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Time to Incorporate Competitiveness Into Anti-Trust

U.S. antirust doctrine and practice has long failed to consider issues of industrial competitiveness. The result has been a century of government-induced industrial failures. In America antitrust is conceived as oppositional: against market power. Antitrust enforcers have never seen their job as enabling U.S. enterprises (and by extension the U.S. economy) win the global competitiveness battle.  Their job was simple: chopping down firms that got too big and powerful.

Defenders will say antitrust is not against trusts (e.g., big firms); it’s for competition. But competition is not a goal; it is a means. If the goal is to reduce corporate power, then anti-trust is the tool of choice. But if the goal is economic growth, especially as we face great power competition with China, competition as the goal means U.S. global competitiveness is not.

In contrast, nations that see themselves in intense competition for global innovation advantage, like China, Japan, South Korea, have baked competitiveness into their antitrust regimes. Case in point: Japan’s competition authority is statutorily allowed to limit antitrust actions regarding monopoly if the action will make it difficult for the firm to maintain its international competitiveness.

But for much of the 20th century, because the U.S. economy was so dominant, policy makers ignored competitiveness. When the economy finally begun to succumb to foreign competition after the mid-1970s, competitiveness became for most policy makers a “dangerous obsession.” And today, for most progressives competitiveness is an irrelevant distraction from the paramount goals of social justice and reduced inequality; both of which they see advancing by taking the sledge hammer of antitrust to big companies. Besides, if we want better jobs and working conditions, progressives believe government can mandate them, or better yet, provide them itself.

The destruction wrought by this century-long rejection of competitiveness is long and sordid. Case in point, the telecom equipment industry. Despite being the global leader for all of the 20th century, today the U.S. is home to no domestic producers, and aggressive anti-trust enforcement ranks as a top culprit.

For over 60 years, the Justice Department did everything it could to weaken AT&T and its affiliates Western Electric and Bell Labs. In 1925 DOJ pressured Western Electric to divest its foreign assets, which eventually were owned by today’s foreign competitors. In the 1930s, it sought to break up AT&T. However, World War II stymied their efforts, as it was clear how important Western Electric and Bell Labs were to the war effort. But soon after, the Truman administration filed a second antitrust suit. Opposition by “Engine” Charlie Wilson, Secretary of Defense under President Eisenhower, led to a settlement. AT&T would restrict its business to regulated telecommunications but would license its portfolio of patents for free to any U.S. company and license any new patents for a reasonable royalty.

This meant that when Bell Lab scientists invented the transistor, they had to provide the technology to other firms. In many cases this helped domestic firms like Texas Instruments. But in many cases it give a critical leg up to U.S. competitors in Japan and Europe. These companies got access to the most important technology breakthrough in half a century, for a pittance. This was how Sony got the technology it used to ultimately destroy the U.S. consumer electronics industry.

As Mike Lind and I discuss in our book Big is Beautiful: Debunking the Myth of Small Business, DOJ and the Federal Trade Commission continued this campaign of attack. In the 1950s the United States was home to the world’s most innovative consumer electronics company: RCA. Because RCA had a dominant share in the emerging color television industry (achieved through superior innovation and production), the Justice Department forced RCA to provide its patent portfolio to U.S. competitors at no cost. Because RCA had long relied on licensing revenue, it was now essentially forced to license its technology to foreign firms, in this case predominantly to Japanese firms. Without DOJ’s criminal indictment, RCA would in all likelihood have survived as a global, leading TV producer.

Several decades later the Federal Trade Commission filed suit against Xerox, accusing it of monopolizing the office copier business, with the head of the FTC’s Bureau of Competition stating that he would be “dissatisfied if Xerox’s market share isn’t significantly diminished in several years.” And indeed, it was, but almost entirely to Japanese firms, because Xerox was forced to provide its Japanese competitors with drawings, specifications and blueprints for existing and subsequent machines, as well as an estimated 1,700 patents.

This kind of national industry policy in reverse – hobbling U.S. firms to help foreign ones in the pursuit of more competition – continues to this day. In 2016 the Federal Trade Commission required that the semiconductor maker NXP divest its radio frequency power business as a condition for its acquisition of U.S.-based Freescale Semiconductor Ltd. This opened up the business for acquisition by the Chinese Jianguang Asset Management Co. Ltd. (a company with the financial backing of the Chinese government). Just like that; critical U.S. technology capabilities went to China.

More recently, the FTC brought suit against U.S. semiconductor maker Qualcomm for alleged anti-competitive practices, and just like in the past, the judge ordered Qualcomm to license its technology to foreign companies, including unbelievably, Chinese behemoth Huawei. And with the exception of DOD, which weighed in against the decision on national security grounds, few seemed to notice the absurdity of a U.S. court mandating that one of the most innovative companies in America be forced to license its technology to a Chinese company that gained global market dominance through unfair Chinese government practices. Fortunately, logic prevailed, and the appeals court threw out the case.

The United States can no longer afford the luxury of having an antitrust policy that is divorced from industrial policy. History shows the absurdity of having a key component of the nation’s industrial policy carried out not by the Commerce Department or another agency tasked to promote long-term national competitiveness but by the Justice Department and the FTC, in adversarial settings dominated by lawyers and academic economists, on the basis of government litigation or threats of government litigation.

It is time for Congress to fix this by requiring DOJ and the FTC to take into account international competitiveness implications of any actions they bring. And to require them to actively consult with the White House National Economic Council, DOJ, and DOD. Before they take any major antitrust action against an U.S. firm in a traded sector (e.g., a sector that is exposed to global trade).

This doesn’t mean abandoning important antitrust goals, such as bringing action against anti-competitive corporate behavior, but it does mean bringing more balance to antitrust so that it no longer works at cross purposes with critical U.S. industrial policy goals.

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Rob Atkinson

Rob Atkinson is the founder and president of the Information Technology and Innovation Foundation.

@RobAtkinsonITIF