Global Policy Forum

by Steve Schifferes

In the US, the law is one of the main avenues in which social conflicts take place - and get resolved. Both businesses and individuals are far more likely to revert to the law to settle disputes. One consequence of this is that the US has some of the strongest laws concerning competition of any industrialised country. Under laws dating back to the 1890s, a conspiracy in restraint of trade is a criminal offence - and companies are treated like individuals, with their bosses personally responsible for their firms' actions.

But the strength of anti-trust laws is also a reflection of the strength of business interests in a country which lacked other powerful groups, like the political elites which existed in Europe. The anti-trust laws currently struggling to regulate and control the excesses of big business are a product of 100 years of conflict.

The Muckrakers and the Trusts

In the late 19th Century, the booming US economy entered a period of rapid consolidation. "Trusts" (or holding companies) were created to bring together all the firms in a particular industry - The Sugar Trust, The Tobacco Trust, The Steel Trust. These trusts were vast enterprises that dominated their industry and in some cases production worldwide. No trust was bigger than Standard Oil, owned by John D. Rockefeller. In 1910 Mr Rockefeller's net worth was equal to nearly 2.5% of the whole US economy, the equivalent of nearly $250bn in today's terms, or at least twice as much as Bill Gates.

The opposition to the trusts, particularly among farmers who protested against the high cost of rail transport to take their products to the cities, led to the passage of the first anti-trust law - The Sherman Act - in 1890.

But it was more than 20 years later, after a campaign led by 'muckraking' journalists, when Standard Oil was brought before the courts. The historic 1911 decision broke up Rockefeller's company into six main entities, including Standard Oil of New Jersey (Esso, now Exxon), Standard Oil of New York (Socony, now Mobil), Standard Oil of Ohio, and Standard Oil of Indiana (now Amoco, part of BP) and Standard Oil of California (now Chevron) - and opened the way for new entrants like Gulf and Texaco, which discovered oil in Texas.

But in the oil business even the "Seven Sisters" turned out be marriage prospects. First Chevron acquired Gulf in 1984 in what was then the largest corporate merger in US history. Then, in an ironic twist, the 1990s has seen the oil industry come back together, with Exxon merging with Mobil, another part of the old Standard Oil empire, to form a company twice as big as its nearest rival - BP Amoco, which also consists of two old Standard Oil companies (Amoco and Standard Oil of Ohio) and has been trying to merge with a third (Arco, formerly Atlantic Petroleum of Pennsylvania).

The three big oil companies now control almost as much of the market as Rockefeller did. But the blocking of the deal to give BP Amoco control of America's largest oil field in Alaska, by acquiring Arco, shows that a backlash is beginning to bite.

The New Deal's ambiguous legacy

Trust busting went out of fashion in the middle years of the century. The New Deal encouraged big companies to combine in order to boost prices and output, although it did pass legislation forbidding holding companies of the sort that had created the early trusts.

The belief that big was beautiful in the corporate sector was given another boost by America's experience in World War II, when it was the big companies like Ford, GM and GE that were seen to have helped win the war by their extraordinary increase in wartime production. By the 1950s, the US Secretary of Defence, a former GM boss, could say "what was good for GM was good for the United States".

But by the l960s, the change in the political climate, with the turmoil of the Vietnam War and the civil rights movements, opened the way for a new round of government trust-busting.

Target: Big Blue and Ma Bell

This time, the targets were two of America's biggest companies - IBM and AT&T. IBM, nicknamed Big Blue, was the technology colossus of its day with its mainframes dominating the world of computers before the introduction of the PC. AT&T, Ma Bell, was the monopoly telephone supplier for almost every household in America. But the two cases had very different outcomes.

The goverment's slow-moving case against IBM never made much headway before it was dismissed in 1982. By that time IBM was under threat from personal computers and networked office systems. The whole case is cited by those who say there is no point in the government intervening in antitrust cases, because technology changes too fast.

But the case of AT&T might lead to the opposition conclusion. Two years after the IBM case collapsed the US government succeeded in breaking up the telephone monopoly. Under court supervision, seven regional telephone companies - so called "Baby Bells" - were set up to provide local telephone services. AT&T became the long-distance operator and soon faced competition from Sprint and MCI - now part of WorldCom

The spur of competition led to a modernisation of the sector -which has become one of the most dynamic parts of the US economy. But the seven "Baby Bells" have now become just three giant telecoms corporations, as Congress modified the law to allow local companies and the long-distance operators to compete with each other.

Lessons

The anti-trust legacy in the United States is ambiguous. Although seemingly tough laws have been passed, they have been enforced only sporadically. Political fashion has driven many enforcement actions. And even when companies have been prosecuted, there have been very different outcomes to the cases. In many cases the remedies have actually increased the power of companies in the long-run by legitimising the regulation of their industry.

The US model has been widely copied in other countries, as diverse as Japan, Mexico, and Poland. But outcomes have varied enormously, with companies often able to bend local anti-trust laws to their advantage. That demonstrates once again that it is not the letter of the law, but the social context, that determines how it is enforced in practice.

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