People on the left and the right are increasingly angry at social media companies. This has resulted in a growing bipartisan consensus that antitrust laws need to be strengthened to limit the power of tech companies and other big businesses, too. The question is whether expanded antitrust regulations would benefit consumers. It wouldn’t.
It’s understandable to be angry with corporate America for a variety of reasons. But increasing antitrust regulations would hurt startups and innovation, making America less economically competitive, slowing the pace of innovation, and undermining the robust competition that benefits consumers. Preserving the ability for companies to succeed and grow necessitates a light touch on regulation, especially antitrust, letting the market work out problems over time. In addition to the prosperity this fosters, it also leads to greater human flourishing. We are made in the image of God to be creators and inventors and innovators, and we’re most likely to be who we’re made to be when government plays the role of a referee and doesn’t become a player on the court.
What Is Antitrust?
Most people spend precious little time thinking about antitrust. Many people probably don’t even know the word’s not hyphenated, much less what it means. Antitrust entails regulations that encourage competition by limiting the market power of business. It means regulating mergers and acquisitions to prevent monopolies from forming, prohibiting cartels, and banning price fixing. Adam Smith famously said that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
The primary American laws governing antitrust are the Sherman Act (1890), the Federal Trade Commission Act (1914), and the Clayton Act (1914). We often think of the 19th Century robber barons who inspired the formation of antitrust laws, but the underlying concept of antitrust extends back much further, beginning with early Christian emperors who prohibited monopolies and cartels. Thomas Aquinas warned against excessive profits, Canon law inveighed against excess profits as immoral, and Martin Luther considered monopolies and cartels a form of usury. Adam Smith, though a Deist, was deeply influenced by Scottish Presbyterian clergy who intoned against business collusion. The Ninth Commandment against bearing false witness provides an apt underpinning for antitrust regulation. When companies collude, they are essentially lying to customers.
A reason to support antitrust regulation is to promote competition, which has myriad benefits for society. In 1987, I was living in then-West Berlin, just two years before the Wall came down. (In fact, I was in the crowd at President’s Reagan speech at the Wall when he said, “Mr. Gorbachev, tear down this wall!”) I lived a stone’s throw from the Wall, and I would sometimes go through Checkpoint Charlie to see what the other end of our street looked like on the communist side of the Wall. It was horrible: drab, austere, and lifeless. I remember standing in line for 20 minutes to buy what was supposed to be a hot dog and a soft drink. They were inexpensive and awful. The so-called “showcase of communism” that was East Berlin was anything but. I knew then that if this was the best communism had to offer, it was doomed.
And the difference lay in the lack of competition in the East. Private property was strictly limited, as were wages. There was no incentive to compete and innovate since the government set the prices. There’s a joke that goes like this: “There’s good news and bad news about communism. The good news is that eggs are only a dime a dozen, but the bad news is that there are no eggs!” Without competition, consumers lose.
Economists Kenneth Elzinga and Daniel Crane, both Christians, write that “In the same way that an athlete running her hardest may hope to spur on her rivals to better performances, the Christian in business who competes hard for business need not wish her rival to perish but may indeed hope that her competition spurs other firms to improvement.” It’s not selfish to want to best your business competitor any more than it’s selfish to want to win a football game. This drive to excel benefits all, which is why Adam Smith characterized capitalism as governed by an invisible hand.
But competition can be corrupted. Monopolies, price-fixing, and cartels may disincentivize competition to the detriment of consumers, innovation, and prices. The question is how to regulate against anti-competitive behavior without interfering with just competition. That’s a tricky calculus without a clear answer. Honest and thoughtful people can—and do—disagree about the right calibration.
In 1978, Robert Bork wrote a landmark book called The Antitrust Paradox¸ arguing that the intent of all antitrust regulation should be the protection of consumer welfare and competition (not competitors). Within a few years, the U.S. Supreme Court had ratified the consumer welfare standard as the proper benchmark to judge whether particular business practices were anti-competitive. This superior metric for adjudicating antitrust was instrumental in unleashing the growth of highly innovative and successful private enterprise in the ensuing decades.
But not everyone agrees that this “light touch” and constrained approach to antitrust is best. The social media companies, which are some of the largest companies ever to have existed, have sorely irritated Americans, mostly due to their content-moderation practices. Conservatives fume over their posts being taken down as “misinformation,” and liberals fume over how much “misinformation” remains on the platforms. Increasing numbers of policy makers on the left and right are ready to come together to interpose more robust antitrust regulations to break up these behemoths. Senator Amy Klobuchar (D-MN) wants antitrust to regulate everything from “cat food to caskets,” and Senator Josh Hawley (R-MO) wants Republicans to return to their trust-busting roots and neuter woke corporations.
Robust Antitrust Hurts Startups and Innovation
I have spent the last 35 years in federal policy making, working in the White House, the Senate, and the House. I can attest that policy making is like sausage-making: it’s best not to watch! It has many unintended consequences, too. Lawmakers set out to do one thing but mess up a bunch of other things in the process. This is a tricky business.
No one wants to hurt startups, but they will be negatively impacted if Congress or the Federal Trade Commission make it harder for large corporations to buy startups. By a ten-to-one ratio, most successful startup exits are through being bought vs. going public. In fact, most startups intend to be bought, as is true for the businesses in which I’m an angel investor. Moreover, many founders and inventors would be ill-equipped to take a company public or to devise a distribution model.
This invent/found-a-business/get-bought model works well for everyone. Big business tends not to be all that innovative. Like anything big, its calcifying internal structures don’t often reward risk-taking and innovation the way small and nimble startups do. Even some of the most putatively inventive big-tech companies rely on this acquisition business model. The “creative destruction” that fuels the innovation ecosystem usually originates with small inventors and startups.
Venture capital firms know this is how it usually works, and they’re opposed to putting new antitrust limits on mergers and acquisitions. Furthermore, with venture capital increasingly moving to overseas economies like China (falling more than 30% in the last 10 years), the last thing we want to do is accelerate that trend by making exits lengthier and more costly.
Antitrust That Undermines Markets
The bipartisan populism that views big business with deep suspicion and distrust is fueling the drive for more rigorous antitrust regulations. There is a sense that these companies that seem to touch our lives several times a day are too big, posing a danger to liberty and privacy. Yet it would be good to bear in mind that many of yesterday’s indomitable companies are gone—companies like Borders, Pier One, Netscape, Toys R Us, Compaq, Palm, Blackberry, Motorola, Blockbuster—often overtaken by scrappy startups with a big idea.
Using antitrust as a means of managing the market has another problem: what metrics should be employed to break up the big guys or to prevent their further growth? Many fuzzy ideas have been put forward, from indeterminate size to ESG to racial equity to unionized labor to speech codes, etc. This “know it when I see it” approach freezes businesses in place and throws sand in the gears of the economy, sapping its vitality. If you’re constantly guessing what the Department of Justice of the Federal Trade Commission will do with your proposed business plan, you may not act at all. And that’s often exactly what the regulators intend. But for the startup waiting to be bought, this inactivity can be deadly. Startups are racing against the clock, always thinking about their burn-rate and how much runway they have before they expire in the valley of death.
There’s a reason that the U.S. has been cleaning the Europeans’ clocks when it comes to tech innovation, and it’s because American antitrust law has been focused on consumer welfare as the standard for intervention, and not size. We shouldn’t listen to the European siren song and cut off at the knees our high-tech industry.
Risk-Taking and Human Flourishing
Another reason—and a more important reason—to preserve market principles with little antitrust regulation is that of human flourishing. We are made in God’s image, made to be creators and innovators, just as He is. Creating is good for us, not just because it prospers us financially but because we prosper spiritually. Think of the joy you’ve experienced from making something. I know that I’ll re-read some of my better writing many times, enjoying my creation. That’s not vanity, it’s joy. It’s good for us. Remove the reward from invention, and you’ll also sap the human spirit.
In the Soviet Union, inventors were paid 10 Rubles for whatever they invented, no matter whether it was a rocket ship or a new paperclip. Talk about removing the incentive to invent! Startups demand more time, money, and perspiration than an established business, and most of them will fail in the end. To incentivize such costly risk-taking, there needs to be a healthy reward awaiting those few successful businesses. When the lottery jackpot grows, ticket sales soar. Make it harder for a startup to have a successful exit, and you’ll see fewer startups ever begin. That’s good for no one.
Jesus told the Parable of the Talents about all the gifts God has given us to steward, including our money. The principle of risk-taking and reward is very God-like. In Strong and Weak, Andy Crouch makes the case for risk-taking as essential to an abundant life. The temptation to play it safe often leads us away from the exhilarating plans God has for us. Big rewards for risk-taking encourage us to do the very things we were made to do. If antitrust regulators begin penalizing successful companies, we shouldn’t be surprised if few startups are hatched, and our economy will move in the direction of the former East Germany.
We are fallen creatures, as are our institutions, including business and government. Sin taints everything. There is an important role for government to play to ensure that marketplace competition is not corrupted by collusion, price-fixing, and cartels. Measured antitrust regulation is necessary and good when it preserves competition because competition drives us forward to risk and create and act, as God intended us to do.
But antitrust regulation must be tightly reined in to avoid becoming a willy-nilly government nanny interfering with the dynamism of the market and hampering innovation and growth. The temptation to use the antitrust cudgel to vent our anger at some large corporations will backfire, resulting in fewer jobs and a less competitive economy.