By Sarah Chu
This article first appeared in Wellesley's Calderwood Seminar: Economic Journalism.
A pressing question of our generation remains: should big technology companies be broken up? From Tim Wu’s prospective, the answer is a resounding yes.
In “The Curse of Bigness: Antitrust in the New Gilded Age,” Tim Wu, a professor at Columbia Law School, claims that the United States’s laissez-faire attitude toward large corporations has consequently led to highly concentrated industries, gross inequality, and material suffering. In a bit of dazzling legal history, Wu turns a seemingly boring history of mergers and acquisitions into a compelling story about the loss of America’s democratic system of checks and balances.
Wu’s message is simple: giant corporations – namely Amazon, Facebook, Google, and Microsoft – seek to maintain their industry dominance by acquiring prospective competitors, with the hope of converting their economic power into political influence. Unrestricted growth of private firms, coupled with the notion that the purpose of a corporation is to maximize shareholder value, have allowed shareholders to benefit from increasing share prices and share buybacks. Meanwhile, the working-class is left behind with stagnant wages, further widening the gap between the rich and the poor. Without government intervention, too much power in the hands of a few is lethal to democracy. As a remedy, America’s once-thriving, antitrust tradition must be revived.
America’s antitrust movement begins with the Sherman Act of 1890. Named after Senator John Sherman, the law addresses the rising monopoly power of Standard Oil and concerns of inequality. This piece of legislation consists of two main provisions: first, to prohibit any agreement to fix prices, share markets, exclude competition, and second, to illegitimate any attempts to monopolize industries. Louis Brandeis’s philosophy of resistance to the Trust Movement was of the same intellectual movement as the Sherman Act, whose vision of economic prosperity consisted of a bustling free-market with healthy competition. Disgusted by corporate monopoly, Brandeis suspected there was a “curse of bigness,” that advanced political and economic benefits for the lucky few at the expense of the rest of society.
Wu convincingly argues that Sherman and Brandeis were right. By the early 1900s, John D. Rockefeller’s Standard Oil and J.P. Morgan’s rail conglomerate threatened to mock antitrust law, consolidating hundreds of small firms to create two dominant powerhouses in the oil and rail industry, respectively. The Trust Movement was foraging a new world order: the small and weak were swept away and replaced by the “new, scientific, and strong.”
It was not until President Theodore Roosevelt’s “trust-busting” sucker-punched the big players, Rockefeller and Morgan, finally putting large corporations in their place. When running for reelection, however, Roosevelt sang a different tune. Instead of slicing through all monopolies, Roosevelt aimed to sort them into “good” versus “bad.” If a trust controlled an entire industry, but consumers benefited from economies of scale from lower prices, it was a “good trust” to be ignored. Only the “bad trusts” that bred anti-democratic outcomes would be cut.
“It was imperative to teach the masters of the biggest corporations in the land that they were not, and would not be permitted to regard themselves as, above the law,” Roosevelt later acknowledged.
Despite its complexity, Wu does an excellent job of simplifying the peak of the Antitrust Movement. Starting with President Franklin D. Roosevelt’s New Deal, followed by the rise in antitrust cases inspired by Louis Brandeis’s ideology, and ending in the 1970s with AT&T as the last sliced and diced monopoly. In his view, AT&T’s dissolution into seven smaller firms contributed to lower prices for consumers and a spur in innovation in the telecommunications industry. Despite the successful breakup of AT&T, Robert Bork, a rising legal scholar, changed the existing “antitrust doctrine in a way that was more moderate and conservative.”
A scholar from the University of Chicago, Bork revolutionized the interpretation of the Sherman Act with “The Antitrust Paradox” in 1978, describing that the doctrine served to protect “consumer welfare,” and not economic efficiency or political power. In this context, Bork interpreted consumer welfare as lower prices for goods and services. Therefore, if consumer welfare is not damaged, monopolies should be left alone. Bork’s rising popularity drove the “New Gilded Age,” which put an end to the trust-busting movement.
Bork’s narrow interpretation focuses on the glass half-full, asserting that mergers and acquisitions allow businesses to lower costs and benefit consumers. Wu points the blame at Bork to explain why the George W. Bush administration failed to implement the necessary checks and balances of large corporations, a trend that has lasted for decades. Accommodating concentrations of capital and limiting labor power, Wu aggressively notes that “Bork’s antitrust economics are easy—not easy enough for a schoolchild, but easy enough for a lawyer who does not specialize in antitrust…to get rid of a hard case.”
Acknowledging Bork’s philosophy, Wu chooses to adopt Brandeis’s ideology, which claims to provide sufficient liberties and support for consumers to live a fulfilling life. Free from industrial domination, willful greed, and the exploitation of fear and poverty, Wu calls for more equitable outcomes in “The New Gilded Age” by increasing market investigations, breaking up big firms, and reinforcing the antitrust competitive process. His methodology; however, fails to deliver on how exactly we should implement these solutions. Readers are left wondering whether his six-point conclusion is sufficient to bring America back to its antitrust glory days. For me, the answer is no, but Wu’s points are a good starting point toward a more equitable future.
In addition to the lackluster conclusion, “The Curse of Bigness” also misses the foundational economic reasoning for his title. In traditional economic theory, monopolies are price-makers instead of price-takers. Monopolized firms benefit from tactics such as predatory pricing, perpetual ownership of scarce resources, and industry dominance. When firms have complete control over an industry, they charge prices higher than can be justified compared to a competitive market, therefore, the quantity produced and consumed will be lower than it would under a competitive market structure. As an example, think of Amazon's unparalleled power amid the COVID-19 global health crisis. With the current inability to go to a hairdresser, some online sellers are taking advantage of “stay at home orders” to massively price gouge razors and other necessities. Monopolies result in a market failure, leading to an inefficient allocation of resources that ultimately causes harm to consumers and small businesses.
What Wu lacks in formal economic training is compensated in his extensive legal background, weaving America’s complex antitrust history into a coherent story. His ability to synthesize antitrust history into a manageable 134 pages is commendable, and I agree with many of his points, including his nudge toward Brandeisian ideology. “[Antitrust] can give humans a fighting chance against corporations, and free the political process from invisible government.” Wu admits. After all, (firm) size does matter.
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