Wednesday, June 20, 2012
Guest Post by Jonathan B. Baker
One of the signal achievements of the Chicago school in antitrust was to convince the courts to discard social and political goal, and view competition policy solely through an economic lens. Robert Pitofsky’s 1979 article defending the political context of antitrust was, in retrospect, the end of an era.
But what is going on in Chicago today? Financial economist Luigi Zingales, a market-oriented University of Chicago professor, Sarah Palin favorite, conservative intellectual, just published a new book, “A Capitalism for the People: Recapturing the Lost Genius of American Prosperity.” Conservative economist Tyler Cowen loved it.
Zingales wants to prevent crony capitalism, the scourge of his Italian homeland, from taking root in the U.S. According to his new book, the American Revolution was “a battle for economic freedom against crony capitalism.” Zignales is pro-market, not pro-business. And he is pro-competition, calling it “the magic ingredient that makes capitalism work for everyone.”
Zingales favors antitrust to protect competition. Looking solely to economics, his endorsement for competition policy is measured. Preventing excessive consolidation ensures that consumers receive the benefits of innovation, he writes, but he is wary that antitrust enforcement will squelch some scale economies and that it may facilitate government intrusion into the private sector, which could be exploited for political reasons. Still, Zingales criticizes Alan Greenspan’s extreme non-interventionist position on antitrust, on the ground that it cannot be rationalized with the many instances of collusion, such as the lysine cartel, that have been uncovered.
But Zingales’ tone changes when he turns to political goals. “[T]he most powerful argument in favor of antitrust law,” he writes, “is one that is rarely made: antitrust law reduces the political power of firms.” After all, “[t]he bigger the firm…, the more likely it will be able to wield the power of the state to its own advantage.” But antitrust analysis “ignores the enhanced political power a merger can confer.” If antitrust analysis took this into account, “many mergers considered welfare-enhancing today would appear to be welfare-reducing instead.” He even floats the “radical” idea that “mergers that lead to excessively powerful political entities could be subject to imitations on the amount of lobbying they engage in.” Perhaps it took the financial crisis and Great Recession to convince a free-market Chicago economist to endorse antitrust primarily on a political argument. What would Bob Pitofsky make of that? We may find out on Thursday, when Pitofsky revisits his 1979 article at the annual conference of the American Antitrust Institute.