Capitalism, Democratic Capitalism, and the Pursuit of Antitrust Laws

• Published date: 01 December 2013
• Date: 01 December 2013
• DOI: 10.1177/0003603X1305800409
• Author: Raju Parakkal,Sherry Bartz-Marvez
• Subject Matter: Economics

THE ANTITRUST BU LL ET IN :Vol. 58, No. 4/Win ter 2013 :693

Capitalism, democratic capitalism,

and the pursuit of antitrust laws

BY RAJU PARAKKAL*AND SHERRY BARTZ -MARVEZ**

A major global policy development in the last few decades has been

the adop tion of national anti trust laws b y many developing and

transition countries. A primaril y American creation, antitrust laws

have n ow sprea d to near ly all co rners of the worl d. This s tudy

undertakes a political economy approach to understanding the global

ado ptio n of ant itru st law s. We focu s on the c ausa l connect ion

between a democratic form of capitalism and antitrust adoption. We

arg ue th at th e int era cti on of democracy w ith a p ure fo rm of

capitalism results in a political economy characterized as “democratic

capitalism.” On the basis of this understanding, we then develop a

theoretically grounded conceptual model and offer multiple testable

propositions. Our findings show that democratic capitalism, and not

capitalism in its pure form, was instrumental in countries adopting

nati onal an titru st laws. We attribute th is find ing to th e great er

“transactional congruity” that exists between democratic capitalism

and antitrust laws. We conclude by discussing the implications of this

finding for future antitrust adoption.

KEY WORDS:antitrust adoption, democratic capitalism, political economy

© 2013 by Federal Legal Publications, Inc.

* Assistant Professor ofInternational Relations, Philadelphia University.

** Visiting Assistant Professor, Department of Economics, University of

Miami.

AUTHORS’ NOTE: We thank Bill Curran for his very helpful feedback on earlier ver-

sions of this article. We also gratefully acknowledge the research assistance provided

by Luke Van Meter and Marisha Marsh, both students of Philadelphia University.

All remaining errors are ours.

I. INTRODUCTION

Antitrust laws have historically been associated with countries that

possess a free-market capitalist economy, which is understood as an

economic system in which competition and the market forces of

demand and supply determine economic outcomes. This historical

association between capitalism and antitrust laws is evident from the

fact that the countries that first adopted national antitrust laws, such

as Canada, the United States, and the countries of Western Europe,

are countries that have long embraced a market economy. On the con-

trary, the statist economies of the erstwhile Soviet bloc and many

developing countries, for the most part, did not institute antitrust

laws of the type associated with free market economies.

Notwithstanding these country examples, which indicate a posi-

tive association between a capitalist economic system and antitrust

laws, there exist arguments that both support and oppose antitrust

laws for a capitalist economy.Arguments in support of antitrust laws

for a capitalist economy begin with the fundamental understanding

that the most important ingredient of a capitalist system is market

competition. The presence of a competitive market is vital to achiev-

ing the efficiency levels that a capitalist economy seeks. Therefore,

competitive forces need to be protected to discipline the market play-

ers, especially the dominant ones. By preventing and punishing anti-

competitive practices by market players, an antitrust law protects and

promotes market competition.1

In the United States, which is commonly understood to be the

leading bastion of free-market capitalism and one of the first coun-

tries to enact an antitrust law, the role of antitrust legislation in pre-

serving the capitalist character of its economic system is underscored

by the near-constitutional status accorded to its antitrust statues by

the U.S. Supreme Court.2The Court described these statutes as “the

Magna Carta of free enterprise” and “as important to the preservation

of economic freedom and our free enterprise system as the Bill of

694 :THE AN TI TR US T BULLETIN:Vol. 58, No. 4/Winter 2013

1Mark Armstrong & David E. M. Sappington, Regulation, Competition,

and Liberalization, 44 J. ECON. LITERATURE 359 (2006).

2Jonathan B. Baker, The Case for Antitrust Enforcement, 17 J. ECON. PER-

SPECTIVES 27 (2003).

Rights is to the protection of our fundamental personal freedoms.”3

Such a sentiment is appropriate, given that the American antitrust

law, the ShermanAct, was passed in 1890 to protect economic compe-

tition from rapidly-growing “trusts.”4

While the social and political zeitgeist has changed considerably

since the passing of the Sherman Act, the fact remains that antitrust is

perceived as key to “protecting consumers against anticompetitive

conduct that raises prices, reduces output, and hinders innovation

and economic growth.”5Moreover, it is understood that “competition

is a public good, and society cannot expect the victims of anticompeti-

tive conduct to protect themselves.”6The implication therefore is that

government power, through the enforcement of antitrust statutes, is

critical to reining in corporate power in order to protect economic

competition and capitalism.

Taking a global perspective, the idea that antitrust laws serve as a

legislative bulwark against anticompetitive practices is not exclusive

to the regulatory environment of the United States. Many other coun-

tries have adopted antitrust laws for the same goal, among others.

And for the many developing and transition countries that adopted

antitrust laws in recent decades, these laws are viewed as tools to pro-

mote economic development as well.

The view that antitrust laws are required to protect and promote

competition has, however, been seriously contested, especially since

the publication in 1978 of The Antitrust Paradox: A Policy at War with

Itself by law professor and federal appellate court judge Robert Bork.7

The subtitle to Bork’s highly influential book sums up the critique

commonly leveled against antitrust laws: “[C]ertain of its doctrines

preserve competition, while others suppress it, resulting in a policy at

CA P I TA L I S M A N D ANT I T R U S T :695

3United States v.Topco Assoc., Inc., 405 U.S. 596, 610 (1972).

4Michael S. Lewis-Beck, Maintaining Economic Competition: The Causes

and Consequences of Antitrust, 41 J.P

OLITICS 169 (1979).

5Baker, supra note 2, at 27.

6Id.

7ROBERT BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF

(1978).