Antitrust 2: The Paradox How Robert Bork won the fight over the very meaning of competition in America, and paved the way for some of the biggest companies we've ever seen.
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Antitrust 2: The Paradox

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Antitrust 2: The Paradox

Antitrust 2: The Paradox

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KENNY MALONE, HOST:

This episode is Part 2 of what I, at least, am calling the antitrust trilogy. And so, Jacob Goldstein, I want you to imagine the words you are about to say...

JACOB GOLDSTEIN, HOST:

OK.

MALONE: ...As the text that crawls across the screen at the beginning of "Star Wars."

(SOUNDBITE OF ADAM SAUNDERS AND MARK COUSINS' "GALACTIC FORCE")

GOLDSTEIN: A little more than a hundred years ago, the U.S. government broke up the Standard Oil Company. That was this essential early moment when the government stepped into the free market because it thought a big company was doing things that were bad for competition. In the decades after that, the government got more and more aggressive. It intervened in the free market more and more until, eventually, there was a backlash. Today's episode is about that backlash and the man who made it happen.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED POLITICIAN: Ladies and gentlemen, it is my privilege tonight - my very great privilege - to introduce one of the great constitutionalists of our day, the Honorable Robert Bork.

MALONE: This is from a speech a judge named Robert Bork gave in 1987.

(SOUNDBITE OF ARCHIVED RECORDING)

ROBERT BORK: Thank you. Again, I was...

GOLDSTEIN: Bork's signature look was this sort of shaggy, 19th-century-style beard. And before we started working on these shows about antitrust, the thing that I knew about Robert Bork was that he was nominated to the Supreme Court and rejected because Democratic senators did not like his long history of very conservative opinions on subjects like abortion and civil rights. And when he died in 2012, that is the subject that his obituaries were all about.

MALONE: But there is something else about Bork that you don't hear as much about.

(SOUNDBITE OF ARCHIVED RECORDING)

BORK: These reflections are prompted by the history of antitrust law. When I first started at Yale, I really thought the situation of the law was hopeless.

GOLDSTEIN: Robert Bork completely transformed the way antitrust law works in this country. He changed the very definition of what's legal and illegal for big companies to do. I mean, he changed it so much, it is shocking it is still the same law.

MALONE: And it seems like even Bork was surprised by the impact he had.

(SOUNDBITE OF ARCHIVED RECORDING)

BORK: The fact is, I simply underestimated the power of ideas. Now, that's a very natural error for a professor.

(LAUGHTER)

BORK: If you sit in enough faculty meetings, you are very likely to underestimate the power of thought.

(LAUGHTER)

GOLDSTEIN: Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein.

MALONE: And I'm Kenny Malone. Today on the show, how Robert Bork won the fight over the very meaning of competition in America, and how he paved the way for some of the biggest, most powerful companies we've ever seen.

(SOUNDBITE OF MUSIC)

GOLDSTEIN: So let's talk about Bork. I mean, did you know him? Did you work with him?

ELEANOR FOX: Oh sure, I knew him well.

MALONE: This is Eleanor Fox. She's a professor at NYU, says her political views are significantly more liberal than Robert Bork's, opposite end of the spectrum.

GOLDSTEIN: What was he like?

FOX: Oh, lovely man - very, very nice, very cordial, very witty.

MALONE: Eleanor Fox started practicing law in 1962, right around the time Robert Bork started teaching at Yale.

GOLDSTEIN: And you found your way to antitrust, right? You became an antitrust...

FOX: Yeah, it found me.

GOLDSTEIN: (Laughter).

FOX: It found me. Luckily, it found me.

GOLDSTEIN: Why luckily?

FOX: Oh, 'cause I love it.

GOLDSTEIN: Why do you love antitrust?

FOX: Well, I loved David against Goliath.

GOLDSTEIN: In David against Goliath, which side did you root for?

FOX: Oh, David (laughter).

MALONE: David and Goliath - so take the classic example from the first episode of this series. Goliath was Standard Oil, the giant oil company controlled by one of the richest men in the world. David was the little startup refiners that Standard Oil bought or forced out of business in order to gain control of 90 percent of the refining business. We just did a whole show on that.

GOLDSTEIN: What was the antitrust worldview when you started practicing in the 1960s?

FOX: It was for the little guy without power. It was the suspicion that when big firms did anything that made life tough for competitors, that was probably illegal.

MALONE: And you can really see this in this moment, the 1960s. The Supreme Court kept pushing antitrust further and further, case by case.

GOLDSTEIN: There was a case in 1962, Brown Shoe Co. v. the United States - can a shoe company buy up a chain of shoe stores?

MALONE: Supreme Court was like, no. That shoe company would just kick the other shoe brands out of those chain stores. No, can't do it.

GOLDSTEIN: 1966, United States v. Von's Grocery - can two local grocery store chains merge in Los Angeles?

MALONE: I don't know, merger?

GOLDSTEIN: OK, but after the merger, they'd only have 7.5 percent of the local market.

MALONE: Supreme Court was like, no. No, you can't do it. It would be too hard on mom-and-pop shops.

GOLDSTEIN: OK, 1967, Utah Pie v. Continental Baking - can big national frozen pie companies sell really cheap pies in Utah and make business tough for a local pie company?

MALONE: No way.

GOLDSTEIN: OK, but what if the local pie company controls most of the local market and keeps making a profit through most of the price war?

MALONE: Still no, nope.

GOLDSTEIN: So in case after case, the court kept ruling for the little guy, kept ruling for team David, and expanding the definition of what was illegal, what was bad for competition.

FOX: So there was a kind of joke at the time that the Supreme Court was like the little boy who thought he knew how to spell banana, but didn't know when to stop. But what I want to...

GOLDSTEIN: Wait, what? Wait, wait, wait. Tell me more about that joke.

MALONE: (Laughter)

FOX: Yeah, so there's a B-A-N-A-N-A-N - the little boy, he was trying to spell banana...

GOLDSTEIN: OK.

FOX: ...But didn't know where to stop, so he kept going - ana-ana-ana-ana-ana (ph).

GOLDSTEIN: Kenny, I had to get her to explain this to me like three times, but finally I got it, right? She was saying that it was appropriate for the Supreme Court to find for David, to find for small businesses, in some cases - in a lot of cases. That's the banana - B-A-N-A-N-A. But the court didn't stop there. It kept intervening in cases when it probably should have just left the market alone. That's the N-A-N-A-N-A.

MALONE: And to be clear, for Eleanor Fox, the basic antitrust world view at the time was correct. It was just that the court went too far in a few cases.

GOLDSTEIN: But Robert Bork did not see it that way at all. He had gone to law school at the University of Chicago, where he was, like, profoundly influenced by this group of economists and lawyers who are arguing in a very broad way that, in general, the government was way too involved in the free market.

MALONE: When Bork applied this Chicago school logic to antitrust, he didn't see just a few weird Supreme Court decisions. Instead, he saw an entire worldview built on a fundamental misunderstanding of what competition meant and what the point of antitrust was supposed to be.

GOLDSTEIN: So he set out to destroy that worldview, to just reduce it to rubble and build a whole new world view in its place. He started writing and arguing. And in 1978, he published what was arguably the most important work on antitrust since Ida Tarbell took on John D. Rockefeller and Standard Oil.

MALONE: It was a book called "The Antitrust Paradox."

GOLDSTEIN: Do you remember when that book came out?

FOX: Yes.

GOLDSTEIN: Was it a big deal?

FOX: Yes.

MALONE: Did you see people reading it? Like, was it a - it have a moment? Would you be on the subway and you'd see...

GOLDSTEIN: Like Pokemon GO.

FOX: I was sure you were going to say the subway. No, I never saw anybody in the subway reading it.

MALONE: OK. So no one in the subway reading it, but were people like, hey, did you read "The Antitrust Paradox"?

FOX: Oh, no. You were assumed to have read "The Antitrust Paradox."

MALONE: Jacob and I both have copies of this book.

GOLDSTEIN: We both read it.

MALONE: And it's an important book that we're going to talk about for a little bit here.

GOLDSTEIN: Yeah. The book is like, really, the center of this show.

MALONE: Because in this book, Bork goes through those cases from the 1960s and many, many more cases and essentially says, if you look at these, you can see clearly - antitrust policy has gone way too far. So, for example, the Brown Shoe Co. decision - if a shoe company wants to buy a shoe store, fine. If the shoe company forces out other brands and then consumers want those other brands, they will go to another store. The shoe company will either start selling those other brands again or go out of business. Either way, the free market will sort it out. The government did not need to intervene.

GOLDSTEIN: And that Von's Grocery store case, that case where two stores wanted to merge into one, you know, he looks at that universe and he says yes, sometimes mergers are bad for competition. You know, if, say, two firms merge and get 100 percent of the market, that's clearly definitely bad.

And, in fact, you know, he steps back and he looks, and he finds this threshold that's way below that. He says it may be reasonable to block mergers where the new firm would have more than 40 percent of the market. But that Von's Grocery store case in LA, Von's would have had 7.5 percent of the Los Angeles grocery store market. He looks at that and he says, clearly that's not bad for competition. Clearly, we can let that happen.

MALONE: Also, that Utah Pie case where the company said it was the victim of a price war but kept selling pies at a profit, Bork looked back at that case and wrote, there is no economic theory worthy of the name that could find an injury to competition on the facts of the case. Defendants were convicted not of injuring competition but quite simply of competing.

GOLDSTEIN: Bork's big argument in the book was this - the point of antitrust is to encourage competition, everybody agrees. But encouraging competition doesn't mean protecting David against Goliath. You know, if Goliath comes along and makes a more pleasant grocery store or sells a cheaper frozen pie, then Goliath should win and David should lose. That is what competition means.

MALONE: The Supreme Court, in Bork's view, was not encouraging competition. It was protecting companies like the Utah Pie Co. that didn't want to compete. The court was using antitrust law to make competition itself illegal. That is the paradox. Antitrust, the law that is supposed to help competition, was actually harming competition.

GOLDSTEIN: And Bork in this book not only pointed out these problems, he also argued for a solution. The key, he said, was to stop focusing on competitors - on, you know, David and the other David and Goliath. Instead, Bork said, we should focus on protecting consumers.

So, you know, straight up price fixing, when a bunch of companies get together and decide not to compete on price, that is definitely bad for consumers. We should go after that. Also, you know, like those mergers, if a company buys up all the other companies in its business like Standard Oil did, also pretty clearly bad for consumers.

MALONE: But Bork looks back at lots of other things the court found illegal - price wars, manufacturers buying retailers, small mergers. And he says those are usually fine. If they lead to lower prices or better stuff, that's good for consumers, and if they don't, consumers will shop somewhere else. We can leave this to the free market.

GOLDSTEIN: You can almost boil the book down into this one sentence that's in the final chapter. It says, the only goal that should guide the interpretation of the antitrust laws is the welfare of consumers.

MALONE: Consumer welfare was this really pretty different goal for antitrust law. Bork was saying when a business wants to do something we're not so sure about, we've been focusing on how this will affect the other businesses. We should be focusing on how this will affect the consumer.

GOLDSTEIN: After the book came out, consumer welfare, it became this viral phrase among conservative antitrust nerds.

MALONE: Did you have a sense that it would be impactful when you read it?

FOX: I think yes, but I probably could not have imagined how impactful it would be.

GOLDSTEIN: Say more about that.

FOX: Oh, because it became the bible.

MALONE: In 1980, Ronald Reagan was elected president. He was very much onboard with this free market gospel, and his administration adopted new much more permissive, very Borky (ph) merger guidelines built around this idea of consumer welfare.

GOLDSTEIN: And the idea also transformed the way the Supreme Court itself thought about antitrust. The court cited "The Antitrust Paradox" the year after it came out. And then for decades, in one ruling after another, after another, the court started reversing its earlier antitrust decisions and using the consumer welfare standard to legalize more and more kinds of business practices.

There was an argument going on in the '70s and Bork won.

FOX: He won.

GOLDSTEIN: Are we still living in Bork's world?

FOX: Yes.

MALONE: This consumer welfare standard now defines antitrust law. You heard it just last year when another antitrust case came before the Supreme Court.

(SOUNDBITE OF ARCHIVED RECORDING)

JOHN G ROBERTS JR: We'll hear argument next in Case 16-1454, Ohio et al. v. American Express Company.

MALONE: American Express, in this case, was definitely the Goliath.

GOLDSTEIN: And one minute and 15 seconds into the oral arguments, Justice Neil Gorsuch broke in with a question.

(SOUNDBITE OF ARCHIVED RECORDING)

NEIL GORSUCH: We're not here to protect competitors, right, Mr. Murphy?

ERIC E MURPHY: Correct.

GORSUCH: Or necessarily even merchants. The antitrust laws are aimed at protecting consumers. You'd agree with that.

MURPHY: Correct, although in this...

GORSUCH: OK, so...

GOLDSTEIN: It was like the ghost of Robert Bork was sitting there, whispering in Justice Gorsuch's ear.

(SOUNDBITE OF ARCHIVED RECORDING)

GORSUCH: My question is, do you have any evidence that, on a net basis, consumers pay more? And I don't believe you have.

MALONE: The court found in favor of American Express.

GOLDSTEIN: Some antitrust cases are simple. You know, a bunch of companies collude to fix prices. That is obviously bad for competition, obviously bad for consumers. The government should definitely stop it, punish the companies, prevent it from happening. But there are lots and lots and lots of antitrust cases - say, when a manufacturer wants to buy a retailer or when a bunch of companies start engaging in a price war - when it is much harder to figure out whether the government should intervene.

And one of the really striking things is a lot of the time, the answer you get to is, basically, the result of where you start. If you start out thinking, you know, the free market mostly works. New competitors can come in and take business away from the big, established players - then you will usually want to let the free market sort it out.

But if you think the free market just doesn't work that well, if you think it's pretty easy for big companies to use their power to suppress competition, then you will think, yeah. In a lot of those sort of hard-call cases, the government should intervene in the free market in order to make free market competition work.

MALONE: Eleanor Fox says she thinks of the Bork revolution, the Chicago school revolution, in two parts. The first part was a useful corrective to some of the excesses of the '60s. It really did sharpen thinking about the economics of antitrust and what competition really means.

GOLDSTEIN: But there was also this second part, a part that was never explicit. But that second part, she says, was implicit in everything Robert Bork wrote.

FOX: The second part is about the presumptions that the market works really well, that government intervention is really bad, that government messes up when it comes in, that firms can take care of themselves and if they don't do right, the market will catch them. So that second part is the ideological part. The first part we needed badly and we got. And we adjusted to it. The second part we didn't need.

MALONE: Fox says that second part - the assumption that the free market is good, government intervention is bad - has pushed the government and the court too far in the other direction now. The government just doesn't bring antitrust cases as often as it used to. And when it does, it's like the banana joke is back. But instead of finding for David every time, now the court almost always rules in favor of Goliath.

GOLDSTEIN: As a result, in lots of industries - in food production and banking and airlines and on and on and on - a smaller number of firms is controlling a bigger and bigger share of the market. This tends to feel, you know, pretty abstract to us as consumers. But just in the past few years, and even, really, just in the past year, this issue has suddenly come to feel much more real, much more sort of visceral, much more urgent.

And this is largely because of the incredibly fast rise of a few gargantuan companies - basically, Google, Facebook and Amazon. The world Robert Bork created was the world that made it possible for those companies to get so big and so powerful so quickly.

(SOUNDBITE OF LEIGH MCALLISTER GRACIE'S "EDGE OF FEAR")

MALONE: Next time on PLANET MONEY, has the Bork revolution gone too far? And more to the point, what should we do about these giant tech companies?

(SOUNDBITE OF LEIGH MCALLISTER GRACIE'S "EDGE OF FEAR")

MALONE: We love to hear what you think about the show. You can email us - planetmoney@npr.org. We're also on Twitter and Instagram @planetmoney.

GOLDSTEIN: Our editor is Bryant Urstadt. Our supervising producer is Alex Goldmark. Today's show was produced by Sally Helm and Alexi Horowitz-Ghazi. Also, thanks to our intern, Rachel Cohn (ph). We are now accepting applications for a summer intern. You should apply if you're interested. You get to do lots of interesting things. You get paid. You can find out more about it at npr.org/money.

MALONE: The Robert Bork audio you heard at the beginning of the episode comes from a 1987 speech he gave to the Philadelphia Society. The Supreme Court tape you heard in this episode comes from the website oyez.org. I'm Kenny Malone.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.

(SOUNDBITE OF LEIGH MCALLISTER GRACIE'S "MAGIC VOYAGE")

MALONE: By the way, Jacob, I made something for you that I'd love for you to hear.

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

GWEN STEFANI: (Rapping) That's my [expletive], that's my [expletive]. Let me hear you say this [expletive] is bananas, B-A-N-A-N-A-S. This [expletive] is bananas, B-A-N-A-N-A-N-A...

GOLDSTEIN: Ugh.

MALONE: (Laughter).

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

STEFANI: (Rapping) ...N-A-N-A-N-A-N-A...

GOLDSTEIN: More.

MALONE: It goes on for seven minutes.

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

STEFANI: (Rapping) ...N-A-N-A-N-A...

GOLDSTEIN: I want to hear every N-A.

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

STEFANI: (Rapping) ...N-A-N-A-N-A...

MALONE: (Laughter)

GOLDSTEIN: More - S.

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

STEFANI: (Rapping) ...N-A-N-A-N-A...

GOLDSTEIN: S.

MALONE: No.

(SOUNDBITE OF SONG, "HOLLABACK GIRL")

STEFANI: (Rapping) ...N-A-N-A-N-A...

GOLDSTEIN: S. OK, now I'm out.

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