By Maria Buenano
America has a capitalist economic system, so free enterprise must be considered when addressing government regulation on business practices. Under free enterprise, businesses are held accountable by customers and business competitors to a greater extent than in other systems. This is important because it allows a business to build a solid reputation and a loyal customer base. When customers have the freedom to shop at competing businesses, the most trustworthy business tends to come out on top. Customers will not return to a business that does not follow through with its claims. If a company makes a dishonest claim and loses customers as a result of it, that company will have to change its ways in order to avoid going out of business. Because customers have the freedom to choose between competing companies, the companies are held accountable by both customers and competitors.
Despite this, competition will not solve all of the potential problems that may arise as a result of business exchanges, and a certain level of dishonesty and corruption are inevitable whenever human beings are involved in trade of any fashion due to the self-serving nature that human beings exhibit. However, human nature can be used to the advantage of the greater good when free exchange is relatively uninhibited within any market system. To a certain degree, competitors are successful because of their self-serving nature. Professor and author, Dr. Sylvester Petro, explains that “competition is not a mode of conduct that anyone has to promote institutionally. It develops naturally and necessarily among persons who are free to pursue their own interests. Whatever one’s personal interest or objective may be…the consequence of pursuing it puts him in competition with all who share that objective.” 2 By pursuing what interests them, individuals can create innovative and competitive products because they have more incentive to succeed by doing so honestly rather than dishonestly within a free market system. Free market competition increases the honesty produced between transactional parties while minimizing potential dishonesty proportionately within the given industry. With this in mind, antitrust regulations designed to maintain competition have been set in place with the intention of preventing dishonest business practices from escalating and potentially corrupting industries.
The federal government has set these specific regulations in place to prevent monopolies and boycotts that diminish competition and hinder companies’ accountability. These regulations fall under the jurisdictions of the Interstate Commerce Act of 1887, the Clayton Act, the Federal Trade Commission Act, the Robinson-Patman Act of 1936, and the Sherman Antitrust Act of 1890. “These laws are enforced in four ways: (1) by the US Department of Justice, Antitrust Division; (2) by the Federal Trade Commission; (3) by state attorneys general; and (4) by private litigants.” 1 These specific, basic regulations were put in place to reduce exploitation and dishonest business practices that solely hinder competition and are not maintained in order to limit free exchange nor reduce the amount of profit a business can take in.
Some regulations are important, but it is also important to note that too much government regulation hinders free enterprise in the most vital of ways; in order to address the limitation of government in free trade, several factors must be considered. What the government handles is very slow; meaning, the government should never be put in charge of time-sensitive decisions. Slow decision-making can make or break a particular exchange or practice for a company. The differences between a free market economy and a command economy are relevant and should be highlighted when addressing antitrust laws, because under a command economy the government controls the means of production and imposes severe regulations on businesses, leaving little to nothing intact of the privatized business sector. This not only limits innovation and slows market production considerably, but this also decreases trust between customers, businesses, and the government by removing the accountability of businesses because they are owned by the government and not by individual citizens. Minimal government intervention consistently breeds more honest practices within a system, regardless of whether or not that field is in business, education, medicine, etc. Another important factor in government regulation as it relates to trust is that the independent regulatory agencies put in place by the federal government in order to enforce regulations are supposed to be impartial; however, sometimes, this is not the case. It is common for the government and its agencies to be influenced by unions, pressure groups, and third parties. This can be a result of corruption, which trickles down from the levels of government where accountability is not stringent and can pose serious threats to free trade.
This relates to antitrust laws in the way that the “laws have been perverted from a supposed charter of economic liberty into a demagogic onslaught against large and successful business with a kind of vote-buying subsidy, not for small business, but for inefficient business.” 2 Problems have arisen in the realm of business mergers since the case of Northern Securities Company et al., Appts., v. the United States, where the Supreme Court ruled that companies competing for 26% or more of their business cannot merge as in violation of the Sherman Act. This escalated further regulations due to common law maintaining legal precedence for this 1903 case. One notable example is the Re Greene, 52 Fed. 104 case of 1930, where New York District Courts ruled that “monopolies are liable to be oppressive, and hence are deemed to be hostile to the public good. But combinations for a mutual advantage, which do not amount to a monopoly, but leave the field open to others, are within neither the reason nor the operation of the rule.” 4 This ruling determines that there is a set point at which a merger becomes problematic and prone to monopolization, leading to further government regulation and monitoring over where that point lies. This leaves room for a judgment call to be made on behalf of the regulators to provide a common political or ideological basis for the claim that a particular merger crossed the line of proper or legal business practice. A precedent example of court ruling prior to the Northern Securities Company case is the United States v. Joint Traffic Asso. 171 U. S. 505, 567, 43 L. ed. 259, 286, 19 Sup. Ct. Rep. 25 case of 1898 in which the Supreme Court determined that when addressing disputes regarding contracts and its restraint on free trade, “the only question is, Does the contract or combination itself, or do the things the parties contracted to do, restrain commerce? If they do, the parties are criminals, however good their motives. If they do not, the parties are innocent, however reprehensible their designs.” 4 This case adheres to common law as it pertains to the United States v. Trans-Missouri Freight Asso. 166 U. S. 290, 329, 41 L. ed. 1007, 1023, 17 Sup. Ct. Rep. 540 ruling in 1890 which stated that competition should be the deciding factor in price, not price-fixing as a result of cross-company agreements. The Supreme Court decisions prior to the Northern Securities Company v. the United States case ruled heavily in favor of competition and free trade, as opposed to after the 1903 case where courts began doubling down on exactly where the line between beneficial competition and corruptive monopolies truly lies.
There is much deliberation regarding the interpretation and application of such antitrust laws. Even the Department of Justice recognizes this conundrum, stating that “competition and consumers are best served if section 2 standards [under the Sherman Act] are sound, clear, objective, effective, and administrable. After more than a century of evolution, section 2 standards have not entirely achieved these goals, and there has been a vigorous debate about the proper standards for evaluating unilateral conduct under section 2.” 3
Much of the adulterated applications pertaining to antitrust laws may stem from an objective of making such laws about promoting and maintaining fair business practices, as opposed to maintaining competition as they were designed to do. Antitrust laws are not necessarily put in place to enforce fairness, but rather to maintain competition within a free market system, which one could argue may exasperate unfairness in some instances. If competition is the main purpose behind antitrust laws, fairness should not be considered a valuable motivation to drive future rulings in adherence to common law. Competition is what maintains trust between customers and businesses because competition is what holds each party accountable, not fairness. Competition holds businesses accountable to a greater degree than government regulation does. The federal government exists primarily to play the role of an umpire by ensuring competition is maintained. The problem with regulation lies in the lack of competition on the government level. Without accountability, the government entities can impose out of control regulations, and citizens suffer. This is why balance is important between regulation and liberty. Loopholes with previously initiated regulations are not an excuse to infringe upon necessary liberties. Loopholes will always exist, and it's important for companies who exploit loopholes to be held accountable; however, when government agencies increase regulations in order to prevent loopholes, it can create a slippery slope for all parties involved. It is more beneficial for free trade if the exceptions to the rule are not blanketed as a one-size-fits-all solution.
Because of private property and freedom of contract, arguably monumental hindrances on big businesses do not tear through the fabric of America’s free trade economy, but rather cause hiccups for businesses seeking to merge or set fixed prices, which are relatively common and innocent practices in the business field. “Not to promote and maintain competition, but to discourage the abler firms from operating to the limit of their abilities,” antitrust laws may have developed into a hindrance of what they were designed to accomplish. It is also pertinent to point out “the Fair Trade and the Robinson-Patman designs...handicap the larger more efficient merchandisers,” which limit the growth of big business in hopes of preventing large-scale mergers and monopolies. 2 This is arguably unjust in a number of ways because it is a legal action built on assumptions; however, considering antitrust laws under common law are not enforced the way they were designed to be in many cases, one could argue that free trade should be resilient enough to persevere despite such regulations. Dr. Sylvester Petro delineates this concept eloquently by stating, “Free trade policies are the most effective and successful of all possible antitrust actions. Free trade is the best kind of curb on all forms of government intervention…” 2
Overall, the best way to address unfair business practices is through free-market competition; however, this may not always be an end-all solution for every situation, which is why specific and limited government regulation is in place. It is important for citizens and businesses to hold the government and its agencies accountable so that excessive regulation does not destroy what makes the free enterprise system successful. Citizens legally have rights in order to prevent the government from overstepping its jurisdiction, and this includes the right to private property. The basis of free market ideals includes the notion that too much government intervention impedes economic growth and hinders innovation. The government’s involvement in a free market system through antitrust regulations was designed to allow individuals to get the most out of the economy by playing the role of an umpire when situations get out of hand. The handling of such regulations may have escalated past the point of umpiring and into the realm of limitation; however, there is much dispute over this idea, and it is debatable whether or not such limitation will have a long-lasting impact on free enterprise in American economics. Monopolies tend to be harmful for a number of reasons but cornering the market in a free enterprise economy is not necessarily one of them. Monopolies are detrimental to free trade when forced, generally through intense government regulation or federal incentives. Monopolies “originated in crown grants to certain people of exclusive privileges maintained by the force of government,” which resulted in the limitation of free trade due to the government’s involvement directly in affecting commerce. 2 Whether or not antitrust regulations do more harm than good is disputable; however, free market competition and the successes associated with its production and innovation should overcome minor regulations of this sort.
Maria Buenano has many passions aside from being a testament to American liberty. She is an entrepreneur and student who is studying Business and Organizational Leadership at Valencia College.