Viewpoints : Should We Ease Antitrust Laws?

A re U.S. antitrust laws obsolete?

There’s a move in Congress to repeal parts of federal antitrust law that prohibit large companies from producing goods jointly. The idea is that by acting together--particularly in risky ventures such as computer chips--U.S. companies would better compete globally. The proposed law would not only allow joint ventures but would also limit penalties for activities found to be anti-competitive by reducing damages that could be awarded to companies squeezed out of the market. The laws have already been modified somewhat: In 1984, the part of the law restricting joint research and development ventures was modified.

For a debate on easing antitrust laws, free-lance writer Sharon Bernstein interviewed former Assistant U.S. Atty. Gen. Paul McGrath, who directed the Justice Department’s antitrust division during the Reagan Administration’s first term and supports the changes. McGrath, now a partner in the New York law firm Dewey, Ballantine, Bushby, Palmer & Wood, represented U.S. Memories, the failed chip industry venture , in hearings before Congress.

For an opposing view, she also interviewed Michael E. Porter, a Harvard Business School professor whose book, “The Competitive Advantage of Nations,” analyzes antitrust issues with regard to global competition.

Should antitrust laws be modified to allow for joint manufacturing ventures?

McGrath: Yes, for two reasons. One, joint manufacturing ventures almost never raise antitrust problems. Historically, there’s almost no example of such a venture raising antitrust problems.

Two, in our very expensive, complicated world, such ventures can be critical to success in a number of fields. Take semiconductors. The interest of U.S. companies in manufacturing certain kinds of semiconductors has dwindled as the expense of building plants and the risk becomes greater. The risk is greater because of the short life cycle of these products.

Porter: Any joint production venture that has important benefits for competition is already perfectly acceptable under antitrust laws. Official relaxation would be counterproductive.

Smaller companies that have a modest share of an industry already have considerable flexibility to enter into joint agreements. They’re handled by the rule of reason (in the courts), and there’s been virtually no questions. What is needing antitrust scrutiny is joint ventures by industry leaders, and these are the ones that would be allowed under the proposed legislation.

If joint ventures are allowed, is anti-competitive activity a risk?

Porter: Yes. That’s the fundamental problem. Joint production ventures involving leading companies limit individual company investments in plants and in new-process technology, and reduce the pressure of competition which forces everybody to improve to maintain their position.

Joint production ventures are based on the idea that if you allow companies to do things jointly you eliminate overproduction and encourage economies of scale. What we learn from other countries whose operations are world class is that this is extremely rare. Joint production ventures threaten the health and vigor of competition. Although they may achieve some short-term efficiencies, they sap the dynamism of the industry as a whole.

McGrath: The kind of statute that has been proposed by the Administration would still subject a company to criminal prosecution if there was illegal price fixing or something of that sort.

Can those risks be guarded against? If so, how?

McGrath: The legislative history would spell out the kinds of situations you would worry about. For example, U.S. Memories would have involved a very small percentage of companies that were manufacturing the particular kind of product. In legislative history, you’d make it clear that where companies that have less than 30% of a market are putting together a joint venture, that almost is never going to cause a problem. You can define the safe harbors in terms of the percent of the market covered, whether there is ease of entry into the market and so on. That’s really where you get the protection. If the entry into the market or size of market indicates that there’s a problem, then the government can enter into it.

Porter: I don’t believe that there are any practical ways of guarding against the risk, and what is more significant is that there is no evidence that the supposed benefits of these ventures are significant in any industry. Let’s take the semiconductor industry. There’s a lot of discussion about how we need joint production in memory (computer chip) ventures. If you look at the semiconductor industry in Japan, you’ll find that there are 13 companies making memory chips. All of those companies are doing very well. So the idea that we need to have one plant in this country to make them doesn’t add up; it doesn’t fit the rules of logic.

How does the global nature of the marketplace play into the arguments for and against the modifications?

McGrath: It generally plays pretty directly into it. First, if you don’t take into account global markets, you’re going to overstate the hold on a market that U.S. companies have. If U.S. companies really only have a quarter of worldwide production of a product that in fact moves in international trade, they’re not going to be able to monopolize the market for the product. They don’t have enough of the market.

If we prevent U.S. companies from entering into joint ventures--saying that it will make them less competitive at home--the result is, we will actually hurt U.S. companies and hurt competition.

Porter: I don’t believe that companies compete against countries. That is a stylized view of international competition promoted by those who view Japan in particular as a tightly managed economy. But if we look closely at Japan, we see numerous companies that compete fiercely, that hate each other’s guts. And we see numerous examples where the Japanese government has asked companies to do things, and they say no. The Japanese government attempted to consolidate the auto industry, and the companies said no. If we look at the facts and try to understand where nations are winning, what we’re finding is that the key is having companies that compete.

And the notion that we should merge all our U.S. companies or have them all cooperate comes from a misguided idea of what makes for success. The most successful U.S. industries are the ones with the most competition: software, consumer packaged goods, business services, medical-related products and services.

Where should the United States be in 10 years in terms of antitrust regulation and joint ventures?

McGrath: U.S. companies all ought to have in their mind cooperative ventures in relation to more and more aspects of their business. Companies will be even more internationalized than they are today, and we’ll have more companies with production capacity in different parts of the world, capacity which they may own directly and may share with joint ventures. I think joint ventures will become more complex as research and development, and the tools of research and development, become more complex.

Porter: We’re now in a period where we’re questioning one of our most basic values, and that’s competition. If you look at antitrust, if you look at collaboration, if you look at trade policy, copyright law, in one area after another with very elaborate excuses we’re trying to make arguments as to why we shouldn’t compete anymore. What we’ve learned from industries all over the world is that this doesn’t work. It saps dynamism and it saps improvement.