ACCOMMODATING COMPETITION: HARMONIZING NATIONAL ECONOMIC COMMITMENTS.

• Author: Baker, Jonathan B.
• Position: Special Issue on Antitrust Law

TABLE OF CONTENTS INTRODUCTION 1151 I. THREE PUBLIC COMMITMENTS 1152 A. Private Economic Rights 1153 B. Competitive Markets 1154 C. Social Safety Net 1155 D. Commitments in Tension 1156 II. HARMONIZING COMPETITION WITH PRIVATE RIGHTS 1157 A. Munn 1158 B. Addyston Pipe 1161 III. HARMONIZING COMPETITION WITH THE SOCIAL SAFETY NET 1163 A. The New Deal-Era Constitutional Revolution 1164 B. Competition Policy as a Political Bargain 1166 IV. CONSTITUTIONALIZING COMPETITION? 1171 INTRODUCTION

At two critical moments, the United States worked out ways to harmonize a national commitment to protect and foster competitive markets with other deep public commitments affecting economic regulation. In the nineteenth century, the Supreme Court confronted the problem of whether a government that is required to protect contract and property rights could also act to prevent the exercise of market power. (1) Any restraint on a seller's ability to charge monopoly prices, after all, would necessarily limit its contractual freedom and constrain how it uses its private property. (2) Later, in the mid-twentieth century, the political system had to reconcile the important public role in assuring competitive markets with the government's ability to displace competition in order to protect the vulnerable. (3) This Article will examine those critical moments, with a focus on the way the legal and political system accommodated the competition norm.

The first of the three public commitments involving economic regulation, the protection of property and contract rights, is recognized in the Constitution. (4) The other two commitments, to assuring competitive markets and to preventing economic hardships to vulnerable market participants through social insurance and regulation, lack direct textual support in the Constitution. They nevertheless have become deeply entrenched norms of the type that William Eskridge and John Ferejohn refer to as "superstatutory." (5) Accordingly, the nineteenth century harmonization problem required the Supreme Court to construe the constitutional mandate for public protection of economic rights so that it would accommodate what was then an emerging norm of permitting governmental action to protect competition. (6) The twentieth century harmonization problem was worked out by the political system as a whole, not just the courts, after the Supreme Court accepted that economic rights did not prevent wide-ranging regulation and redistribution. (7)

One might think that the judiciary would resolve any conflict between a constitutionally recognized commitment and a subconstitutional commitment--the harmonization issue that arose during the nineteenth century--by allowing the former to trump the latter. (8) That did not happen. Rather, the commitment to competitive markets probably had more protection in the courts in the late nineteenth century than it does today, after the mid-twentieth century resolution of the conflict between subconstitutional commitments. (9) That is one reason why the public commitment to assuring competitive markets is now endangered. (10)

Part I of this Article sketches the three entrenched public commitments involving economic regulation. Parts II and III explain how the commitments were accepted and harmonized in the nineteenth and twentieth centuries. Part III also explains why the Constitution does not stand in the way of the erosion of competition commitment. Part IV concludes with a brief skeptical discussion of the possibility of constitutionalizing a commitment to competition.

1. THREE PUBLIC COMMITMENTS

   Three broad public commitments--entrenched norms accepted and enforced by public institutions--underlie the modern U.S. economy: (1) the protection of private economic rights to property and contract, (11) (2) the protection or fostering of competition among firms, (12) and (3) a social safety net to protect those vulnerable to hardship from market forces. (13) The first of these commitments has explicit constitutional protection. (14) The others can be understood today as supra-constitutional norms. (15) The three commitments will be sketched, but on the whole this Article will take them as given. The Article is concerned primarily with the way the competition commitment has been implemented and protected, not with the contours of the three commitments or how they were established.

   1. Private Economic Rights

      The Constitution recognizes protection of both contract and property rights as public commitments. The states may not impair the obligation of contracts. (16) The Fifth Amendment forbids the federal government from taking private property for public use without just compensation. (17) The Takings Clause was extended to the states by incorporation through the Due Process Clause of the Fourteenth Amendment. (18) During the late nineteenth century, the Supreme Court famously interpreted the latter provision to protect the "liberty of contract." (19)

   2. Competitive Markets

      The Supreme Court has frequently described the antitrust laws in near-constitutional terms. It has called the Sherman Antitrust Act, (20) the first and most important federal antitrust statute, "the Magna Carta of free enterprise," (21) and "a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade." (22) "The heart of our national economic policy," the Court has stated, "long has been faith in the value of competition." (23)

      During the nineteenth century, as detailed below, the Supreme Court construed economic rights to permit public protection of competition. (24) But competition was not fully established as an entrenched norm until the twentieth century. (25) Eskridge and Ferejohn view it as established not in 1890, when Congress passed the Sherman Act, but in 1914, with congressional passage of the Clayton Act on the heels of a presidential election fought over the economic role of large firms. (26) But the contours of the competition norm were strongly contested in domestic politics through the 1930s, (27) and the antitrust laws were effectively suspended for a time during the early New Deal. (28) For that reason, I view the public commitment to a competition norm as established later, during the 1940s. (29)

   3. Social Safety Net

      The federal programs we think of today as creating a social safety net were mainly established in their modern form during the New Deal, though they had Populist and Progressive predecessors, including in the states, and they have been augmented since the 1930s. These programs include government-run insurance (such as Social Security, Medicare, the Affordable Care Act, and unemployment insurance), direct governmental provision of services (including the welfare system and Head Start), and tax policy (including deductions for expenditures on child care, education, and job training). (30) The safety net also includes various regulatory programs offering protection against economic hardship to vulnerable groups, such as agricultural price supports, (31) minimum wage legislation, (32) and requirements that certain businesses provide service to all comers on nondiscriminatory terms. (33)

      Two decades after the enactment of Social Security, President Eisenhower--the leader of the political party that was home to many opponents of social insurance--recognized that social safety net programs had come to reflect an entrenched public norm. (34) In private correspondence with his brother, Eisenhower observed, "Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history." (35) The appropriate and constitutionally permissible extent of the safety net continues to be debated, as reflected in legal and political battles over the Affordable Care Act. (36) But as Eisenhower recognized sixty-five years ago, a substantial social safety net is now an accepted superstatutory norm.

   4. Commitments in Tension

      The three public commitments shaping the governmental role in economic life have an obvious potential for tension. A thoroughgoing effort to protect economic rights could insulate the exercise of market power from government intervention. For example, one might say it encroaches on property and contract if a firm is prevented from charging a monopoly price to a willing buyer, (37) or prevented from making exclusive agreements with suppliers or distributors that benefit both contracting parties but have the effect of limiting competition by excluding rivals from access to customers or the market. Thoroughgoing protection of economic rights could also inhibit the development of social insurance by precluding the progressive taxation required for redistribution, or by blocking other safety net programs on the argument that the public may not regulate in ways that restrict the way firms exercise their property rights. (38) One could also imagine the reverse, where an exclusive focus on protecting competition or implementing a strong social safety net would be said to undermine economic rights.

      The other pair of commitments, to competition and a social safety net, could also be in tension. Competition leads to losers as well as winners, while social insurance ameliorates losses. Hence a thoroughgoing commitment to protecting vulnerable farmers, workers, and families from the vagaries of the marketplace could lead to the adoption of policies that limit competition. Conversely, strong protections for competition, letting the chips fall as they may, would limit the tools available for strengthening the social safety net.

2. HARMONIZING COMPETITION WITH PRIVATE RIGHTS

   During the nineteenth century, the commitment to protection of private economic rights had to be harmonized with the emerging, but not fully established, commitment to competition (as well as with an early aspect of the safety net, the need for health...