was under threat from personal computers and networked office systems.  The whole cases cited by those who say there is no point in the governments intervening in antitrust cases.  Because technology changes too fast.

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AT&T and Telephones Broken Up

But the case of AT&T might lead to the opposite conclusion.  Two years after the IBM case collapsed the United States government succeeded in breaking up the telephone monopoly.  Under court supervision, seven regional telephone company's so-called Baby Bells were set up to provide local telephone services.  AT&T became the long-distance operator and soon faced competition from Sprint and MCI -- now part of WorldCom.  The spur of competition led to a modernization of the sector -- which has become one of the most dynamic parts of the US economy.  But the seven Baby Bells have now become just three giant telecom corporations as Congress modified the law to allow local companies and long-distance operators to compete with each other.

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                                     Lessons learned

1. The antitrust legacy of United States is ambiguous.  Although seemingly tough laws of the past, they have been enforced only sporadically. 

2.  Political fashion has driven many enforcement actions.  And even when companies have been prosecuted there have been very different outcomes to the cases.  In many cases, the remedies have actually increased the power of companies in the long run, by legitimizing the regulation of their industry. 

3.  The US model has been widely copied in other countries, ... Japan, Mexico, and Poland.  But outcomes varied enormously, because the companies have often been able to bend local antitrust laws to their own advantage.  That demonstrates once again that it is not the letter of the law, but the social context, that determines how it is in practice.

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