BOOK REVIEWS
ANTITRUST POLICIES
American Experience in Twenty Industries
Simon N. Whitney
THE 20TH CENTURY FUND INC., 1958. 2 VOL., PP. xxiii, 560 AND PP. X, 541.
Antitrust policy and law is perhaps the one subject that, in the United States
and Canada at least, unites businessmen, lawyers, economists and Civil Servants,
and perhaps politicians too, in a fashion that is unique among the many areas
of social experience where converging skills and interests are to be found.
Indeed, in the relations of law and economics the antitrust laws are clearly
distinctive because nowhere else in the English-speaking legal order is there to
be found this impingement of legal rules upon economic thought and business
practice and in turn of economic theory upon the formulations of law. In
taxation and valuation questions, or wherever the accountant’s skills are called
in to aid the lawyer, economic criteria operate to fashion the legal rule or its
interpretation; but even here the impact is modest compared with what is to be
found in the relations between legal and economic ideas as they focus on
antitrust problems and are in turn modified by contact with each other.
There is an essentially philosophical assumption that underlies that feature
of our culture which has expressed itself in laws to prevent economic concentra-
tion and to encourage and preserve competition. The mythology of our society,
to which Thurman Arnold referred a generation ago, persits in the folklore
of a capitalism now modified by the welfare state; but this has not disturbed the
essential premise. For that assumption declares that the freedom of men has
many facets and economic freedom is by no means the least significant in our
polity. Yet such freedom is not possible unless the government of our economy
is the impersonal market instead of personal decisions of entrepreneurs with
the power to fix a price or to allocate a market or to prevent an entry. Under
such restrictive conditions not only is freedom in the wider political sense
challenged but the initiative of men must decline as the spur of risk is removed
and the marginal becomes the norm, protected as it is from the brute test of
the market-place. For when so protected resources do not respond effecively
to demands and such allocation may be less efficient than when directed by
“competition”. So goes the theory of the advantages of competition supported
by both political faith and an economic rationale.
The model is dated and the -mythology no longer entirely convincing. But
though “imperfect competition” and “workable competition” are the newer
models, the central belief of North America remains largely untouched by
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these oracular or statistical disillusionments. There
is still the belief that
competition is a “good” thing and monopoly “bad”. And who is to say that
this instinct welling up as it does from a great complex of experience with
the frontier, with the tariff, with the tendency of the strong to become stronger
if left alone, who is to say that the instinct is not a sound one and that the
continuing popularity of antitrust laws in the United States and Canada –
except with the bruised businessman scraped by a prosecution or same other
contact with the law –
is not justified?
Yet how shall we test almost seventy years of experience in the United
States and Canada with these policing rules -to deter and to punish the too
aggressive, the predatory, indeed all those who would mix a reduction of risk
and the acquisition of power over resources in those appropriates amounts
which if they did not achieve monopoly certainly reduced competition? The
truth is that the measurement of the achievement of laws to preserve competi-
tion whether the Sherman, Clayton and Federal Trade Commission in the
United States or the Criminal Code and Combines Investigation Act
in
Canada, is a formidable task. The “simple” test of course is to ask how far
has the concentration of industry through mergers and similar devices altered
since its high point in the years between 1885 and 1920. And yet while this
question may be appropriate to the United States it has relatively less meaning
for Canada where the “natural” monopolistic position because of a smaller
market was considerably greater and where industrial development in the same
period, indeed until recently, was proportionately so much less.
But to ask these questions only in the field of corporate integration is to omit
large areas where “workable competition” in its many variants may have been
stultified by business practices aimed at minimising risk and avoiding the perils
of the market-place wherever possible –
price collusion, marketing arrange-
ments, exclusion of newcomers, patent suppression, and a score of related
devices where the loose-knit combination operated to do as much or more
damage as merger itself. Here the Canadian experience from 1925 on
in
some respects is almost as interesting as that of the United States. But again
who is to say that in the non-merger area of attacks upon competition
Canadian or United States law has been effective either as punishment or
deterrent ?
Yet such an approach is surely .defeatist. Tools of measurement are in-
creasingly available and the literature grows with efforts to at least describe
the volume and variety of changes
in the nature of competitive activity.
Certainly one self-evident method is to examine those industries that have once
come under the eye of the law and ask how have they behaved since or what
did they do to change the patterns that theretofore had marked them down for
public wrath. This question was by no means simple to answer when The 20th
Century Fund undertook to pose it and obtained the services of Mr. Whitney
in 1950 to examine the records of twenty industries where antitrust involve-
McGILL LAW JOURNAL
[Vol. 5
industry, performance,
to price, patents, mergers,
ments in one form or another had taken place over the past two or three’
industries such as meat
generations. The cases were well chosen. Major
packing, petroleum, chemical manufacturers, steel, paper, bituminous coal,
automobiles and cotton textiles were studied for their detailed behaviour with
inter-locking
respect
directorates, trade associations, etc. In addition another series were studied
without perhaps the same mass of detail and without having the same historic
importance perhaps but nevertheless valuable as case histories of famous
antitrust suits; cast iron pipe; tobacco products; anthracite; aluminum; shoe
machinery; motion pictures; tin cans; farm machinery; corn refining; cement;
Pullman cars; and insurance. Professor Whitney’s conclusions are cautious and
by no means are uninhibited statements assuring the reader that but for the
antitrust laws productivity and competition would have been fundamentally
different. Nevertheless he goes far enough to make it clear that profoundly
important results have come from antitrust law and policy and he suggests three
major conclusions with respect to their effects. The first is that these rules have
set up “a barrier against the cartelisation of American industry along European
lines.” While arrangements to cartelise may disintegrate in a highly competitive
economy when independence appears to the advantage of one or more members
of a cartel, he points out however that “the antitrust laws make-it possible to
break them up swiftly and certainly. Even if they escape detection, they tend
to be less effective than European cartels which can function openly and
often have government support.”
The second result has been to reduce -the tendency to create monopolies by
merger or otherwise; and although the Sherman Act was unable to halt the
great merger movements of the 1890’s, it did become in due course “a real
barrier to consolidations intended to put firms in a dominating position in their
industry”. In recent years –
particularly since the 1950 amendments to the
Clayton Act which strengthened the law against mergers – while -there had
been more mergers than ever before, these in most cases have involved small
companies or simply product or a geographic diversification. Third, the antitrust
laws helped to maintain “both equality of opportunity and freedom of entry in
a never ending struggle in which there are bound to be defeats
industry –
along with successes.”
Finally Professor Whitney is prepared to state baldly that when the antitrust
laws are viewed generally “their broad deterrent effect is more important than
the visible effects of particular cases”..Certainly apart from the general findings
the actual consequences of the antitrust laws on many of the industries he
true for meat
examined were often direct and
packing where antitrust investigations played a role in discouraging coercive
and collusive behaviour; in petroleum where the Sherman Act helped to break
up the Standard Oil monopoly and to shape the modem structure and behaviour
of the present industry; in chemicals where the antitrust laws have made “a
important. This was
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BOOK REVIEWS
moderate contribution to the amazing development of the chemical industry
by breaking up the “powder trust” and by other prohibitions and directions
to the industry, and similarly in steel and in paper; but far less so in bituminous
coal, automobiles and cotton textiles where other factors operated to maintain
extensive competition, as in coal and textiles, or to reduce the number of large
manufacturers as in automobiles.
Curiously this kind of study has never been effectively undertaken in Canada
although the raw material exists in part through the presence of almost two
score reports inspired by enquiries under the Combines Investigation Act since
1925. Of course in only three cases have the subjects involved mergers while
the remainder have been price, marketing, entry and simple collusive and
coercive practices, on a close-knit or loose-knit basis, of several individual
firms. But the detailed examination of these practices would make it possible
for an imaginative research team to follow through either with material avail-
able in the Combines Branch or elsewhere in Government, in business itself
or in business practices documentation already of a public nature.
laws particularly
laws. They resent aspects of these
Now it such an attempt were made what likely would be found? This ques-
tion is very difficult to answer but one thing is certain – Canadian businessmen
no less than their American colleagues are very sensitive to the presence of
the antitrust
the
development of the per se doctrine which has simplified the tasks of judicial
administration and of public policy definition by holding every combination
to fix price or organise the market to be illegal wherever a preponderance of
the industry is involved. This sensitivity to the law itself is equalled or perhaps
exceeded by the resentment of the business community to the practice of
publishing reports which, however carefully worded, seem to become findings
of guilt before a court has spoken. But whatever may be the subjective reactions
of business leaders to their individual brushes with the law there is surprisingly
little unanimity in the business community as a whole with respect to the
alternatives. Indeed, business leadership tends to accept the need for some
legislation to regulate and preserve competition although it is difficult to know
whether this genuflection
the “conventional
wisdom” or something more deeply felt.
is merely paying respects
to
In any case on the specific point as to whether the antitrust laws in Canada
have had anything approximating. the same effects on selected industries, or
in general, as described in Professor Whitney’s extremely important two-
volume study, in this reviewer’s opinion it may be said that by and large
his conclusions could apply to the Canadian scene as well –
but for one
qualification. There is more likelihood of recurrence, or was until the recent
changes in the Canadian penalties, than similar recurrence after legal action
in the United States. Partly this would seem to be a procedural phenomenon
because the “consent decree” method allows a measure of supervision by the
courts that until the 1952 amendments in Canada was not possible here. There
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may be other factors also that explain the likely recurrence of patterns once
proscribed by conviction. Perhaps the less dynamic character of the Canadian
economy in many respects, its tendency towards monopoly because of the
smaller number of firms involved and a smaller market, corresponding difficulty
all of these may be elements in the possibility of “recidivism” as
of entry –
compared with the situation in -the United States.
I have omitted to mention how detailed were many of the industrial summaries
prepared in these volumes ,often with the cooperation of the industry itself. It
would be interesting to know how far Canadian industry would cooperate in
the same way although no doubt many business leaders would take a similarly
constructive, research view.
As long as we have pretentions towards a free economy and a free society we
shall be interested in the antitrust laws less for what they directly achieve than
for what they prevent. Professor Whitney’s studies open up, as his sponsoring
committee indicates, “new ground” and all students of the problem in Canada
and elsewhere are indebted to him and The 20th Century Fund for this feast
of data that will take much time for serious digestion if its full value is to be
obtained by students and policy makers both in the United States and Canada.
MAXWELL COHEEN*
*Professor of Law, McGill University.
