University of Michigan Journal of Law Reform Volume 49 2015 The New Road to Serfdom: The Curse of Bigness and the Failure of Antitrust Carl T. Bogus Roger Williams University Follow this and additional works at: https://repository.law.umich.edu/mjlr Part of the Antitrust and Trade Regulation Commons, Banking and Finance Law Commons, and the Business Organizations Law Commons Recommended Citation Carl T. Bogus, The New Road to Serfdom: The Curse of Bigness and the Failure of Antitrust, 49 U. MICH. J. L. REFORM 1 (2015). Available at: https://repository.law.umich.edu/mjlr/vol49/iss1/1 This Article is brought to you for free and open access by the University of Michigan Journal of Law Reform at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in University of Michigan Journal of Law Reform by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact [email protected]. THE NEW ROAD TO SERFDOM: THE CURSE OF BIGNESS AND THE FAILURE OF ANTITRUST Carl T. Bogus* This Article argues for a paradigm shift in modern antitrust policy. Rather than being concerned exclusively with consumer welfare, antitrust law should also be concerned with consolidated corporate power. Regulators and courts should con- sider the social and political, as well as the economic, consequences of corporate mergers. The vision that antitrust must be a key tool for limiting consolidated cor- porate power has a venerable legacy, extending back to the origins of antitrust law in early seventeenth century England, running throughout American history, and influencing the enactment of U.S. antitrust laws. However, the Chicago School’s view that antitrust law should be exclusively concerned with consumer welfare— that is, total industry output and consumer prices—has now become the consensus view. The result has impoverished communities, decreased innovation, increased corporate cronyism, and diminished the freedom of American citizens. This is too important a topic to be left up to antitrust specialists alone. As it was during the presidential election of 1912, antitrust must again be a subject of wide public debate. *** INTRODUCTION .............................................. 2 I. THE CHICAGO SCHOOL’S DEADWEIGHT VISION ......... 15 A. Robert H. Bork and the Chicago School’s Central Premise ........................................... 15 B. Are All Mergers Rational Corporate Decisions?........ 21 C. The Influence of Chicago School Theory on the Law ... 26 II. THE SOCIO-POLITICAL TRADITION OF ANTITRUST ....... 37 A. Antitrust Origins .................................. 38 B. Sherman Act ...................................... 42 C. The Antitrust Movement and the Clayton Act ........ 51 D. The New Deal ..................................... 61 E. Mid-Twentieth Century............................. 74 F. Merger Policy Today ............................... 81 III. BIG PROBLEMS ....................................... 85 * Professor of Law, Roger Williams University. Many thanks to Michael J. Bloom, Cynthia Giles, Jared A. Goldstein, Jonathan M. Gutoff, Dennis A. Hennigan, David J. Kolksy, Peter Margulies, Tanya J. Monestier, Colleen P. Murphy, Jonathan Rauch, Louise Ellen Teitz, and Spencer Weber Waller for thoughtful comments on earlier drafts. Errors and conclusions in this Article are mine alone. Thanks also to my Roger Williams research assistants, Thomas Pagliarini and Brian Almeida, and to Carla M. Voight, who did research for me during a semester visit at the George Washington University Law School, for their hard work on this project. 1 2 University of Michigan Journal of Law Reform [VOL. 49:1 A. What We Learned from the Banking Crisis of 2008 ... 86 B. The New Serfdom .................................. 96 C. Too Big to Regulate ............................... 106 CONCLUSION ................................................ 114 *** INTRODUCTION We are living in an era of behemoth corporations, consolidated industries, and enormous wealth flowing into the hands of a few people. This Article argues that our times demand a radical change in antitrust policy: Rather than focusing exclusively on consumer welfare, antitrust law should be concerned with the consequences of consolidated power. Moreover, antitrust needs to become a cen- tral topic of public debate. Just as Georges Clemenceau once declared that war is much too serious to be left to the generals,1 I shall argue that antitrust is too important to be left exclusively to the economists. Antitrust issues are fundamental to American de- mocracy and society, and they need to be a matter of general public concern. There was a time when antitrust was, in fact, a subject of wide- spread public discussion. A century ago, Louis D. Brandeis warned the nation about the dangers of giant corporations and heavily con- centrated industries. Brandeis was concerned not merely with the economic effects of behemoth entities—that is, not only with whether they had the ability to gouge consumers through monop- oly prices—but also with the political and sociological effects of having fewer, larger companies rather than more, smaller ones. Among other things, Brandeis believed that big business weakened the spirit, verve, and elan´ of the nation.2 As he saw it, every time an independent firm was swallowed by a conglomerate, someone who was previously a chief executive officer and captain of his or her ship became a mere member of the crew in a corporate bureau- cracy. He was not persuaded by corporate chieftains who claimed 1. See GEOFFREY O’BRIEN & JOHN BARTLETT, BARTLETT’S FAMILIAR QUOTATIONS 348 n.5 (18th ed. 2012) (attributing the statement to Georges Clemenceau, among others). There are various versions and attributions for the quotation; the version in the main body, attrib- uted to Clemenceau, is the best known due to its use by the character General Jack Ripper in Stanley Kubrick’s great film, Dr. Strangelove (1964). 2. See, e.g.,MICHAEL J. SANDEL, DEMOCRACY’S DISCONTENT: AMERICA IN SEARCH OF A PUB- LIC PHILOSOPHY 235–36 (1996) (placing Brandeis in the tradition of those who believed that independent entrepreneurs were vital to the moral and civic life of the nation). FALL 2015] The New Road to Serfdom 3 that mergers made their businesses more efficient; he was con- vinced that many businesses were, in fact, too big to manage. And he was concerned that big businesses were too politically powerful. Brandeis sounded his tocsin in a series of magazines articles, a book, and congressional testimony. His views received widespread attention, and made him a trusted adviser of Woodrow Wilson. Brandeis’ theories about “the curse of bigness” inspired one of the main debates in the 1912 election, which historians consider “one of the greatest presidential campaigns in history.”3 All four candidates in that contest—William Howard Taft, the incumbent president and Republican candidate;4 Theodore Roosevelt, the former president and Progressive Party candidate;5 Woodrow Wilson, then governor of New Jersey and the Democratic candidate;6 and labor leader Eugene Debs, the candidate of the So- cialist Party7—spoke about big business and what to do about it. As improbable as it may seem looking back from our vantage point, antitrust became a major campaign issue. The clash was particularly pronounced between the two leading candidates and their programs, that is, between Wilson and what he called “The New Freedom,” and Roosevelt and his “New National- ism.” Each made his approach to antitrust and the control of big business a fundamental part of his platform. Echoing Brandeis’ thinking, Wilson complained that big business was turning rugged individualists into serfs.8 “You know what happens when you are the servant of a corporation,” Wilson declared; “Your individuality is 3. JOHN MILTON COOPER, JR., WOODROW WILSON: A BIOGRAPHY 159 (2009). 4. Taft argued that he was doing more to break up the trusts than Roosevelt had when had been president. He observed that his administration had brought more antitrust actions in one term than Roosevelt’s administration filed in two terms. H.W. BRANDS, TR: THE LAST ROMANTIC 707 (1997). Taft boasted that his administration was suing to break up United States Steel Corporation, which was then the largest company in the country and controlled by the most powerful of all corporate magnates, J.P. Morgan. Taft’s attorney attacked Roosevelt by arguing that U.S. Steel had become an illegal monopoly when it purchased Tennessee Coal and Iron Company, which had been done with the express approval of then- President Teddy Roosevelt. JAMES CHACE, 1912: WILSON, ROOSEVELT, TAFT & DEBS—THE ELECTION THAT CHANGED THE COUNTRY 95–98 (2004). Taft believed the antitrust laws out- lawed corporate conduct, not size, and promised to continue to vigorously enforce those laws “no matter whether we be damned or not.” Id. at 95. 5. See infra at notes 8, 15–18, 20–22, 303–32 and accompanying text. 6. See infra at notes 8–14, 18–19, 23–25, 334–41 and accompanying text. 7. Debs was a democratic socialist who wanted to overthrow capitalism lock-stock-and- barrel at the ballot box. CHACE, supra note 4, at 67–68, 81, 85. Debs denounced Roosevelt as a “servile functionary of the trusts.” Id. at 223. In 1894, Debs had been convicted and jailed for organizing the American Railway Union as a combination in restraint of trade, in violation of the Sherman Act, and he wanted to exempt labor unions from the antitrust laws. COOPER, supra note 3, at 230. 8. James Chace writes that in a three-hour meeting at Wilson’s home, Sea Girt, on August 28, 1912, Brandeis persuaded Wilson to make monopolies the principal issue of his 4 University of Michigan Journal of Law Reform [VOL. 49:1 swallowed up in the individuality and purpose of a great corpora- tion.”9 Wilson drew a distinction between enterprises that had grown big through the “natural process” of outperforming rivals in honest competition and those that had grown “artificially” through mergers and combinations.10 The latter were the real problem ac- cording to Wilson.