With major antitrust reform in the air, Brian Cheffins explores how and why a now highly controversial antitrust consensus that emerged under Ronald Reagan proved to be enduring but is now under serious threat.

Editor’s note: The current debate in economics seems to lack a historical perspective. To try to address this deficiency, we decided to launch a Sunday column on ProMarket focusing on the historical dimension of economic ideas. You can read all of the pieces in the series here.

Change is very much in the air in the world of American antitrust. Advocates of reform have drawn on history to help to make their case, maintaining matters went badly awry when a school of thought linked with the University of Chicago and the presidency of Ronald Reagan displaced a mid-20th century golden age of antitrust. As I argued in a previous ProMarket post, nostalgia for pre-Reagan antitrust is substantially misplaced, given that in the mid-twentieth century antitrust enforcement was uneven and oligopolies comprised of domestic firms featured prominently in corporate America.  

The antitrust “counter-revolution” linked to the Reagan administration evolved into what Lina Khan, a prominent advocate of antitrust reform and current chair of the Federal Trade Commission, has called “the relative stability of (an) antitrust consensus.” In a recent working paper, I explain why this happened. I also consider why the Reagan-era antitrust consensus is currently vulnerable to displacement. 

Many assume that antitrust “(e)nforcement ceased” under Reagan.  In fact, as law professor Daniel Crane noted, “(c)ontrary to popular wisdom, Reagan did not kill off antitrust enforcement.” Instead, as part of what Charles Rule, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division during the final years of the Reagan administration, called a “successful effort to refocus antitrust on purely economic concerns,” the Antitrust Division ditched the supposedly “know-nothing, attack-everything” antitrust policy that had prevailed previously. Reagan-era federal antitrust enforcers were, according to Rule, “exceedingly careful to ensure that we prosecute only conduct that is unambiguously anticompetitive and clearly illegal,” primarily horizontal restraints such as such as price-fixing, bid rigging and market allocation among competitors.

In a 1988 article entitled “The Reagan Revolution in Antitrust Won’t Fade Away,” Business Week made the case that it would not make much difference to antitrust policy if the Democrats or the Republicans won that year’s presidential election, saying of changes the Reagan administration made to antitrust, “The Reaganites have won the battle.”  This proved to be prescient. As the Wall Street Journal noted in 2019 when describing events “since the Reagan era,” “antitrust fights were mainly waged over a relatively narrow range of options, far from the broader political arena.”  Antitrust thus became a largely technocratic affair left to lawyers and economists thoroughly versed in antitrust nuance. And until recently, a change of approach seemed highly unlikely. As Khan noted in a 2020 piece, many commentators assumed “the end of antitrust history” had arrived.

The idea of an antitrust consensus operating uninterrupted from the Reagan era to the present day implies cross-party continuity with respect to federal enforcement. Some maintain post-Reagan Democratic presidents pursued antitrust with greater vigor than their Republican counterparts. For instance, in her 2021 book Antitrust: Taking on Monopoly Power from the Gilded Age to the Digital Age, Senator Amy Klobuchar (D-MN) writes that “During the Clinton administration there was an effort to reverse the lax antitrust enforcement of the Reagan and George H.W. Bush administrations (1981-89, 1989-93)” and “antitrust enforcement once again emerged as a priority during Barack Obama’s administration (2009-17).”  

Others disagree. In 2017, Khan wrote that “The Reagan-initiated antitrust counterrevolution—perpetuated by subsequent Republican administrations and never seriously questioned by Democratic ones—has permitted powerful firms across sectors to control markets.”  Similarly, in their 2018 book The Myth of Capitalism: Monopolies and the Death of Competition, Jonathan Tepper and Denise Hearn argued that “Since Reagan no president has enforced the spirit or letter of the Sherman and Clayton Acts” and said that with “George W. Bush and Barack Obama…there was absolutely no difference in policy when it came to monopolies and oligopolies.” Certainly, there was no full-scale reversal of the Reagan counter-revolution during the Clinton and Obama administrations. Bill Baer, who was in charge of antitrust enforcement at the FTC between 1995 and 1999 and at the Department of Justice between 2013 and 2016, said in 2017, “There was not a fundamental change in enforcement philosophy. For the past 20 years or so there has been a rough consensus among antitrust enforcers about what is problematic…”  

Journalist David Dayen claims post-Reagan antitrust “has brought us to a period of market concentration unrivaled since the Gilded Age.” Why did the supposedly disastrous antitrust consensus endure? The continued salience of three factors that fostered the initial antitrust counter-revolution—the rise of the Chicago School of antitrust, diminished faith in state regulation, and the rise of foreign competition—do much to explain its staying power. 

Thomas Kauper, a prominent antitrust expert and former Assistant Attorney General in charge of the Antitrust Division, said in a 2008 collection of essays on the Chicago School’s antitrust legacy that “Chicago’s influence is virtually conceded,” with most in the antitrust community identifying with “an antitrust policy based on ‘consumer welfare,’ a phrase…that has generally come to mean allocative and productive efficiency.” The Chicago School’s dominance of antitrust’s theoretical terrain was by no means complete, though.  Before the 1990s drew to a close, an antitrust “post-Chicago School” had gained considerable influence, including amongst government trustbusters. William Kovacic maintained in 2007, while serving as an FTC commissioner, that post-Chicago thinking envisaged “a broader zone for antitrust intervention” than the Chicago School. Still, as Timothy J. Muris and Jonathan E. Nuechterlein wrote in 2020 in the University of Chicago Law Review, the post-Chicago School had “far more in common with traditional Chicago School scholarship than with present-day populism” that underpins the current antitrust reform drive.

“The continued salience of three factors that fostered the initial antitrust counter-revolution—the rise of the Chicago School of antitrust, diminished faith in state regulation, and the rise of foreign competition—do much to explain its staying power.” 

The Reagan administration’s efforts to set aside a reputedly “know-nothing, attack-everything” antitrust policy were a logical by-product of Ronald Reagan winning decisive electoral victories in 1980 and 1984 as a critic of state intervention, following on from 1970s governmental travails such as Vietnam, Watergate, and mismanaged “stagflation.”  Continued doubts about the efficacy of government regulation helped to sustain the antitrust counter-revolution into the 21st century.  As George W. Bush’s presidential tenure drew to a close in 2008, the Wall Street Journal noted that “(t)he idea that less regulation is better for the economy has held sway in Washington since the Reagan administration.”  Barack Obama, for his part, declared in his 2013 State of the Union address that “(i)t is not a bigger government we need, but a smarter government.”  

Beginning in the 1970s, firms from Europe (primarily Germany) and Asia (typically Japan) put the American corporate elite on the back foot, with examples including the “Big Three” automakers (Chrysler, Ford and General Motors), their steel equivalents (Bethlehem, U.S. Steel and Republic) and consumer electronics powerhouse RCA.  The rise of foreign competition prompted, in turn, concerns that antitrust was playing a counterproductively outsized role in regulating American corporations. As J. Paul McGrath, then head of the Department of Justice’s Antitrust Division, said in 1984, “faced with increasing competition from abroad, the same public and (attorneys’) bar, joined by antitrust enforcers, started to ask hard questions….What should be the appropriate role of antitrust?”  Apprehension regarding foreign competition continued to feature in the 1990s and continued to sustain doubts about antitrust enforcement. In 1997, for instance, the Christian Science Monitor said of a giant merger wave the United States was experiencing, “Globalization of the US economy means more American companies face foreign as well as domestic rivals. Seeing the new competition, antitrust officials do not challenge as many mergers and acquisitions.”

From the 1970s through the 1990s, foreign competition fostered doubts about antitrust in large measure because formerly dominant domestic firms were coming out second best in an increasingly global marketplace. By the turn of the 21st century, large American corporations were often prevailing over foreign rivals.  American corporate success failed, however, to re-ignite support for antirust.  This, in large measure, was because robust domestically-based competition was thought to be a key corrective against excessive accumulation of market power. In 2006, Fortune was telling readers that “today’s world is a maelstrom of changing markets, technologies, customers, and products that are whirling so fast they just can’t be ordered in a manager’s mind” where companies would inevitably be “dying younger.”  A decade later, the Economist said a popular—if not necessarily correct— theory was that “business is more competitive than ever,” which translates into “a hyper-competitive world in which established giants are constantly being felled by the forces of disruption.”

With pressure from rivals apparently holding potentially dominant firms in check, antitrust seemed to be something of an anachronism. Forbes told readers, for instance, in 2011, “(t)he thought behind antitrust is that if a company gains dominance in a field it will keep that dominance forever, and do so at the expense of the consumer. Experience demonstrates just how preposterous this idea is…. Competition and far-reaching innovation always undercut any entity’s dominance.” It followed, according to Forbes, that antitrust should be consigned to the Smithsonian Museum.  

The fate of antitrust looks much different at present. According to Dayen, President Biden could well be charting a “transformational course with regard to antitrust” that could “prove to be one of the defining achievements of his tenure as president.” Khan’s appointment as chair of the FTC suggests as much, as does a 2022 declaration by Jonathan Kanter, current head of the Department of Justice’s Antitrust Division, that “we and our law enforcement partners are committed to using every tool available to promote competition.”

Why is this possible reinvention of antitrust happening now?  Economic studies by academics and the Obama administration’s Council of Economic Advisers indicating the market power of powerful American corporations had been on the increase have been influential. Evolving perceptions of government regulation and foreign competition have also played a role.  

Again, antipathy toward government intervention contributed to the durability of the Reagan-era antitrust counter-revolution.  Government got bigger in the 2000s but regulatory skepticism remained prevalent, with the proportion of Americans saying that they trusted the federal government to do what is right most or all of the time falling as low as 10 percent in 2011. By the late 2010s, however, polls indicated that a sizeable majority of voters wanted government to play a bigger role in American life, and by 2021 the proportion who said they trusted government had increased to 24 percent. The Biden administration has picked up on the cue.  According to one account of President Biden’s first joint address to Congress in “virtually every section of his speech there was an idea recasting the long-standing taboos of American political debate as virtuous opportunities for government reform.”  

Foreign competition is also perceived differently now in a manner relevant to antitrust. Though challenges from abroad in the 1970s and 1980s fostered misgivings about antitrust enforcement, over the past decade foreign firms that formerly piled into the United States have reputedly “lost their mojo.” An exception has been China, the growing strength of which would draw attention in the 2000s and 2010s in a manner akin to Japan in the 1980s. China and the US have, however, increasingly been going their own ways economically, thereby easing competitive pressure on large American companies.  

Changing public perceptions of major tech firms have become highly salient on the antitrust front as foreign challenges have receded. Through to the mid-2010s America’s tech companies were widely admired in the United States as international trend-setters. No more. As Tim Wu, now special assistant to the president for technology and competition policy, wrote in his 2018 book The Curse of Bigness: Antitrust in the New Gilded Age, giant American tech firms have been “creating a rather extreme version of global economic monopoly.” Correspondingly, “(i)n the new antitrust debate, Big Tech is the flashpoint.”  

The terms of debate regarding antitrust have been transformed recently, particularly under the tutelage of the Biden administration. What will the legacy be? Using history to make predictions is controversial. Nevertheless, with the variables that underpinned the post-Reagan antitrust consensus having been upended substantially, sustained change on the antitrust front appears likely at present.  

Learn more about our disclosure policy here.