The Little Stick of Antitrust

By John S. DeMott

The Reaganauts cast a more favorable eye toward mergers

When the U.S. Government began bashing business monopolies, or near monopolies, around the turn of the century, the targets were big, bad and mean, and they existed in almost every basic industry. Standard Oil controlled 84% of U.S. oil marketing, competitors to American Tobacco were mere puffs of smoke and United States Steel was an incredible amalgam of 148 companies that dwarfed runners-up. Washington's vigorous trustbusters lashed out against a variety of anticompetitive practices: Hollywood studios' control of movie theaters, Eastman Kodak's grip on film processing and United Shoe Machinery's knot on shoe manufacturing equipment.

But in the past decade or so, the trustbusters seem to have run out of clearly evil dragons to slay. The fact that bigness is not necessarily bad also seems to be sinking in. Indeed, bigness can boost U.S. competitiveness abroad. Richard McLaren, chief of the Justice Department's antitrust division in the early Nixon years, is widely regarded as the last antitrust boss to do anything truly innovative; under Jimmy Carter, no new major antitrust cases were filed.

Now the early signs indicate that the Reagan Administration will continue the lassitude in antitrust action. During his confirmation hearing in March, Reagan Antitrust Chief William Baxter, a Stanford law professor, strongly hinted that he would not meddle in such deals as Standard Oil of California's $4 billion bid to buy Amax, a producer of molybdenum and specialty metals, Standard Oil of Ohio's decision to buy Kennecott Copper for $1.8 billion, or Arco's purchase in 1977 of the Anaconda Co. The mere mention of such mergers between natural-resource giants would have set an oldtime trust-buster's blood boiling, and even Baxter conceded that his agency would act if the combinations turned out to be blatantly anticompetitive. But then he softened his stance by saying that there would be no interference if the mergers were only "the efficient movement of funds from a cash-rich company to a company with serious investment needs." That is precisely the grounds for most recent energy mergers.

Baxter says that he intends to rewrite the antitrust division's 13-year-old guidelines on mergers in a way to permit more corporate couplings. He says he does not believe in putting more "weight in the saddlebags of the faster runners." In other areas, the Reaganauts seem to be giving the green light to practices that have previously been regarded as anticompetitive, or nearly so. One of the most important is that the U.S. may allow American companies to form joint ventures for doing international business. That would make U.S. firms more competitive with foreign enterprises, which have long been permitted to engage in such ventures.

The Reagan Administration, though, will continue fighting several big antitrust cases that have been pending for years. The case against International Business Machines has been droning on since the first papers were filed on the final working day of the Johnson Administration in January 1969. Last week, with IBM still preparing its surrebuttal to the Government's rebuttal, Baxter said: "I don't think it was well handled by the Government, or IBM, or the court. It's very troublesome."

Another blockbuster is the suit filed in 1974 against American Telephone and Telegraph, which, among other items, seeks to break off the Bell System's manufacturing arm, Western Electric, from the parent company. Baxter last week talked tough on that case. Said he: "I intend to litigate it to the eyeballs." However the Pentagon wants an end to the case; Defense Secretary Caspar Weinberger last month urged the Justice Department to drop the matter because of the company's critical role in military communications. Baxter refused but indicated that he would listen to Defense's arguments when it came to actually splitting up the giant company.

The clearest indication of where Reagan's antitrust policy is headed, though, lies not in the Justice Department but in the Federal Trade Commission. The FTC has been scorned in recent years for such silly actions as trying to regulate the content of cereal ads on Saturday morning TV cartoon shows for children. That and similar cases earned the agency the nickname "The Nation's Nanny." Baxter would like to strip the FTC of its antitrust functions, which overlap those of Justice, without any corresponding increase in Justice Department funding for antitrust work. Says he: "I see no reason to have two Treasury Departments, and no reason to have two antitrust enforcement agencies." Budget Director David Stockman advocated removing antitrust matters from the FTC's domain, but some key Congressmen demanded that the agency continue to work in that area.

Though the Reagan antitrusters will probably keep a sharp eye on price-fixing and so-called horizontal mergers between two companies in the same field, the trustbuster's role as a crusader against business now appears to be all but expired. Talleyrand's observation that "treason--it's a question of the times" applies in many ways to antitrust policy. Economist Lester C. Thurow of M.I.T., for example, criticizes the "futility and obsolescence of the antitrust laws." He and others argue that rules largely written nearly a century ago no longer apply to today's international business scene.

The primary rivals of such corporate goliaths as General Motors or IBM are now foreign companies, especially Japanese ones. The important competition in many markets is not among American firms, but between U.S. and foreign companies. Such actions as splitting off the Chevrolet division from General .Motors, which the FTC considered as recently as 1976, seem archaic at a time when many American industries are fighting for survival. --By John S. DeMott.

Reported by David Beckwith and Evan Thomas/Washington

With reporting by David Beckwith, Evan Thomas/Washington

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