Break ‘Em Up for Their Own Good : Antitrust: Compare the good fortunes of Standard Oil and AT&T; after their breakups to the slides of IBM and GM.
The headlines give us the bad news. IBM is cutting its work force by 25,000 people. How many careers will be disrupted? How many families thrown into turmoil as their main source of income is sharply reduced? And on a national level, what does this say about the future of our economy? Can we ever return to the days when our economic institutions flourished like nowhere else in the world?
These headlines have come in rapid succession. Just a short while ago, General Motors announced that it was closing a large number of plants and other facilities throughout the United States. More jobs were lost.
For those of us old enough to remember, GM and IBM were once the proudest symbols of American economic might. They were dominant firms in major industries whose presence and authority we could rely on. They produced and sold their products worldwide and symbolized the preeminent American standing in the world economy. We wonder if their troubled postures today symbolize as much.
And before GM there was U.S. Steel. When it was created in the days before the World War I, it was the greatest industrial enterprise in the world. At the start of the century, it accounted for about two-thirds of total U.S. production, but has declined to about 15%.
Was all of this inevitable, or could something have been done? The fortunes of these firms were left to the marketplace, but the results were hardly to our liking.
The stories of these three companies are sharply different from those of two others who also represented American industrial might--the Standard Oil Co. as it existed before World War I and the American Telephone and Telegraph Co. today.
The original Standard Oil Co. was John D. Rockefeller’s creation, organized to refine and market petroleum products from the oil that began flowing from northwestern Pennsylvania fields in 1859. By the 20th Century, Standard Oil accounted for nearly 90% of U.S. refining capacity. Likewise, in more recent years, AT&T;, or “Ma Bell,” was the dominant source of U.S. telephone and telecommunication services.
What was different about these two companies was that their fortunes were not left to the marketplace. In 1912, Standard Oil was broken up by the government and its stock divided among 33 successor corporations, including such modern giants as Exxon, Arco and Chevron. Although the aggregate market share of the Standard Oil successors fell to about 50% in 1920 and then to about 40% in 1940, it has remained fairly constant to the present. These successor firms continue to lead the petroleum industry throughout the world.
In October, 1982, under the impetus of government antitrust authorities, AT&T; was likewise dismembered. A pared-down AT&T; remained, along with the seven “Baby Bells,” whose shares were distributed to AT&T; stockholders. Between October, 1982, and October, 1992, the aggregate value of these shares increased over 2 1/2 times, or by $140 billion.
The contrast with IBM is striking. While AT&T; and the Baby Bells showed the decade’s largest gain in market values, IBM had the largest decline.
What stands out in these comparisons is that U.S. Steel, General Motors and IBM all escaped antitrust dissolution. In 1920, the Supreme Court ruled that U.S. Steel’s conduct had not monopolized the industry; political decisions were made in the 1950s and 1960s not to seek that remedy against GM, and the Justice Department dismissed its case against IBM on the same date in 1982 that it announced the AT&T; breakup.
Of course, we cannot say that these three giants would have escaped their disappointing futures if only they had been dismembered. At the same time, we are struck by the fact that those who lost in the antitrust courthouse prospered in the marketplace, while those who succeeded in the policy arena declined steadily and imposed considerable costs on our economy and citizenry. With this history in mind, it is surely time for a new approach toward dominant firms in major industries.