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Trustbuster Biden

President Biden recently issued an executive order on competition and consolidation within the American economy. Biden seeks to emulate the heroism of trustbusters such as Theodore Roosevelt and FDR. Like these past progressives, Biden, Democrats, and increasingly Republicans view business size as a moral measure. If a business seems too big, it must be harmful and should therefore be crushed.

The size of a company itself tells us nothing; rather, it is how a company acquires market share that matters. A company can either grow by meeting customers’ desires better than competitors or by winning the ear of bureaucrats and politicians.

In a free enterprise system, monopolies cannot last; the economic mindset behind trust-busting is flawed at best. Trustbusters seem to ignore the fact that people are capable of basic economic decisions. If big firms are harming consumers, people can, and will, choose between the alternatives available. A firm that offers an inferior product at a higher price cannot force people to buy their goods; people patronize firms that offer the best products at the lowest prices. The entrepreneurial spirit of a capitalist system ensures that large firms will always have competition pressing them to satisfy the consumer.

Further, the interconnectivity of the economy complicates the trustbuster’s calculus. Firms seldom compete solely with other firms in their industry. In many cases, multiple industries seek to meet the same need with their products. For example, chicken producers have to compete with not only other chicken producers but also pork and beef producers. The presence of substitutes makes a firm’s market share of an industry much less impactful and stable than it may seem at first glance.

The trust-busting instinct harms consumers by disrupting a firm’s ability to utilize economies of scale. Having the capability to spread costs across a larger number of units, large corporations can often deliver a lower price than smaller firms. This arrangement benefits both the consumer and the corporation, so long as the corporation continues to stay ahead of the competition. Busting up large firms hurts producers and contributes to a rise in the cost of living.

Firm dominance is ephemeral in a free market, but our economy is certainly not free of government intervention. As Biden’s executive order points out, the American economy has seen increased concentration, a general increase in prices, and increasing corporate longevity in the last half-century. However, government is the cause, not the solution to this problem.

In recent history, corporations have consistently engaged in “regulatory capture,” which is economist George Stigler’s idea that firms through lobbying have persuaded regulatory agencies and Congress to write regulations and laws that bolster the firm’s position in the market. Large corporations with deep pockets have made the calculated risk that raising the cost of doing business on everyone, including themselves, is worth the benefit of eliminating competition.

Market share gained through leveraging government power is different – and more deleterious – than market share gained by meeting consumers’ demands. A dominant firm backed by the force of law has more staying power than those dependent solely on consumer satisfaction.

Further, firms with influence in Washington do not have to focus as much on meeting consumers’ needs as corporations that do not receive special privileges: Firms with influence shall not be allowed to fail. Regulatory capture harms both consumers, because well-connected firms rather than well-managed firms succeed, and competitors because their competitor’s influence in the regulatory process ensures they can no longer compete solely on price and value as in a free market.

Antitrust policy does not fix the source of the problem: the power of regulatory agencies and Congress to give corporate handouts. Seeking to break up every large firm in existence will be like fighting a hydra – there will always be more firms to crush. Corporations will continue to lobby in Washington only as long as there is someone powerful enough to give them legal advantages. As long as Congress and regulatory agencies have the power and lack of oversight they do now, corporations will continue bending the law in their favor. If no one can give out benefits to firms, firms will not waste their time lobbying.

Tackling regulatory capture, not trust-busting, should be the White House’s priority if it wants to help competition without hurting the people. Engaging in antitrust is a fruitless and needlessly destructive endeavor; it does not attack the source of the problem and does not help the economy, the people, or competition. It merely consolidates power in Washington, which is precisely the problem. It is the failures of government, not the failures of capitalism, that are hurting our economy. //

Christopher Kitchens


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