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12Th Annual Competition Law and Policy Workshop Robert Schuman Centre, 8-9 June 2007 EUI, Florence James S. Venit Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates – Brussels, Belgium Cooperation, Initiative and Regulation A Cross Cultural Inquiry European University Institute Robert Schuman Centre for Advanced Studies 2007 EU Competition Law and Policy Workshop/Proceedings To be published in the following volume: Claus-Dieter Ehlermann and Mel Marquis (eds.), European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, Hart Publishing, Oxford/Portland, Oregon (in preparation). Please do not quote or circulate without permission © James S. Venit. All rights reserved. EUI-RSCAS/Competition 2007/Proceedings 1/25 12th Annual Competition Law and Policy Workshop Robert Schuman Centre, 8-9 June 2007 EUI, Florence James S. Venit* Cooperation, Initiative and Regulation – a Cross Cultural Inquiry 30 May 2007 Nietzsche begins his essay on history1 by describing some decidedly ahistorical cows ruminating in a field. Men are not cows. A humble private in the trenches of the first world war suddenly begins to consume history books and when asked why points to the shells landing around him and replies “I am trying to understand how the devil I got here”. The “here” I would like to explore is the paradox of our European antitrust law and why it has gone in directions, particularly as concerns single firm conduct, that themselves appear to be anti-competitive. In what follows I shall seek to develop three ideas: First, the EU and US antitrust agencies do not always mean the same thing when they speak of “competition”, and this is particularly but not exclusively the case when it comes to dealing with single firm conduct in the context of Section 2 of the Sherman Act and Article 82. Second, the difference in approach may not primarily be driven by the difference between a focus on short versus long-term effects, but rather by differences in cultural attitudes about the propriety and social implications of aggressive, individualistic competition and the ability of markets to solve their own problems in the long run. Third, societies that have not experienced robust competition and unrestricted markets tend to have less confidence in both and thus are prone to adopting regulatory approaches that not only reflect this lack of confidence but also tend to reinforce the lack of competition with the negative consequences common to non virtuous circles. In Europe this has led to the formulation of a set of very restrictive rules that appear better designed for regulating the conduct of public monopolies than that of firms who have had to earn their success by competing. Before beginning, two health warnings. First, generalizations and stereotypes are always dangerous, probably the more so as their apparent accuracy increases. This is particularly the case because trends in enforcement change. The US agencies and courts of the 1960s have also been criticized as too interventionist, and there is no guarantee that * Partner Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. 1 Untimely Meditations: On the Uses and Disadvantages of History for Life (R.J. Hollingdale, trans.), Cambridge University Press, 1983. Venit, “Cooperation, Initiative and Regulation – A Cross Cultural Inquiry”, in Ehlermann and Marquis, eds., European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, forthcoming 2008. EUI-RSCAS/Competition 2007/Proceedings 2/25 current attitudes will remain fixed in either Europe or the US.2 Second although what follows may reflect my view that the current European approach to single firm conduct is too interventionist, this article is not an argument for or against one type of social philosophy. Rather it is an attempt to understand, by looking backward and with some sensitivity to cultural biases, how we got to where we currently are. I. Nineteenth Century Attitudes Toward Cartels and Competition in Germany To understand modern European attitudes toward competition and the role of competition law, it is important to understand the cultural attitude toward cooperation and unbridled competition that evolved in the 19th Century. This story largely centres on Germany and Austria partly because cartelization does not appear to have been regarded as favourably elsewhere and partly because German historical and cultural attitudes are of particular importance given Germany’s position as the intellectual source for much of what came to be enshrined in the competition provisions of the Treaty of Rome. Review of this history reveals a pervasive cultural attitude toward cartels and single firm economic power whose traces are still present in European antitrust law today. This cultural attitude is reflected in the contrast between cooperation and organization, which were viewed as positive attributes as opposed to individualism and conflict which were not. As will be seen from the discussion that follows, this attitude gave rise to a greater tolerance of cartels in Austria and even more so in Germany during the 19th Century and to hostility to the exercise of single firm economic power which can be traced to modern European law by such manifestations as the decision not to criminalize cartel conduct, reliance on abuse control and the view that single firms exercising economic power have special obligations and should be subjected to special controls. At the beginning of the twentieth century it is estimated that there were about 400 cartels in Germany, which had become known as “The Land of Cartels,”3 with many of these including industrial leaders rather than defensive alliances of smaller firms.4 The pervasiveness of German cartelization can be traced to a number of economic, political and cultural factors. Among the most important were the sheer speed of German industrialization, 2 The fluidity in US attitudes is not inconsistent with the thesis that culturally the US has a greater tolerance than Europe for aggressive individualism. Populism is also an important constituent of the US cultural experience and is not unrelated to the tendency of the US legal system to act as a vehicle for redistributing wealth. Indeed, the very fluidity of US attitudes is supportive of the view that mobility, both social and individual has played a greater role in the US than here. 3 David Gerber, Law and Competition in Twentieth Century Europe, Oxford University Press, 1998, p. 75. Möschel estimates that by 1907, 82% of the coal industry, 50% of crude steel, 90% of the paper industry and 48% of the cement industry were, according to a Reichstag report, cartelized. Government rationing gave a further impetus to cartelization during the First World War, and a Cartel Ordnance adopted in 1923 at the height of German hyper-inflation generally encouraged cartels, as did the National Socialists who saw them as useful for planning production. See Wernhard Möschel, “Competition Policy from an Ordo Point of View”, in Alan Peacock and Hans Wilgerodt, eds., German Neo-Liberals and the Social Market Economy, St. Martin's Press, 1989, p. 143. 4 Gerber, cited supra note 3, at 74. Venit, “Cooperation, Initiative and Regulation – A Cross Cultural Inquiry”, in Ehlermann and Marquis, eds., European Competition Law Annual 2007: A Reformed Approach to Article 82 EC, forthcoming 2008. EUI-RSCAS/Competition 2007/Proceedings 3/25 the central role played in the German economy by industries well suited for cartel activity such as chemicals, coal and iron, the high degree of industrial concentration, vertical integration, the role of German banks, who preferred ‘stable’ market conditions, and a high proportion of German export activity which led cartelists to defend their existence as necessary to ensure global competitiveness.5 Added to these factors were political elements – the general historical weakness of German liberalism,6 the belief in the necessity of “organizing” the economy, the alliance between business and the State in the task of unification and thereafter a perceived tie between German economic performance and military strength.7 Other forces also contributed to the positive evaluation of cartels. Especially important was the fact that cartelization was largely seen as a positive phenomenon by 19th Century German economists. These economists, all of whom belonged to the “historical” school8 eschewed theoretical approaches and opposed what they referred to as “Manchesterism”, a reductionist version of classical liberal, Anglo-Saxon economics. For these German economists, cartels were both an appropriate and natural response to over-production and instability and were thus regarded as useful in combating unwanted cyclical fluctuations of the economy.9 There was also an “ethical” or social perspective to these economists’ evaluation of cartels which led to their being viewed as a positive expression of a cooperative social spirit that reduced class conflict.10 Although these economists were fully aware of the negative economic consequences of cartelization, they nevertheless viewed cartels as encouraging positive attributes such as restraint and concern for weaker competitors, and they contrasted this more “ethical” approach with the American trusts, which were viewed as purely exploitative.11 This attitude was also manifested in a notable hostility to monopoly, which in economic theory seems difficult to reconcile with a favourable attitude toward cartels. This inconsistency appears to have been the result of the unique ethical and social lens through which cartels were being evaluated, and may have in it the seeds of more modern European
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